At a recent event in Washington, SEC Commissioner Kara Stein provided her take on retirement readiness in the United States and what she thinks can be done to improve it.
In a conversation with the Brookings Institution, Stein painted a sobering picture. “Although everyone’s ideal retirement might look a bit different, we all share the desire to have financial security that will allow these dreams to come true. Unfortunately for many Americans, the ability to achieve financial security in retirement in increasingly tenuous,” she said.
“We’ve moved from a collective retirement system to one in which each person is expected to go it alone, Stein said. “About three out of every four adults in the United States lives in a household with at least one type of investment account and an overwhelming number of those investment accounts are retirement accounts. But unfortunately, most Americans are not and may never be prepared.”
Stein warned, “The retirement crisis is a tsunami that is rapidly approaching. We can already see it and indeed we are starting to feel its effects. Americans are having to work past traditional retirement ages and the number of bankruptcies for those over the age of 65 has increased dramatically. So the size and the speed of the tsunami is likely to increase as it gets closer and closer to us. Our population is aging and the cost of medical care, an important factor for retirees, is also increasing. We must address this problem before we’re collectively under water.”
But there are ways to arrest the wave, Stein suggested, saying that there are possible solutions to the retirement crisis. “They’re multi-faceted and involve many people and many government entities,” she told attendees.
“To have a safe and secure retirement, Americans must invest their savings to allow them to grow,” Stein said, noting that the SEC “can certainly help build financial capacity, an investing acumen. The commission already does a lot of work in this area but we need to do more.”
Stein also suggested that the SEC has a role to play in financial education. “The SEC should work with other agencies to create a model curriculum for schools,” she said, continuing, “We should sponsor contests similar to spelling bees for middle school and high school students about investing in their future. We can create an app that teaches kids and adults how to invest and we can work with private industry to have public service announcements on saving for retirement. This is the kind of thinking we need to engage in if we’re going to help prepare Americans for the task of investing for their own retirement.”
But financial education alone is insufficient, Stein said, adding that the SEC “must ensure that investors have the information and tools they need to make good decisions.” Part of this, she said, is to simplify the materials sent to investors so that they are more readily understandable. “If we can simplify food labels we can simplify investment disclosures. For instance, in the home mortgage area, a concise disclosure form has greatly increased consumers’ understanding of the details of their mortgages. Why shouldn’t we have a similar requirement for investments?”
Stein also called for periodic disclosures to plan participants concerning the value of their 401(k)s to also include information about how much income likely will be generated during retirement. “Such information would let an investor know if they are on track to meet the retirement goals,” she said.
Stein had further suggestions as well. “We as a nation should also reexamine other incentives for individual retirement security. For example, should employers receive tax incentives to increase saving and participation by their employees? If 75% of the company’s employees contribute an average of 5% to plans, should the employer receive a special tax rebate? Should individuals be allowed to deduct the cost of retirement advice? Should there be tax exemptions for pension refinancing bonds similar to municipal bonds? These are but a few of the ideas on how to use public policy to ‘incentify’ saving and investing. Let’s make it easier to Americans to prepare for retirement, not harder.” she said.
“After all,” Stein said, “it should not be easier to spend money than it is to save it.”