Retirement security ‘not just a savings question’: NIRS
Over 15% of older Americans will spend more than $250,000 on long-term services and support according to the US Department of Health and Human Services.
Lack of savings is a persistent obstacle to Americans’ retirement security, but a paper by the National Institute on Retirement Security points to costs as an underappreciated aspect of retirement security.
“Retirement security is not just a savings question, but a cost question as well,” the paper noted.
Related: Retirement preparedness plunges in older workers
More risk, rising costs and lower savings will make retirement security an issue for policymakers as well as individuals. NIRS illustrated the current situation retirees find themselves facing:
- Only 6.8% of current retirees draw income from private savings, pensions and Social Security.
- At age 65, women have a 50% chance of living an additional 23 years while men have the same chance of living another 20 years.
- Over 15% of older Americans will spend more than $250,000 on long-term services and support according to the US Department of Health and Human Services.
- Homeownership among older Americans has fallen since 2012, and is expected to continue. Meanwhile, the number of older Americans with mortgage debt is increasing, from 24% 30 years ago to 46%, according to Harvard’s Joint Center For Housing Studies.
Housing is an important factor in the cost equation, according to NIRS, because “fully owning a home with no housing dent also is a major cost saver and retirement.” Health care and long-term care costs are usually at the top of advisors’ lists when they talk to clients about the kinds of expenses they’ll have to plan for in retirement, but NIRS urges advisors to introduce housing to those conversations.
NIRS made four recommendations to help policymakers address these realities:
Build systems that focus on the tail risk of long-term service and support. People who spend more than six months under long-term care will have higher care expenses, but the number of individuals who will need that level of care is smaller than the general population.
Create tiered tax incentives for private retirement plans based on their quality. This could help drive adoption among participants, the paper theorizes.
Develop more attractive annuity options. NIRS argues existing regulations have been a double-edged sword for insurers, preventing them from “pricing themselves into failure during market turmoil,” but also blocking them from the benefits of more equity exposure. The paper also suggests using the Social Security system to sell annuities, allowing retirees to take their accumulated savings to buy an annuity to supplement their monthly benefit. “This would take advantage of the administratively efficient structure that already exists for distributing monthly Social Security benefits to tens of millions of retirees,“ according to the paper.
Expand Social Security. There are multiple paths to expanding Social Security benefits, according to the paper. Policymakers could increase benefits, plug holes in the current system, or establish caregiver credits for people who leave the workforce to provide care for someone. They also suggest spousal benefits need to be updated to “reflect the realities of 21st-century life.”
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