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NIRS Report: Rising Risks and Costs Threaten Americans’ Retirement Security

  • By: admin
  • On: 10/14/2020 09:59:52
  • In: News
  • Comments: 0

The hurdles to a secure retirement for Americans are becoming more daunting than ever as the shift from pensions to 401(k) pushes retirement risk onto workers' shoulders.

That is the key finding of a new study, The Growing Burden of Retirement: Rising Costs and More Risk Increase Uncertainty, published by the National Institute on Retirement Security (NIRS).


 

Report: Rising Risks and Costs Threaten Americans' Retirement Security

The hurdles to a secure retirement for Americans are becoming more daunting than ever as the shift from pensions to 401(k) pushes retirement risk onto workers' shoulders.

That is the key finding of a new study, The Growing Burden of Retirement: Rising Costs and More Risk Increase Uncertainty, published by the National Institute on Retirement Security (NIRS).

Rising costs of housing, health care and long-term care are major threats to financial security during retirement, the report found. At the same time, the shift from defined benefit to defined contribution plans means that risks are being “unpooled,” or transferred to individuals rather than spread out across a large group. This unpooling of risk is adding a new layer of volatility to the retirement equation.

Rules of thumb about how much Americans should aim to save for retirement are of limited value, because retirement planning is inherently unpredictable at the individual level, the report said. “No one knows how long they will live -- it could be five years or 25 years after retirement. Preparing for retirement across those two timespans is vastly different,” the report noted.

For example, how a future retiree answers the unknowable question of how long income will be needed in retirement, referred to as longevity risk, is a tremendous variable. Probabilities can be calculated, but they are more useful when assets are pooled than when an individual is managing his or her own retirement assets.

Unless the retirement infrastructure is rebuilt, older Americans may be forced to turn to their families or government programs to meet their most basic needs after they leave the workforce, the report said.  “These systemic problems will be unsurmountable for too many families,” said the report's co-author and NIRS executive director, Dan Doonan.

The report offers a roadmap to understanding the difficulties Americans face in achieving a financially secure retirement. Among the observations: Saving early and continuously during working years is easier said than done. Marking timing, interest rates, and longevity risk can derail carefully laid retirement plans. More Americans over 65 are carrying mortgage debt into retirement. Healthcare costs are rising for all Americans, and especially older Americans. And long-term care solutions are out of reach for many people.

The report identifies four public policies would improve retirement outcomes. They are: addressing long-term care costs, creating stronger tax provisions, improving lifetime benefit options, and expanding Social Security. It also highlight creative solutions, such as a program underway in Washington State to cover long-term care costs using a social insurance model, private sector efforts to create lifetime income options for retirees, and the push by states and municipalities to establish SecureChoice-style workplace retirement programs for employees who lack access to workplace plans.

 
 

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