Beyond the Fiduciary Rule: Workers not saving enough for retirement
New guidelines on fiduciary rights and responsibilities went into effect Friday, but the U.S. Department of Labor will continue to review the policy. That may put to rest for now an extended debate on the meaning of the term “fiduciary,” the responsibilities of investment professionals and the rights of consumers.
However, That need will remain an urgent matter in financial planning and retirement policy.
During my tenure as a university president, the retirement security of university employees was an important responsibility. Now, being semi-retired, I have a personal perspective on lifetime income options. My professional and personal perspective is framed by several facts that public policymakers and private sector benefits specialists will continue to confront every day.
Many Americans continue to make only incremental progress in adopting savings and investment behavior for their long-term needs. More urgent, immediate necessities, lifestyle choices, investment losses and existing debt all crowd out resources for saving. It is not as though people don’t appreciate the need for lifetime income planning. The latest Employee Benefit Research Institute’s annual survey shows most respondents know they will need at least $1 million. But many have only $25,000 saved!
This stubborn aspect of American personal finance has certainly not been helped by the disappearance of traditional pensions associated with what used to be long-term association with a single employer. People and companies come and go with astonishing frequency in the modern workplace, and employment turbulence is likely to increase for those following the Baby Boomers.
401(k) plans are often held up as today’s version of the old employer-offered pension option. However, some early champions of these plans recently told the Wall Street Journal that they are concerned with many workers’ having rosy expectations for market gains without the perceived need to plan for market downturns.
Exacerbating these realities is increased longevity. While all of us desire a longer life, a new imperative arises for planning that will provide lifetime income. The evidence is against Americans having done such careful planning. The American College of Financial Services recently found three in four respondents, aged 60-75, actually got an “F” when it comes to ways to make retirement savings last.
Of course, to have lifetime income, retirement savings must be substantial enough to begin with. Faculty, staff and administrators in the higher education field are fortunate to have options to maximize savings. For years, employees of colleges and universities had the option of 403(b) plans, giving them the opportunity to convert the contributions to an employer-sponsored plan into an annuity that could provide income for life, often at a comparable level.
The wider availability of this option for other workers could be helpful as the Baby Boom generation and its successors move into retirement with the hope and reasonable expectation of a long, happy retirement.
During my career as a faculty member and university president, I recognized the importance of offering a variety of retirement plan options to fit individual financial needs and varying levels of risk tolerance. Annuity products, like those offered to higher education employees by TIAA, for example, have been popular in higher education for years.
They are especially valuable for university employees who may move from one institution to another. For many of those who might spend many years in higher education, there are fewer opportunities to consult during retirement, like some professionals in finance, industry and other sectors. At the same time, many employees and their spouses have had other options as well, from IRAs to 401(k) plans to personal investments.
In fact, my wife and I have moved into semi-retirement with such a mix. And friends find themselves also similarly well-prepared for retirement. My professional and personal experience, in the context of today’s retirement savings realities, underscores the integral role annuities can play in prudent retirement planning.
In the course of implementing the fiduciary rule and considering subsequent adjustments in regulations and statutes in the coming years, policymakers must remain mindful that Americans need to save more and have options for stretching those savings out over many years of a lengthening lifetime.
Those of us who worked in higher education had access to viable savings options and reliable advice on annuities, consistent with our best interests. Current and future workers would benefit from annuities as well.
Larry Edward Penley, Ph.D., is president of Penley Consulting, LLC. Earlier, he served as president of the Thunderbird School of Global Management, president of Colorado State University and chancellor of the CSU System, and as Dean of Arizona State University’s W. P. Carey School of Business.
BY LARRY EDWARD PENLEY, OPINION CONTRIBUTOR to The Hill, article originally appeared on The Hill