Disrupted Retirement: Is the US Facing a Crisis?
On our latest “Talking Markets” podcast, we listen in on a panel of experts discussing the potential US retirement crisis and the fear factors surrounding retirement disruption. Drew Carrington, head of Defined Contribution at Franklin Templeton Investments is joined by Lori Lucas, president and CEO at the Employee Benefit Research Institute (EBRI), Ed Murphy, CEO and president, Empowers Retirement Business and Lew Minsky, president and CEO at Defined Contribution Institutional Investment Association.
Here are some highlights of the views of the speakers presented:
- Lori Lucas: A lot of good things happening in the employer-sponsored defined contribution system. I think we have to understand how well-loved 401(k)s are and how many people want to really preserve that system even though maybe we need to think differently about it.
- Drew Carrington: I think one of the potential crises in talking about retirement would be this notion of the emerging workforce in the US known as the “gig economy” that doesn’t have access to traditional benefits.
- Lew Minsky: I’m going to resist the term crisis, but we definitely have a puzzle that we need to solve and a part of it is just the framing around retirement. What we consider retirement is changing, what people need to ultimately secure is changing.
- Ed Murphy: We still have millions and millions of Americans that aren’t covered by workplace retirement plans. And we know if there is no access to workplace savings [through payroll deductions], most don’t save.
A full transcript of the podcast follows.
Host/Richard Banks: Hello and welcome to Talking Markets with Franklin Templeton Investments: exclusive and unique insights from Franklin Templeton. I’m your host, Richard Banks.
Ahead on this episode—an expert panel discusses the fear factors surrounding retirement disruption.
Our guest speakers on the panel are: Lori Lucas, president and CEO at the Employee Benefit Research Institute, Ed Murphy, CEO and president, Empowers Retirement Business (EBRI), and Lew Minsky, president and CEO at Defined Contribution Institutional Investment Association.
Leading the conversation is Franklin Templeton’s Drew Carrington. We hope you enjoy their conversation.
Drew: My opening question for the panel is, do we have a retirement crisis? If we do have a retirement crisis, is it a crisis of savings? Have we saved enough to finance these longer retirements? Is it a crisis of access or coverage or is it a crisis of measurement and we are not actually asking the question the right way?
So Lori, I’m going to start with you because you sit on top of a mountain of data at EBRI, so do we have a crisis?
Lori: Well, I think all three of the categories you stated are applicable, but I’ll start with measuring the crisis and what we find is that when you look at it from one perspective, it looks like there is a crisis and yet from another perspective it doesn’t.
So it’s really a “haves” versus “have-nots” kind of a scenario and we have a retirement security projection model at EBRI in which we projected out the likely outcomes for workers in general and specifically for those that have 401(k) plans and what we find is that across the US population, 43% are projected to run short in retirement, and that creates in excess of $4 trillion deficit in terms of what people need to have saved and have for retirement. But then if you look specifically at people that have employer-sponsored retirement plans, it’s a very different picture. And what we find is that some were one short in that scenario as well, but only 27% are projected to run short versus that 43% that don’t have the employer-sponsored retirement plans. So it’s a little bit of who you are looking at and how you are measuring it, but certainly it argues, it does argue strongly for some success what that we have seen in employer-sponsored retirement plans.
Drew: Ed, you want to…
Ed: Yeah, the term “crisis” gets used a lot. I mean, I would say that, you know, the retirement DC [defined contribution] system, the voluntary system is arguably one of the most successful public-private partnerships that we have in this country. It’s only 30 years old and we’ve got 94 million Americans, 75 million that are active in a plan. So, from that standpoint, I think it’s been a success. Where the challenges lie has to do with what Lori was saying, we still have millions and millions of Americans that aren’t covered by workplace savings. And we know if you don’t have access to workplace savings, you just flat out don’t save. And you look at people making $35,000-$40,000 a year, if they have access to workplace savings through payroll deductions, 75% of them save. Conversely, that group that doesn’t have access, 5% save. So, I think the access issue is a significant one. A lot of us are obviously working on that. I think it’s a combination of legislative and regulatory and private sector innovation that will begin to address that. So, I think that’s the primary challenge. I think the other thing is savings. We also know, we have done a number of studies that would suggest that people who save a rate of 10% or more irrespective of their income are on track to replace more than 100% of their pre-retirement income. We know it works. It’s just a question of getting people to adopt some of those best practices.