Fixing America’s broken retirement system won’t be simple, but we think our plan is straight-forward. To help you better understand our proposal, we’re highlighting the more nuanced tenets that have not been captured in the coverage of our plan.
1. Today’s retirement system is fundamentally broken and failing the average worker.
It’s critical to remember that the vast majority of Americans are unable to save enough to retire comfortably. Tools like 401(k)s provide inconsistent access and insufficient returns, leaving more and more Americans in precarious financial positions as they enter old age. The impact of this population will be felt around the country. We see rising rates of poverty in the elderly now, but this issue will only grow as younger generations grapple with high levels of debt and stagnating incomes. We need to act now and we need to think beyond our current set of tools to solve this crisis.
2. Better retirement tools will strengthen Social Security, not weaken it.
Social Security is a foundational right for all Americans. But even a fully funded program on its own is not enough to solve the issues we’re facing. Our plan is designed to work in concert with Social Security, strengthening retirement security for all Americans without impacting the deficit or raising taxes. By doing so, we’re able to avoid the political turmoil of Social Security while addressing a national crisis.
3. We’re simplifying retirement savings by offering greater control to workers.
Similar to healthcare, our plan is based on a mandate that all Americans but must save for retirement. However, we’re introducing a novel idea to retirement savings: choice. Individuals have lacked real options in today’s retirement marketplace. Under our plan, they will be able to select their own manager based on fees and investment performance. We’re envisioning a new, more competitive field of asset managers fighting for your business in a more transparent, competitive marketplace. Savings would be fully portable and transferable, allowing workers to shift to higher performing managers over the course of their career.
4. Managers are allowed to invest in strategies that will work harder for savers.
For savers to retire comfortably, their savings need to be invested more like pension funds and endowments. Today’s 401(k)s are constrained to invest in assets like stocks and bonds, none of which guarantee a return higher than 4% in the near future. In contrast, pension funds project a return of over 7%.
Source: Center for Retirement Research at Boston College (2015) “Investment Returns: Defined Benefit vs. Defined Contribution Plans.” National Association of State Retirement Administrators (2015) “Issue Brief: Public Pension Plan Investment Return Assumptions.”
By allowing this new class of managers to follow the same strategies that are used today by the majority of pension funds and other institutional investors, we can help workers achieve a significantly higher rate of return without adding unnecessary risk or volatility.