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Robert Powell
Nov. 25, 2010, 12:17 p.m. EST
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Cut Social Security benefits? Yes, some say
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By Robert Powell, MarketWatch
BOSTON (MarketWatch) "” When it comes to retirement security in the U.S., there's no shortage of reasons to be unthankful.
Fewer Americans are retiring with traditional pensions. Half of working Americans don't have an employer-sponsored retirement plan. And the percentage of folks who are "very confident" about having the same standard of living in retirement as during their working years is roughly one in four. Read more: U.S. retirement system ranks 10th "” out of 14.
Then again, retirement experts say there's also plenty for which to be thankful. "The glass is half empty, but we can be thankful that it is also half full," said Chuck Yanikoski, president of Still River Retirement Planning Software Inc.
Compared with other developed countries, the ratio of workers to retirees is better in the U.S.
"Relative to Europe, there will be more young people in the U.S. to support each retiree in the decades ahead," said David Laibson, an economics professor at Harvard University. "In most European countries the birth rate is too low to sustain population growth, making it harder to pay for all of the retirement benefits promised to the large and growing pool of retirees."
Yes, there are concerns the U.S. Social Security system will go into the red in 2037, but at the moment and in the main, it's still a pretty good system, said Dallas Salisbury, president of the Employee Benefit Research Institute.
"We have a base Social Security program that provides retirement, survivor and disability benefits for those without other resources, and those with," he said. "And relative to most other developed nations in the world our program is largely solvent for the long term."
Others agreed. "The Social Security system, though not fully solvent for the long run, is still projected to be able to pay full benefits for a good long time, plus about 75% of full benefits for the indefinite future after that," Yanikoski said.
Yanikoski is also thankful that policymakers are at least thinking about the issue.
"Although there is no agreement how to further fix the finances of Social Security and Medicare, there is now a consensus that these issues need to be addressed, and addressed within the broader context of overall long-term fiscal responsibility at the national level," he said.
Others are thankful that Social Security's solvency issues are easy to fix. Read more: Cut Social Security benefits? Yes, some say.
"We should be thankful that the public leg of our retirement system, Social Security, is very fixable through common sense and uncommon political courage," said Robert L. Reynolds, president and chief executive officer of Putnam Investments.
In some countries, there's more dependency on government pension systems than personal savings. Not so in the U.S.
"We have a focus on employer and personal planning for retirement that goes back to the Civil War "” to the first profit-sharing plan early in the last century "” built upon over almost another 100 years, that represents the most extensive supplemental system of any developed nation in the world," said Salisbury.
When an increasing number of Americans must rely on their personal savings to fund retirement, there is evidence that many are setting aside funds and doing so in a seemingly prudent manner.
What's more, there's evidence that setting aside money consistently over a long period of time pays off. Read more: The 401(k) pays off for a lucky few.
"People are saving in defined-contribution plans and their assets are more diversified via target-date and other asset-allocation approaches," said Stacy L. Schaus, a senior vice president at PIMCO and author of "Designing Successful Target-Date Strategies for Defined Contribution Plans: Putting Participants on the Optimal Glide Path."
Much of what we have to be thankful for revolves around new 401(k) features, including automatic enrollment, matching contributions and investment advice.
"Today's retirement-savings vehicles look a lot different than they did a generation ago," said Democratic Sen. Herb Kohl of Wisconsin. Kohl is the chairman of the Special Committee on Aging.
Under recent pension laws, employers can automatically enroll their workers in a retirement plan and automatically increase the amount workers contribute, plus automatically rebalance the funds in those accounts. That's helped improve the retirement security of many Americans who might not otherwise be salting money away for retirement.
Said Kohl: "I'm thankful that the government is making it easier for businesses to automatically enroll their employees in savings plans with features such as escalating contribution rates and target-date funds that adjust by design, combined with options to opt out for those who want to create their own portfolio," he said "After all, a person should not have to be a financial-planning expert in order to plan for a secure retirement."
Robert Powell writes about retirement issues and produces the "Retirement Weekly" subscription newsletter.
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