Changing the conversation: How to solve the retirement crisis

Negotiations over the Build Back Better bill and Secure Act 2.0 have put a welcome spotlight on the challenges facing so many people in retirement. The retirement crisis must remain at the forefront of policymaking in order to provide valuable financial aid for those in need.

People are having the wrong conversations about retirement. It’s not about merely mandating participation in retirement plans, it is also about ensuring that people have the financial means to save in the first place. To fully address the concerns of Americans about the safety of retirement, dramatic measures are necessary to both build awareness about the importance of saving for longer-term financial needs and, importantly, provide the necessary incentives to do so.

According to a survey we conducted at CUNA Mutual Group over the summer, more than one-third of middle-class Americans fear they will never be able to retire comfortably – and another 25% express concern about outliving their retirement savings. This means most people are struggling to prepare for their future. I’ve been in the investment and retirement industry for thirty years. Through this work, I’ve seen firsthand that the middle class in particular is struggling to accumulate enough money during their working years to provide for themselves and their families in retirement. With uncertainty over the future of safety net programs and lifespans only getting longer, the pressure to save even more money to cover longer retirements will only increase.

While it is good that employees can take advantage of employer-sponsored retirement plans, having sufficient funds to invest in them is another piece of the puzzle. Financial insecurity generated by the pandemic has only made retirement saving decisions harder for people trying to juggle between planning for the future and making sure they can pay the bills day-to-day. More than half of American workers over age 40 have less than $50,000 saved for retirement, and the majority aren’t boosting savings to increase their nest eggs, according to a survey from the Insured Retirement Institute. During the pandemic, stimulus checks and money saved from not traveling and eating out allowed for a small spike in collective savings rates, but the number of job losses and other economic concerns plaguing the middle class had a far more detrimental effect on many Americans’ financial standing.

The solution lies in offering products and services that directly address a post-2008 and post-pandemic reality: consumers are skittish and risk-averse, and often focused on short-term financial needs versus longer-term planning. Most notably, according to a MagnifyMoney report, many Americans aren’t leveraging workplace retirement plans. Some 17% of those with access to employer accounts, such as 401(k) plans, don’t contribute.

Incentives like better match options, which encourage saving, instead of penalties like fines for not participating in a retirement plan, will be much more successful in encouraging people to save in the long run. These can include steps like those outlined in the Secure Act 2.0 that focus on increasing accessibility for retirement rather than proposals to mandate participation in a 401(k). Furthermore, the expansion of 401(k) eligibility, Roth matches and increased contribution limits will allow more people to save more money for their future. Moving forward, these types of policy changes will be much more successful at increasing retirement plan participation.

No matter where negotiations in Washington land on the Build Back Better legislation, finding a holistic solution to the retirement crisis that focuses on ensuring everyone has access to a brighter financial future must remain central to the conversation about post-pandemic recovery. Without the combination of both improved financial standing for the middle class as well as more readily available tools to help plan for and manage retirement, there will continue to be a wide gap in U.S. workers’ ability to plan for an uncertain future.

Paul Chong is Head of Investments and Retirement at Cuna Mutual Group.