Citing a study by befi researcher and Santa Clara business school professor Meir Statman, blogger Michael Kitces questions whether the problem with our current retirement policy is that we treat all savers the same regardless of income, savings and saving patterns. Instead, it is suggested that we should segment people (wealthy, poor and middle, further segmenting the middle) and provide different solutions for each group.
Though our current retirement policy is moving to so-called “libertarian paternalism” made famous by befi academics Thaler, Benartzi and Sunstein with their “nudge” philosophy, Statman goes further, proposing three types of solutions depending on the group:
• foundation or Social Security
• mandatory savings
• voluntary savings
The wealthy and upper middle class would not be affected since they are already saving enough, putting them above mandatory levels. The group most affected would be the lower middle class, who struggle to save because they don’t earn enough or they spend too much.
The study also suggests that different products make sense for different groups. For example, it is suggested that annuities make no sense for the wealthy or upper middle class, who don’t need them, or for lower income savers, who cannot afford them.
In a sense, Statman suggests a floor that mandatory savings would cover as more and more people come to rely on participant-directed retirement plans. Does that make sense to you?
Editor’s Note: Kitces is a featured speaker at the 2014 NTSA 403(b) Summit, June 22-24, in Washington DC.
