Retirement has changed as defined benefit plans die and defined contribution plans increase, leaving a good number of financially uneducated people in charge of their 'retirement planning.' (Photo: Shutterstock)
Changes in life expectancy, population growth and retirement savings vehicles are colliding to present a growing dilemma: how to prepare for a retirement that will accommodate longer lifespans, periods of poorer health and a population that is generally ill prepared to save enough for their own retirement.
Not just individuals, but governments and employers must act together as “social partners,” according to a new global retirement readiness survey from the Transamerica Center for Retirement Studies and the Aegon Center for Retirement and Longevity, “The New Social Contract: Empowering Individuals in a Transitioning World.”
According to the survey, changes such as the move from defined benefit plans to defined contribution plans are erasing “the long-standing social contract for retirement” as people are overall not up to the challenge of saving enough to see themselves through a longer retirement and at the same time face a longer period of “extra time” at the end of their careers that may be beset by ill health.
In addition, younger generations are smaller than the boomer generation now entering retirement in droves, so fewer contributions to the Social Security trust fund mean a shrinking safety net even as more people will be forced to rely on it.
According to the report, people not just in the U.S. but globally need a new “social contract” that will enable them to pass retirement in relative comfort and security.
It suggests nine “essential design features” that it says the new social contract must give attention to:
- sustainable Social Security benefits
- universal access to retirement savings arrangements
- automatic savings and other applications of behavioral economics
- guaranteed lifetime income solutions
- financial education and literacy
- lifelong learning
- longer working lives and flexible retirement
- accessible and affordable health care
- a positive view of aging; and an age-friendly world
The report doesn't address other issues: the failure of wages to keep up with expenses and the massive load of debt carried by everyone from students to seniors. No matter how well educated and well-intentioned people may be regarding the need to save for retirement, it's difficult to do so when there simply isn't enough money coming in to meet expenses.
In addition, the shift toward individual responsibility for retirement savings has taken place without sufficient preparation of those individuals to understand the process.
This is likely to continue as the social safety net comes under continued stress from governments anxious to cut expenses and employers happy to offload risk—notwithstanding the latter's efforts to institute workplace wellness programs.
The report points to the fact that transforming the retirement landscape will require some heavy lifting on the part of all involved if people are to live out their lives after work in relative comfort and dignity.
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Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
