Do we need another retirement scheme that fits somewhere between 401(k)s and Social Security? The answer is yes, according to Santa Clara professor Meir Statman. Too many people either don’t participate in or save enough in the “libertarian” 401(k) scheme, Statman, says, in part because of loopholes like plan loans and early withdrawals.
There are other models. For example:
• Australia’s plan requires employers and employees to contribute 9%, rising to 12% in 2019.
• The contribution level in the U.K.’s NEST program is currently 3%, rising to 8% in 2018, with 1% contributed by the government and 46 TDFs in one-year increments overseen by a government board that keep fees below 30 basis points.
Most plan advisors agree that something needs to be done to help people save more for retirement, but debate rages over the effects of moving from nudge to shove, or libertarianism to paternalism. Either way, if some people don’t save enough to retire, the burden will fall on those who have been prudent (who will be forced to pay higher taxes) and on future generations. Both burdens can stifle the economy — just look at what states are facing now with underfunded pension plans.
