Retirement Saving: Challenges but Good News Aplenty
Much has been written about the need to increase participants’ retirement savings during their accumulation phase and help them better prepare for the decumulation phase after retiring. A recent paper argues
that while there are challenges, the sky is far from falling — and in fact there is much good news.
In “What’s Happening with Retirement Saving and Retirement Incomes? Better Data Tell a Better Story,” Andrew G. Biggs, a resident scholar at the American Enterprise Institute, demonstrates the importance not only of raw data, but also of which data one uses in examining an issue and how complete that information is.
“Many of these proposals to change retirement policy are based on data that give an incomplete picture of current retirement saving trends, coupled with an outdated and often romantic view of how Americans saved for retirement in the past,” says Biggs.
For instance, Biggs disputes the accuracy of conventional wisdom that Americans do not participate in retirement plans, arguing that much of the data on which that notion is premised is based on self-reported survey results which he says “are often erroneous.” He also says that surveys show that vehicles such as 401(k) plans and IRAs generate little retirement income, but counters that tax data shows that such accounts generate “significant” retirement income that “has been rising over time.”
And there’s plenty of good news, Biggs observes. “More accurate data from administrative records show that more Americans are saving for retirement today than during the ‘golden age’ of traditional defined benefit pensions,” he asserts. He also says that administrative data shows that contributions to retirement plans have increased, and argues that they are “are substantially larger today than during the peak of defined benefit pensions.”
But Biggs does balance this glass-half-full perspective. “None of this should lead to complacency,” he cautions, adding that Social Security faces significant challenges that the government has “made little effort to address” and that “a significant number of working-age Americans” cannot save through their employers even though they would like to, because not every employer makes that possible.
Still, Biggs is optimistic. “These are not easy problems to solve,” he says, “but they also are not reasons to conclude that our current means of preparing for retirement cannot work. As we have seen, in most ways they are working and, at least on the private saving side, improving.”