Robert Reynolds' "vaccine against poverty" in retirement is a three-fold solution: access to a workplace retirement plan, participation in that plan, and commitment to a 10 percent or more deferral rate.
Reynolds, president and CEO of Putnam Investments, spoke Monday at the 4th annual Retirement Income Symposium in Boston.
According to a recent Putnam poll, Reynolds noted, there was a huge variance between the most- and worst-prepared savers. Those who are best prepared have been able to accumulate and replace 126 percent of their income by the time they hit retirement. The worst may, at best, replace 46 percent.
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And, as the research found, the best prepared had access to a workplace retirement plan.
With 7,000 baby boomers turning 65 each day, and lump-sum defined benefit plans becoming rare, more pre-retirees are destined to seek assured income sources, Reynolds highlighted throughout his keynote speech. This presents an opportunity for advisors and plan sponsors to provide guidance on lifetime income solutions. But, Reynolds concedes, there is no single solution to the retirement income challenge, and certainly policy change is needed.
This is where his concept of a national insurance charter comes in. His advice to Washington is to create yet another regulatory body, an oversight protection for lifetime income, which has become a scrupulous dream for so many. Reynolds would call it LISA: Lifetime Income Security Agency. It would be a risked-based insurance pool for " nationally approved lifetime income products."
Reynolds touts himself an optimist.Though the country faces an unprecedented debt, he sees solvency. However, newly proposed tax reforms to reduce the federal deficit are a misguided approach. Like others in the retirement plan industry, he begs lawmakers to overlook tax-sheltered plans as a resource to shore up funds. Retirement withdrawals are eventually taxed, therefore extracting revenue through tax reform and asking for taxes up-front doesn't make sense, especially as thousands American workers face challenges just to save.
As for annuities, the vehicles by which an income stream might be guaranteed, Reynolds says cost and innovation historically has obstructed their widespread embrace.
And what about the 3 percent? That pesky default deferral rate that takes hold and doesn't let go until the plan participant decides to increase the savings? Reynolds says it's way too low, and as more baby boomers retire without adequate funds, you might just see the average plan sponsor defaulting into a 10 percent deferral rate (though not likely without legislation).
It's an ideal rate, certainly one that could better prepare adults as they save for retirement. Though for a work force that can barely pay for rising health insurance rates, hiking up the default deferral rate might be a tall order.
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