Lawmakers concerned that Americans may outlive their savings are looking at ways to make the money last through retirement.
Workers who relied on traditional pensions are now trying to pay for retirement with their 401(k) savings, according to the Center for Retirement Research at Boston College. In 1983, 62 percent of workers had only company-funded pensions, while 12 percent had 401(k)s, the center said. In 2007, those numbers were 17 percent and 63 percent, respectively.
Most American households at or near retirement “are consumed by fear,” said Anthony Webb, associate director of research at the research nonprofit. “Instead of walking on the beach hand-in-hand in retirement, the reality is that they’re sitting around the kitchen table cutting coupons.”
Legislators and regulators are focusing on income guarantees such as annuities to supplement traditional retirement plans. Annuities are insurance products that can provide monthly income for life in exchange for upfront payments.
Workers underestimate how much money they’ll need in retirement and how long they’ll live, said Roger Ferguson, chief executive officer and president of TIAA-CREF, whose New York-based firm manages $426 billion of retirement funds for 3.7 million teachers and academic researchers. The life expectancy of a 65-year-old U.S. male is 82, and 85 for a 65-year-old female, according to the Social Security Administration.
“Nearly half, or 47 percent, of those on the verge of retirement are predicted to run out of money,” said Jack VanDerhei, research director for the Washington-based Employee Benefit Research Institute.
EBRI has a database of 24 million 401(k) participants and 20 million IRA accounts.
The average 401(k) account balance as of March 31 was $66,900, according to Boston-based Fidelity Investments, which has 11 million participants. The average monthly Social Security benefit as of April was $1,067.
A Senate Special Committee on Aging hearing this Wednesday on the issue follows a request for comment from the Labor and Treasury departments on retirement security, including annuities in plans, and whether regulators should require employers with 401(k)s to offer a lifetime income option or automatically enroll employees who don’t make a selection.
The agencies received more than 700 responses. It will likely take months to review them, and they may not lead to a regulatory recommendation, a labor department official said.
