Retirement should be the crowning achievement of our working lives – a chance to take on exciting new challenges, travel, enjoy family, and experience things we were too busy to make time for when we worked. But it is increasingly a source of anxiety for many older Americans. President Trump signed an Executive Order on Friday aimed at addressing that anxiety by expanding access to workplace retirement savings plans for American workers. Retirement plan legislation under consideration in Congress may also help expand the options for more secure retirement income.
A recent study found that “older Americans are increasingly likely to file for bankruptcy” as they face “inadequate incomes and unmanageable costs of healthcare.” Even among those who saved well for retirement, longer lifespans have become a game-changer, raising the risk of outliving their retirement savings. What’s more, market volatility presents a risk to the retirement nest eggs retirees have worked their entire careers to accumulate.
{mosads}It used to be that most retirees could plan on a steady stream of retirement income – in addition to their retirement savings – from a pension. But the number of these defined-benefit pension plans has declined dramatically: In the 30 years between 1975 and 2005, the number of private-sector workers with a defined-benefit pension plan dropped from 88 to 33 percent. This reality, combined with uncertainty around the future of Social Security, means that many Americans are retiring with less guaranteed income than ever before.
The result of these changes is what many pundits, politicians and industry experts alike are calling “a retirement crisis.” For the most part, the conversation has centered around a widespread understanding that many Americans do not have enough money saved. It’s a valid concern. According to Gallup data, nearly half – 46 percent – of Americans who haven’t yet retired don’t think they’ll have enough money saved when the time comes.
But even those who have saved for retirement face a broader issue: How can they be sure what they saved will last as long as they live? Too often, savings goals and calculations are unwisely based on average life expectancy – a milestone that, by definition, half the population will outlive. We do American workers a disservice when we encourage them to plan based solely on a savings goal. They should also plan with an understanding of how much income they will need each month to cover costs such as housing, food, and medical care – no matter how long they live.
Securing a reliable source of protected lifetime income for a portion of one’s retirement needs can contribute significantly to allaying Americans’ fears around retirement risks. AIG knows this through experience. Our retirement businesses collectively serve millions of Americans, helping them prepare for the retirement they deserve with access to protected income that cannot be outlived. And we think President Trump and Congress can help even more Americans have access to protected lifetime income in retirement.
President Trump’s Executive Order directs the Departments of Labor and Treasury to review ideas for expanding American workers’ access to retirement plans and update rules on required minimum distributions, efforts the White House says will strengthen savings in 401(k) plans and individual retirement accounts. Given the shifting retirement landscape, that review should also include a look at how to expand access to protected lifetime income.
Similar efforts are also underway in Congress, which is considering the bipartisan Retirement Enhancement and Savings Act (RESA). The legislation contains two important regulatory reforms that could encourage more employers to offer protected lifetime income options in their retirement plans.
The first would clarify and streamline the safe-harbor rules for employers to follow when evaluating the financial strength of insurers that provide protected lifetime income solutions through annuities. A recent American Benefits Council survey found 65 percent of plan sponsors that do not offer lifetime income options might consider them in the future. Sponsors’ biggest hesitation? Nearly 60 percent cited “potential fiduciary liability,” which this provision would address.
The second provision would establish a framework to make it easier for employers to change annuity providers, as well as to facilitate retirement income solutions that can be more portable for individuals when they move jobs or their retirement plan changes.
Both provisions are important considerations for employers, who must continually review the appropriateness of employee investment options. Together, they could provide more employees access to sources of guaranteed monthly retirement income for life — a critical component of a broader and more secure retirement strategy.
In addition, the RESA legislation would open new opportunities for smaller employers to band together in larger retirement plans, fostering access to broader retirement solutions.
We applaud the President and Congress for their focus on improving retirement policy. By embracing and championing proposals that improve access to retirement plans and recognize the vital role protected lifetime income has in creating a secure, fulfilling retirement, they will help American workers achieve the retirement they deserve.
Jana Greer is President and CEO of AIG’s Retirement business.