The United States is teetering on the cusp of a retirement crisis – and has been for some time. Following years of tax-and-spend policies that spurred runaway inflation and drove up costs of living for working-class families, millions of Americans now find themselves woefully off-course when it comes to retiring “on time” and being financially secure in their Golden Years.
Nearly two-thirds of Americans don’t believe it is possible to retire between the ages of 65 and 70., and more than four in ten say they expect to work until they die.
This isn’t a pervasive cynical outlook among Gen Z’ers, who have been told their coffee habits will impede their chances of buying a home, either. It’s Baby Boomers and Gen X’ers nearing the twilights of their careers. One in five adults over 50 has no retirement savings, and over 60 percent worry they won’t have enough money or assets to support their retirement.
The reality is that our retirement system isn’t working for ordinary, hardworking individuals and their families. Social Security iswearing at the seams, and 401(k)s – the traditional savings vehicle – are failing to produce the pension-level returns necessary to deliver the financial stability Americans need to navigate retirement, especially amid economic uncertainty and long-term affordability concerns.
Policymakers should be working to pull out the stops to allow individuals to take charge of their finances and better map their life plans. The goal shouldn’t be to build a bigger federal safety net; it should be a ladder that empowers individuals to confidently build their wealth and retire with dignity.
Historically, 401(k) plans have been prevented from including private market investments, like private equity, real estate, and private credit – even though these positions have consistently outperformed public markets and even major indices. As a result, average Americans miss out on higher returns, pigeonholed instead into lower-earning funds that bureaucrats deem to be a “safer bet.”
Not only is this arbitrary exclusion patronizing, but it’s misguided. Research shows that private assets in direct-contribution plans can boost retirement wealth by as much as 10 percent over time, and that alternative assets can boost a 401(k) holder’s retirement income by as much as $200 per month.
For a retiree on a fixed income, that can be the difference between the confidence that their retirement will last and the difficult decision to work longer or find a part-time job during retirement.
Risk-adjusted private market investments can offer portfolio diversity, helping hedge against market fluctuations. Not to mention, private equity has steadily yielded higher returns than public-market companies over the past decade. And because private market investments are generally not reported and traded daily, they are subject to less rollercoaster volatility than public positions.
Nor are today’s financial markets as vulnerable as in the past. State and federal laws have established intentionally rigorous reporting and transparency requirements—which better ensure that investors have visibility on their money and certainty that it is well managed.
President Trump understands the financial headwinds families are facing, which, for many, continues to put the American dream further and further out of reach. Last year, the President signed an executive order to democratize access to private market investments, which for too long were reserved for pension funds and institutional investors.
Predictably, some will question whether expanded access aligns with long-standing regulatory approaches. But with millions of Americans struggling to achieve their retirement goals, more can be done to codify the change into law.
President Ronald Reagan famously said that “status quo” is Latin for, “the mess we’re in.” I agree with him. We won’t solve America’s looming retirement crisis with more of the same failed policies that constrain and belittle hard-working individuals, while bestowing more control on high-minded regulators.
The free market has always been the great driver of efficient, consumer-driven solutions to our country’s needs – much better than the clumsy hand of Uncle Sam – and policymakers would be smart to embrace it, rather than stand its way, to modernize antiquated methods and expand investment access.
