We get blanket advice about preparing for retirement, but is that hurting more than helping?
Americans are often told not to touch their retirement savings until the future, but the government isn’t entirely sure how well they’re listening because there’s no solid data to show it.
The U.S. Government Accountability Office said this week it had trouble finding certain key statistics around retirement plans, such as why individuals take early withdrawals from their 401(k) plans and individual retirement accounts. The agency recommended the Department of Labor and Internal Revenue Service revise the tax form plan sponsors and financial firms use to report such information, which would help paint a picture for the state of retirement savings. “It just means it’s harder to target reforms or measure the effects of potential changes than if we had better statistics,” said David John, a senior strategic policy adviser at the AARP Public Policy Institute. “We have some information but we know that information is less than perfect.”
If there were more data around retirement savings, there could be more eloquent policy changes and precise financial planning advice for Americans, experts argued. Companies could help their employees balance saving for retirement, buying a home and paying off student debt. Lawmakers could see how much of a strain everyday expenses are having on a retiree’s budget, and where Social Security fits in. Financial services firms could give more targeted advice to various demographics across the country, some of whom may have higher costs of living than others but no way of knowing how best to contribute to a retirement account simultaneously. The GAO said accessing retirement assets too soon, whether by early withdrawal or a loan, could have an adverse effect on future savings, but there’s little understanding of why some may go that route — and thus, less ways for companies or financial institutions to help.
A steady stream of reports, studies and surveys come out nearly every week about retirement savings, most of which lay out the dire consequences of being unprepared for retirement. But consider this: when financial firms release studies about Americans’ retirement accounts, they’re typically only referring to their own clients; some surveys may not show a nationally-representative number of participants; and research could be focused on a very specific faction of the retirement landscape, which makes it difficult to compare to other findings and verify.
Experts offer Americans financial guidelines, based loosely on what we know about retirement savings (that they need more), but having a deeper understanding of where people stand, how many accounts they have, what debts they’re stressing out about, if they’re expecting any pension or Social Security benefits and their retirement trajectory would allow for more personalized advice. People don’t always perceive guidelines the same, said Meghan Murphy, vice president of Fidelity, the Boston-based financial services firm. When some readers read Fidelity’s benchmark goal of saving twice their salary by age 35 in a MarketWatch article, they were angry — a few millennials said it simply wasn’t possible given their current expenses, and were discouraged by the suggestion.
Having more data could let people see more clearly where they compare to others like them, and what they need to do to live comfortably in retirement. In the meantime, Americans can work with financial advisers to get more personalized recommendations or use retirement tools and calculators as a starting point for planning.
Many research groups do their best with what they have. Teresa Ghilarducci, an economist and director of the Schwartz Center for Economic Policy Analysis at The New School, said there isn’t very comprehensive regional data. The Census Bureau’s Survey of Income and Program Participation (SIPP) only records metro areas or states that have more than three million people. “It’s a shame we have no idea how retirement readiness differs by region,” she said. Having that information would allow organizations and policy makers to approach retirement planning differently in various parts of the country.
“There’s no truer picture of retirement readiness than looking at individuals,” Murphy said. Comparing average savings rates isn’t always helpful, as there are so many moving parts underneath the figures — such as gender, salaries, debt, household information and age. “If we compare the average savings rate for a man versus a woman, you can see men are saving more money, but when we look past those averages of men and women in the same income pools, we actually see women are saving more,” she said.
Researchers may also use differing definitions of a term. Take for example, the “retirement crisis” Americans are facing.
Experts and various studies point toward a shortfall in retirement assets for future retirees, but the country is nowhere near an actual crisis, said Andrew Biggs, a resident scholar studying Social Security reform and pensions at the American Enterprise Institute, a conservative think tank. Department of Labor and Federal Reserve data show retirement plan contributions are rising, more private sector workers are saving and that retirees aren’t running out of money, he said. “If you look up today’s retirees, they’re not in a crisis,” he said. (The Federal Reserve has its triennial Survey of Consumer Finances, which asks Americans about their household finances and retirement but is answered on a voluntary and self-discretionary basis).
Though there are near-term problems, he added, there always has been, as employees weren’t always protected with a pension. The number of 401(k) plans has grown dramatically since pensions first began declining, and with auto-enrollment features, target-date funds and lower costs associated with these investments, future retirees are poised to do and be well.
Many retirement researchers do believe Americans are in some sort of danger come retirement. There may not be comprehensive countrywide data available for various states, regions and type of retirement plan, but that numerous studies have concluded future retirees are in trouble says something, AARP’s John said.
Current retirees may have pensions to fall back on, but future retirees likely won’t have that benefit. Investors are also in a low-return environment, and the Social Security Administration expects to run out of reserves within 15 years, at which point retirees may see a cut benefit if Congress does nothing. “The macro trend doesn’t depend on whether you can say something has 90% accuracy or 98.99% accuracy,” John said. “Yes, we need better statistics, but it doesn’t imply in any sense of the word that we cannot use what we have current to see where a problem is developing.”
