Are Individuals Taking Responsibility? Trends and Implications
by Dallas L. Salisbury
Recent decades have seen a dramatic increase in individual responsibility for retirement security. This article describes the trend toward increased retirement security risk shifting to individuals and provides an overview of key developments since 1974 that have affected it. The author contrasts the current trend with the historical intent of retirement security policy and draws implications about the likely future of shifting savings, investment and life expectancy risk to individuals.
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High-Age Implications of Postretirement Risks
by Anna M. Rappaport and Monica Dragut
The retirement world of the future is challenging because of the decline in defined benefit plans, low savings rates in the United States, increased longevity and the failure of many people to effectively plan for retirement. Drawing on a variety of studies and public opinion surveys, the authors of this article explain why a system that relies too much on people providing for themselves will have segments of the population who have inadequate retirement incomes due to a number of gaps, which pose the most risk at advanced ages. These gaps can occur because of difficulties in managing postretirement risk, acquiring inadequate savings in the first place and problematic public perceptions about retirement income risks.
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The Retirement Income Decisions: The Silent Generation Speaks
by Sandra Timmermann
Survey findings indicate that members of the Silent Generation—those born between 1933 and 1945, and perhaps the last ones to rely heavily on a defined benefit pension plan—feel confident that they will have enough money to live comfortably to at least the age of 85. Yet, many are at risk of outliving their retirement assets. They overestimate their Social Security payouts and the likelihood that they will work in retirement, and they underestimate their postretirement expenses, especially health care. Many lack safeguards against overspending and do not understand their longevity risk. The Silents' experiences in preparing for and living in retirement may offer some valuable lessons to be learned by the baby boomers and the generations that follow as they plan for a financially secure future.
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Individual Responsibility and the Imperfect Investor: The Need for Automating the 401(k) Plan
by Lori Lucas
As plan sponsors seek to shift more responsibility and ownership of retirement saving into the hands of employees, automated 401(k) plans accommodate the less-than-perfect investment behaviors that workers tend to exhibit. This article reviews the features of automated 401(k) plans; shows how those plans harness inertia through automatic enrollment; and describes research demonstrating automated 401(k) plans' effects on retirement income replacement rates, plan participation and investment behavior. Finally, it discusses the future of automated 401(k) plans in terms of existing employer concerns and future legislation.
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Is There A Future for Defined Benefit Pensions in the United States?
by Julia Coronado and Gary Hewitt
Many analysts are concluding that the defined benefit (DB) pension system is on its last legs. In fact, the authors of this article argue that companies offering only defined contribution (DC) retirement packages have become dissatisfied on a number of levels and, as a result, are trying to make their DC-only plans look more like DB pensions. After providing an overview of retirement plan trends and the current environment in which plan sponsors operate, the authors survey over 500 companies over the period from 2000 to 2005. They find that many of the plan sponsors are deciding to stay with, or even expand, their DB plans.
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The Importance of LTC Insurance for the Retirement Security of the Baby Boomers
by Janemarie Mulvey
Any discussion about the prospects of retirement security for the baby boomers must take into account the potentially devastating costs of future long-term care (LTC) services. Although the market for LTC insurance is growing, baby boomers' misperceptions about LTC persist, and the market for LTC insurance must be expanded. The author presents analysis showing that LTC insurance is affordable for the majority of workers, describes the current state of employer-sponsored LTC insurance benefits and outlines policies to encourage LTC insurance.
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Coordination Between Social Security and Defined Benefit Plans: How Might Social Security Reform Affect Defined Benefit Pensions?
by Leslie A. Muller
The effect of Social Security reform on defined benefit plans—whether or not they are explicitly integrated with Social Security—may depend on several factors. Although it is impossible to predict what kind of impact Social Security reform may have on integrated defined benefit plans, the author asserts that it is reasonable to think that the number of workers possibly affected is minimal and has decreased in the last decade. Rather, the future of integration most likely depends highly on the future of defined benefit plans in general.
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