Virtually everyone who looks at the numbers agrees that America faces a retirement crisis. Simply put, most Americans have not saved enough to generate the income they will need to support themselves for the many, many years when they are no longer working full time.
Consider the three conventional "legs" of the retirement income "stool" — savings, pensions and Social Security. While it's difficult to assess Americans' savings outside of qualified plans, the picture for qualified savings plans is not encouraging.
At Vanguard, the median 401(k) account value for an investor age 65 and older is just $58,035, while the median private pension is only $9,376 a year, according to the Pension Rights Center. (Government pensions are higher.)
Finally, the average Social Security check in 2018 was $1,422 a month, or $17,064 a year, which doesn't take into account deductions for Medicare coverage.
In sum, then, many Americans face a retirement in which their annual income is about $29,000, which may be adequate in lower-cost areas of the country and for those who have paid off their mortgages, but which represents a struggle for those in higher-cost areas.
To be sure, clients of financial advisers are more affluent than most Americans and tend to have much more in the way of financial assets, property and other forms of wealth. For them, retirement income planning is largely about optimizing decision-making.
For all too many Americans, however, retirement income planning is largely about hoping that an unexpected expense doesn't lead to financial disaster.
For that reason,
it's encouraging that state governments are attempting to create mandatory workplace retirement savings for less affluent workers and those who don't have access to a retirement plan. Critics, however, charge that the state efforts represent government overreach and are examples of excessive regulation.
In fact, that's the argument the Trump Administration made in a "statement of interest" it filed in a lawsuit that
aims to halt CalSavers, the California auto-IRA program, which began enrolling employees in July.
Other states, including Connecticut, Illinois, Maryland,
New Jersey and
Oregon, are rolling out their own mandatory programs, and the administration's filing is aimed at removing the mandatory provision of these programs. But advocates say that would make the programs ineffective.
Supporters of the state plans say they have been designed to be user-friendly and are not onerous for small businesses to implement or manage.
Under the California plan, for instance, owners of small businesses play a limited role in the overall operation and day-to-day maintenance of their plan, with no fiduciary responsibility, no plan fees to pay, no annual reporting and no real decisions to make other than registering for the plan, setting up the account and submitting participating employees' contributions via payroll deduction. If the business already offers a retirement savings plan, it need not sign up for CalSavers. What's more, participating employees can opt out at any time.
The "nudging" aspect of the state plans is based on the behavioral finance insight that people are less likely to participate in a savings or investment plan if they're given the choice to opt in. Even though they can always opt out, most who are automatically enrolled stay in the plan because after the first one or two payroll deductions, they become accustomed to their new net take-home pay.
If the courts were to agree with the Justice Department and the mandate were to disappear, a voluntary program likely would be subject to the provisions of the Employee Retirement Income Security Act of 1974. That probably would make the plans more complicated and expensive, discouraging their adoption, supporters of the program say.
Given the retirement income insecurity facing so many Americans, programs that enhance retirement saving should be encouraged, not assailed.
