NEW YORK – The recession has had at least had one upside: It's prompted Americans to save more.
The downturn also has given new life to efforts to help workers prepare better for retirement, according to panelists who appeared here at a forum organized by AXA Equitable Life Insurance Company, New York.
"The financial and economic crisis of the past year will result in significant regulatory reform," said Pamela Perun, a financial security policy director at the Aspen Institute, Washington. "We want to seize this moment to ensure that savings remains high on the reform agenda. This is a terrific time to ask for a better savings system from Washington."
The Aspen Institute wants the government to endow every child at birth with $500 in a child savings account.
Child savings accounts would encourage people to establish good savings habits at an early age, Perun said.
The Aspen Institute also has proposed establishing a "home account" system that would help individuals save for a down payment on a home; an "America's IRA" program aimed at Americans who do not have an employer-sponsored pension plan; and a "Security Plus Annuities" program, which would complement the Social Security program and offer an additional layer of guaranteed lifetime income.
"The way forward in the U.S. must begin with the recognition that we need a savings system that covers all of life–from birth to death," Perun said. "Our proposals are dynamic: People can, leave and reenter the system throughout their lives and be universally available on a wide scale. These proposals and others like them can help build a better savings system for America and put more Americans on the pathway to greater financial security."
The Aspen Institute initiatives are needed because the current system of employer-sponsored defined contribution plans is inadequate, Perun said.
Perun noted that 20% of Americans are not saving at all, and that 40% to 60% of the households that do save have little to no exposure to equities. Most of their financial assets are held in fixed-income assets–checking and savings accounts, certificates of deposit and saving bonds.
Americans who have not put any of their retirement assets in equities will not have assets with the necessary growth potential, Perun said.
Although employer-sponsored defined contribution plans play a critical role in "closing the gap in investor behavior," by providing equity exposure, many workers have no access to defined contribution plans, and others fail to save because they lack financial literacy, Perun said.
Dallas Salisbury, president of the Employee Benefit Research Institute, Washington, agreed that workers who get a late start with funding retirement plans likely will need to invest in stocks or mutual funds.
But individuals who begin saving early and invest consistently should manage adequately without investing in stocks and mutual funds, Salisbury said.
Salisbury noted that he and his wife have built a large nest egg–the funds will, at retirement, replace 100% of their pre-retirement income when supplemented by Social Security–by consistently investing 20% to 25% of their annual income in Treasuries.
