How to Save America's Retirement Dream | Opinion

Americans used to have so much excitement about retirement. After decades of hard work, we imagined our golden years would be filled with travel and relaxation, or maybe even a home in a warmer climate. All of this would be supported by our savings, a pension and a little help from Social Security. There were so many possibilities ahead.

These are now stories of a bygone era. The notion of "how I will enjoy my retirement" has instead become "how will I support myself through retirement?" Most Americans retire today without enough savings to maintain their quality of life, and one in four Americans has nothing saved for retirement at all. They rely instead on Social Security, a program that was never intended to be the sole source of income.

America has been barreling toward a retirement crisis for decades. When pension plans were the norm, we retired from work, but not from the paycheck—the pension provided an income stream for life. But corporate America closed their pensions as the costs became harder to predict, and in some cases, threatened the survival of the business.

For many Americans, the 401(k) model doesn't really work as a replacement for a pension—we simply don't amass enough savings by the time we're ready to retire. And even a substantial "nest egg" is just not the same as a paycheck for the rest of your life. With a 401(k) plan, the burden is on retirees to figure out how to make their money last, and many end up hoarding their nest eggs because they worry about outliving their savings, or about having a health scare. As a result, even those retirees who save enough tend to have a lower quality of life in retirement.

It does not have to be this way. Improvements to 401(k) plans can increase savings rates and provide lifetime income without expecting companies to take on large pension-like obligations.

If you work in corporate America today, it's hit or miss whether you have access to an employer-sponsored retirement plan. Unlike health insurance, companies are not obligated to provide access to retirement plans. And whether or not employees participate in their retirement plans is also hit or miss. Those of us that work for companies that automatically enroll employees into their 401(k) plans are 20 times more likely to save for retirement than people working for companies without a plan. In fact, if uniform access and auto-enrollment became the norm, it could triple participation rates and double retirement savings across America.

A home office desk with a keyboard
A home office desk with a keyboard, a mouse and a laptop. AFP via Getty Images

We also need to help retirees access a lifetime income stream to improve their quality of life during retirement. Annuities are one of the best solutions to create a steady stream of income, but they are absent from most retirement plans. It's up to workers to decide whether to use their 401(k) for an annuity, and most don't. Having said that, it would help if the typical annuity was simpler and less expensive.

Congress is working to fix some of these shortcomings. A bi-partisan bill passed in 2019 that made it easier for Americans to save for retirement. And there is more legislation in motion that will make retirement plans with auto-enrollment and auto-escalation more available, and make it easier for plans to include annuities. These changes would improve the default model.

But relying on the government alone won't fix the retirement crisis. Corporate America and the investment community need to work together to create better retirement plans for American workers. We can use the existing 401(k) architecture, but with glide paths to help provide both an adequate nest egg at retirement, as well as access to a simple, inexpensive annuity to create a lifetime income stream. The retirement plan of the future will still look like a 401(k), but it should feel more like a pension.

American workers have proven, time and again, that they are the backbone of this country. Throughout the pandemic they kept hospitals, businesses and our communities running. As companies now look to improve their offerings to their workforce, retirement should be a central focus. Retirement security has long been touted as attracting teachers, police and firefighters to their professions. Why can't businesses follow suit? In an era when attracting and retaining talent is so important, but also so challenging, the companies with the best retirement benefits might also become the ones with the best talent.

The beauty of this arrangement is that it actually benefits companies as much as the retirees.

Zach Buchwald is head of BlackRock's institutional business for the U.S. and Canada.

Anne Ackerley is head of the retirement group at BlackRock.

The views expressed in this article are the writers' own.