As the oldest baby boomers turn 65 this year, long-simmering questions among policymakers and (within our industry) advisors engaged in distribution planning now must be urgently addressed: Are the boomers prepared for retirement? And if not, what is to be done?
Recent research on the topic does not inspire great optimism. Take, for example, a December 2010 study of the Center for Retirement Research at Boston College. The report notes the percentages of late boomer (born 1946-1954) and early boomer (1955-1964) households that are "at risk" of being financially unprepared for retirement are 48% and 41%, respectively.
These numbers would be alarming enough if boomers–indeed, all working age Americans–had an employer-sponsored retirement plan. Problem is, many of them don't. Roughly half of U.S. workers are without a plan, either because they've opted out or, as is often the case, because their employer doesn't offer one.
Given the prospects of continuing cutbacks in existing plans–among small businesses that can no longer bear the fiduciary and administrative costs; and among states that now seek to reign in underfunded pension obligations for government employees–the percentage of at-risk workers could rise still higher.
Clearly, action is needed to close the retirement readiness gap. Judging from the collective assessment of a panel debate in New York City earlier this month hosted by Prudential Financial, steps in the right direction are being taken. The event, The 2011 Global Economic & Retirement Outlook, brought together 5 Prudential Financial executives and business reporters for a discussion about (among other topics) retirement preparedness.
Jamie Kalamarides, a vice president of retirement solutions for Prudential Retirement, said the outlook for "adequacy" (i.e., whether people are saving enough for retirement) is improving in the wake of the Pension Protection Act of 2006. The PPA, he noted, is encouraging "good investing behavior" among workers by permitting automatic enrollment/escalation and default investment alternatives in employer-sponsored defined contribution plans, most notably 401(k)s.
Kalamarides added that he expects the new 112th Congress to give a boost to 401(k) plans by passing a Lifetime Income Disclosure Act. Introduced by Senators Jeff Bingaman (D-NM), Johnny Isakson (R-GA), and Herb Kohl (D-WI) in December of 2009, the legislation aims to help Americans ensure they do not outlive their retirement savings by mandating the illustration of "lifetime equivalents"– the gap between current savings and future needs–on plan participants' statements.
