Americans’ Retirement Security: The Road Ahead

Originally posted on TIAA Linkedin 

This summer brought forecasts with worrying implications for the future of Americans’ financial security in retirement. The World Economic Forum estimated that the U.S. retirement savings gap will hit $137 trillion in 30 years, up from $28 trillion in 2015 – putting men at risk of outliving their personal savings by eight years and women by 11 years, on average. Meanwhile, the government projected that next year, Social Security will have to start drawing down its assets in order to pay promised benefits to retirees; if no action is taken to address the program’s fiscal challenges, its trust funds will be depleted in about 15 years, necessitating a 20 percent across-the-board cut in benefit checks.

Such predictions are cause for concern at a time when many Americans already lack confidence about their future financial security. In a recent TIAA survey, only three in 10 respondents said they were very confident that they will always feel financially secure, including during retirement. They cited a number of reasons for this unease: concerns about unexpected expenses, including a major medical expense; uncertainty about the future of Social Security and Medicare; and fears about a stock market dive or higher inflation.

More encouragingly, the survey pointed to specific ways to boost confidence, identifying practices that can help people feel more financially secure. They include some unsurprising examples – such as saving regularly and aggressively, understanding how to pay down debt, investing effectively, and planning for the long term – as well as one that may not be on everyone’s radar, but should be: having guaranteed lifetime income. More than four in five respondents with access to guaranteed lifetime income reported that it increases their financial confidence.

Guaranteed lifetime income is simply a dependable income stream in retirement that will never run out. Traditional pension plans can be a source of guaranteed income, although they have become somewhat rare in the private sector. Social Security is another type of guaranteed income, and it’s a vital one – providing one-third of all the income received by elderly Americans. Yet important as it is, Social Security benefits typically cover only 30 to 50 percent of one’s pre-retirement income. For most people, that won’t be enough, which is what makes annuities – another vehicle for guaranteed lifetime income – key in retirement planning.

Among economists, there is a consensus that annuities offer exceptional protection against one of Americans’ biggest concerns about retirement: that they will outlive their savings. Annuities provide the reassurance that one’s retirement funds will never run out. (Of course, it’s important to remember that some annuities are better than others. Carefully compare the costs and features before choosing an annuity.)

Efforts are underway to raise awareness about the importance of lifetime income in retirement planning – and to increase accessibility to annuities. A non-profit organization called the Alliance for Lifetime Income (which TIAA helped to found) is working to help Americans understand the benefits that annuities can offer as part of a well-diversified retirement portfolio. Meanwhile, a bipartisan group in Congress is aiming to strengthen America’s retirement system by passing the SECURE Act, which would, among other measures, expand access to annuities and help to focus the employer-based U.S. retirement system on guaranteed lifetime income.

As someone whose job involves helping people feel confident about their financial futures, I strongly urge the Senate to pass the SECURE Act. I also hope that Congress will take the actions needed to shore up the strength of Social Security, a bedrock of our U.S. retirement system. These two actions would go a long way to enhancing Americans’ financial security in retirement – and to ensuring that the recent predictions about what may lie ahead for retirees become failed forecasts rather than reality.

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