Use of Online Tools, Advice Boosts Savings

By Lee Barney, Sept. 26, 2016, editors@assetinternational.com

Mobile banking apps are the most commonly used online tool.  Investors who frequently use online tools and consult with a financial adviser have higher savings than those who do not, according to a survey by The PNC Financial Services Group, Inc.

The most digitally connected investors have the highest average household income and highest total investable assets. They spend an average of three hours and forty-two minutes a week reviewing their finances or looking up financial information on a computer or mobile device. Of the 45% of survey participants who say they are “very connected” to their finances, 50% look at financial headlines every day and 50% use a mobile application to access their accounts. More than one-third of these “very connected” investors would like even more information.

“The most digitally connected investors tend to be better informed, which contributes to their success and positions them well for the future,” says Rich Ramassini, director of strategy for PNC Investments. “For instance, they are more likely to know about the fiduciary standard for investment advisers, and are more likely to consult with an adviser who follows the standard. The information and advice they access should give them an advantage as they save and invest for retirement.”

The survey also found that 60% of the “very connected” investors rely on an adviser. Two-thirds of investors would like to hear from their financial advisers, particularly during an economic downturn.

“Making a change in a portfolio during periods of market volatility is the chief source of regret among investors,” Ramassinin says. “A financial adviser can be a steady hand in times of stress and help avoid panic selling or buying. When it comes to successful saving, information—particularly information gained through a combination of digital resources and expert advice—is powerful.

The most commonly used app is for mobile banking, which 58% of respondents have used in the past year. However, only 37% have used mobile apps to access their investment accounts, which indicates, PNC says, that firms could do more to promote these resources.

Artemis Strategy Group conducted the survey for PNC among 1,002 adults between the ages of 35 and 75 in May. Those age 45 or older had investable assets of $100,000 or more, and those between the ages of 35 and 44 had investable assets of $50,000 or more.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®


Are Clients In Denial About Retirement Readiness?

What Americans don’t know about their retirement needs could hurt them—but what they think they know could hurt them more, according to a new survey.

Almost two-thirds of Americans say they’re not concerned about running out of money in retirement, according to the 2016 TIAA Lifetime Income Survey.

The survey reflects a general optimism among U.S. households—65 percent of the respondents were unconcerned about a retirement shortfall—but TIAA’s chief income strategist, Diane Garnick,  says the results likely reflect a population in denial about their personal finances.

“That means that only 35 percent are concerned about running out of money in retirement, and we think those numbers should be completely opposite—two-thirds of us should be worried while one-third of us shouldn’t be,” Garnick says. “There’s a huge disconnect. Because we’re living longer and because the do-it-yourself saving strategy isn’t working like it was expected to, I think it’s more likely that 65 percent of Americans are living in denial.”

Still, most respondents, 58 percent, felt confident that they could successfully generate income from their savings during their retirement. Other survey responses suggest that these respondents are also in denial. Just 46 percent of respondents knew how much they have saved in their retirement accounts, and fewer, 35 percent, know how much income they’ll be able to generate each month in retirement.

“We kind of saw this at the end of the financial crisis in 2008, people were suffering from the five stages of economic grief and stage one was denial,” Garnick says. “How many people decided that they didn’t even want to open their retirement account statements anymore? They didn’t even want to know what the balance is.”

Americans seem to harbor mistaken assumptions about retirement, according to TIAA. Most of the survey’s respondents, 63 percent, assumed that they’re going to need less than 75 percent of their current income to live comfortably in retirement, yet TIAA claims that most experts believe that retirees will need to replace 70 to 100 percent of their retirement income.

“I think people are able to intellectually recognize that they have a personal retirement problem, but until they are able to emotionally acknowledge that this is a problem that needs an immediate fix, they’re able to remain in denial,” Garnick says. “People are naturally afraid of complexity, so they take mental shortcuts.”

When asked what they were looking for from a retirement plan, nearly half of the respondents, 49 percent, said lifetime income to cover their costs of living and another 24 percent said protection from market volatility.

TIAA also found a lack of awareness of annuities as products that could provide a retirement income stream. Just one-in-10 Americans have purchased an annuity, according to TIAA. Two-thirds of the survey respondents, 66 percent, say they are unfamiliar with annuities, and only 23 percent of the respondents said they have a favorable opinion of them.

That unawareness comes through when TIAA’s respondents were asked about where their retirement income would come from—annuities fell behind defined benefit plan payments, retirement account withdrawals and Social Security as a plan’s income source.

The survey was conducted by telephone among a random sample of 1,000 U.S. adults in June.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 


Majority of Today’s Retirees Have a Pension

By Lee Barney, September 26, 2016, editors@assetinternational.com

Eighty-one percent of today’s retirees receive some income from a pension plan. For 42% of these people, their pension provides half or more of their retirement income, according to a study by the Insured Retirement Institute (IRI). However, for those not yet retired, only 24% have a defined benefit (DB) plan.

IRI estimates that as many as 56 million Baby Boomers will not receive retirement income from a pension, and that future retirees will need upwards of $400,000 to make up for this income shortfall. “Replacing pensions and achieving financial security these plans provide to retirees will be a key issue for future generations,” says IRI President and CEO Cathy Weatherford. “As Baby Boomers retire in greater numbers over the next decade, and as Gen Xers begin to leave the workforce, financial professionals have an historic opportunity to help Americans create their own pensions, through Social Security optimization and the use of lifetime income strategies, to help their clients attain the same security, lifestyles, confidence and positive outlooks as the participants in this study.”

The study also discovered that nearly 60% of retirees have worked with a financial adviser, and 93% of these people say the advice they received has been effective. Seventy-two percent of retirees who own an annuity are satisfied with it. Retirees also face unexpected expenses; 40% have suffered a major health event, such as a heart attack or stroke, and 25% have faced a major non-medical event, such as a major home repair.

More than one-quarter, 27%, have relocated their primary residence in retirement, and of these people, 60% did so for lifestyle reasons, and 30% in order to lower their cost of living. While 67% of retirees think their chance of requiring long-term care is less than a 25% chance, the Department of Health and Human Services (HHS) believes that 70% of those turning 65 today will need such services. Sixty-percent think that Medicare will pay for their long-term care expenses.

Greenwald & Associates conducted the survey among 806 retirees between the ages of 65 and 80 who retired with at least $50,000 in investable assets and have been retired for at least five years.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®


What Millennials Are Doing Right, and Wrong—About Retirement

By Suzanne Woolley, June 29, 2016, Bloomberg.com

Millennials may be overly confident about their investing skills, but many are handling their 401(k)s with savvy, a new study by Wells Fargo Institutional Retirement & Trust suggests.

More than a quarter of younger workers—28 percent—have at least 10 percent deducted from their paychecks, according to the study. It analyzed the behavior of 4 million employees in the plans the company administers, from 2011 to 2016. Among the older generations, 35 percent of Gen X-ers and 44 percent of boomers were at the 10 percent contribution mark.

Boomers get their own shout-out. If you assume they are the ones earning $100,000 or more, which they likely are, they are the “most improved” group over the study’s five years among those who contribute at least 10 percent. There was a 15.3 percent increase among those making $100,000 or more hitting the 10 percent rate. At the same time, there is a lost opportunity for boomers. Just 7.7 percent of participants 50 and older make the additional $6,000 “catch-up contributions” allowed by the IRS.

Efforts to get employees to start saving earlier and a widespread trend to auto-enroll employees in retirement plans have helped put more people of all ages in the most popular default investments, target-date funds. These funds are widely diversified and automatically adjust asset allocations between stocks, bonds, and other assets based on a person’s age, leading up to a more conservative portfolio at retirement. The survey found that 85 percent of millennials use a managed investment such as a target-date fund, compared with 77 percent of Gen X-ers and 73 percent of boomers.

“We’re seeing the first generation that had the full, out-of-the-gate use of tools like auto-enrollment and target-date funds, and it’s really getting people into plans early and getting them diversified,” said Joseph Ready, head of Wells Fargo Institutional Retirement & Trust. “Whether they’re astute about the market or not, these things will help people take advantage of, hopefully, longer-term returns from the equity market over the next 35 to 40 years.”

When younger savers do fiddle with their 401(k) accounts, some of them are making smart tax moves. Sixteen percent of millennials elected to use a Roth 401(k), compared with 12 percent across all generations. Contributions that go into a Roth are after-tax, so starting one when you’re young and in a low tax bracket is a good strategy.

For all that, there’s room for improvement among millennials. If 28 percent are deferring at least 10 percent of their pay, seven out of 10 aren’t. Employers can help by automatically escalating employee contributions each year and doing so at a higher rate. Employers have been concerned about being too aggressive with this strategy, and those that do it typically increase the contribution rate by 1 percent annually.

Wells Fargo’s Ready urges employers that use auto escalation to bump employees up by 2 percent a year to get them up to that 10 percent savings goal faster. Wells Fargo data show that if employers bump the auto-increase rate from 1 percent to 2 percent, there’s no big difference in the rate of employees who opt out of the increase. And it makes a huge difference in how prepared they are to retire, Ready said.

Employees can take matters into their own hands, of course. Every time a raise or a promotion comes along, make it a point to increase your savings rate, whether through your 401(k) or in a separate savings account. That use of today’s rewards will yield a far more meaningful return tomorrow.

To Your Successful Retirement!

 Michael Ginsberg, JD, CFP®


5 Huge Roth IRA Advantages You Need to Know

By Motley Fool, June 3, 2016

Saving for retirement isn’t easy, but I probably don’t need to tell you that. We’ve been hearing it on a pretty consistent basis from every survey and study published by finance-based firms.

For example, according to GOBankingRates, a third of Americans have absolutely nothing in retirement savings, and another 23% have between $1 and $1,000. On the flipside, its survey showed that fewer than 1 in 5 Americans has in excess of $200,000 set aside for retirement.

A separate study conducted by the Insured Retirement Institute showed that a whopping 45% of baby boomers hadn’t yet begun saving, which is very scary given that their leverage to grow their nest eggs is substantially reduced by waiting.

And if you still don’t believe this data, all you have to do is look at the published personal savings rates in the U.S. from the St. Louis Federal Reserve for confirmation. As of May 2016, personal savings rates were just 5.3%. Comparatively, consumers in most developed nations save in the high single digits to mid-double digits.

Roth IRA advantages you need to know

But, arguably the greatest retirement tool available is within reach of nearly all Americans: the Roth IRA. Roth IRAs have inherent advantages that very well could help get Americans of all ages on the right track for retirement, assuming you fall under the income requirements that allow you to contribute. You can find these requirement on the IRS website, but the rough gist is that only about the top 10% of income earners will be excluded from opening or contributing to a Roth IRA — although upper-income earners are probably more likely to have saved a decent amount toward their retirement, anyway.

For the remainder of Americans who qualify, here are the five huge Roth IRA advantages you need to know.

1. Tax-free income in retirement

The clearest advantage of choosing a Roth IRA over any other retirement tool is that any investment gains within a Roth are completely free of taxation for the life of the account. Contributions to a Roth are based on after-tax dollars, meaning you’ll receive no upfront tax deductions for your contributions. By comparison, employer-sponsored 401(k)s and traditional IRAs require you to pay federal taxes once you begin making withdrawals during retirement. In return, these tax-deferred accounts allow you to invest with before-tax dollars, thus reducing your current-year tax liability.

However, the back-end benefits could be enormous with a Roth. Because of time and compounding, you could wind up saving yourself from having to pay five or six digits’ worth of cumulative taxes during your retirement. Furthermore, with a Roth you’ll have less chance of being hit with a Medicare premium surcharge or having your Social Security benefits taxed, since Roth IRA distributions don’t count toward your income. With life expectancies lengthening, and medical costs outpacing inflation and wage growth, being able to keep more of your income in retirement is important.

2. No minimum required distribution

Nearly as important as never having to pay tax on your Roth IRA distributions is the fact that Roth IRAs have no minimum withdrawal requirements once you reach retirement age.

For example, 401(k)s and traditional IRAs mandate that retirees begin making minimum withdrawals after age 70 1/2 (and remember, you’ll pay federal income tax on these withdrawals). A Roth IRA doesn’t require that you begin taking a minimum amount out at any age. In fact, if you’d like, you can allow your account to continue growing in value, thus taking the maximum advantage of the effects of time and compounding. You’ll remain in complete control of the distribution schedule with a Roth.

3. No age restrictions when contributing

A Roth IRA also provides advantages over the traditional IRA when it comes to contribution flexibility. With a Roth, workers and retirees can keep making contributions as long as they’d like. This means millennials, Gen Xers, baby boomers, and even current retirees could all open a Roth and contribute to it right now if they’d like (assuming they fall under the aforementioned income limits). In 2016, contribution limits were $5,500 for those age 49 and under, and $6,500 for persons age 50 and up.

On the other hand, Americans are required to stop making contributions to a traditional IRA in the year they turn 70 1/2. There are no age limits for contributing to a 401(k), but it does require seniors to remain employed in order to keep contributing.

Because people are living longer than ever, being able to contribute into your 70s could still net you, or your heirs, considerable wealth.

4. Access to your contributions

Additionally, Roth IRAs offer a lot of flexibility. Most retirement tools are pretty cut-and-dried when it comes to making contributions and taking distributions. If you take money before you reach the qualifying age, you’ll pay a penalty. Even the Roth IRA has a penalty in place for taking unqualified distributions early.

However, Roth IRAs also have a handful of exemptions that do allow you access to your money completely tax- and penalty-free. For instance, since your contributions to a Roth are in after-tax dollars, you can withdraw the amount you’ve contributed at any time completely penalty-free. This obviously isn’t a great idea given that you could be hampering your ability to grow your nest egg over time, but if you find yourself in a cash crunch, you always have access to the amount you’ve contributed to a Roth.

Other circumstances could also allow for penalty-free withdrawals before reaching age 59 1/2 (the qualifying age for Roth IRA withdrawals). For instance, paying back taxes, being disabled, or covering unreimbursed medical expenses that exceed 10% of your adjusted gross income (or 7.5% for people turning 65 or older in the 2016 tax year) allow for a penalty-free withdrawal.

5. Long-term mindset

Finally — and this isn’t necessarily a unique component of the Roth, but is a big reason why it’s such a great retirement tool — the Roth IRA has a five-year rule in place that encourages a long-term mindset among investors. The five-year rule mandates that five tax years must pass following a contribution before a qualified distribution can be made. This rule discourages account holders from diving in and out of their investments, which over time has proven not to be as successful as buying and holding quality investments over the long term.

If you need to get your retirement on track, arguably the smartest thing you can do is open a Roth IRA.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®


The Best Argument Yet for Delaying Your Retirement

By Motley Fool, July 3, 2016

Given that the average American is woefully financially underprepared for retirement, it’s no surprise that more than 16% of Americans aged 65 and older are delaying retirement and still working.

It turns out there could be a substantial benefit to doing so: Delaying your retirement could help you live longer. No, seriously.

According to research recently published in the Journal of Epidemiology and Community Health, delaying retirement by a year, from age 65 to 66, resulted in an 11% lower chance of death among a group of 2,956 participants who were tracked from 1992 to 2010.

The researchers controlled for various outside factors, including education, income, and health. The last of those three is particularly interesting, because people who retire early often cite poor health. Previous studies have been unable to tease out whether the fact that folks working later in life are healthier because they’re still working — or working because they’re still comparatively healthy.

That’s why this study is so interesting: Even among those who said they had health problems, delaying retirement by a year decreased the chance of mortality by 9%. It appears, to quote the study authors, that the “beneficial effect of retiring late may be universal across different sociodemographic profiles.”

So working longer helps you live longer. But there are other potential benefits, too. Since we’ve been talking about physical health, let’s also consider mental health. We’ve known for a while that between 15% and 20% of retirees suffer from poor mental health, most commonly depression. Initially upon retirement, mental health improves because of reduced work-related stress and more leisure time — but over the longer term, many retirees see their mental health decline in part because of isolation and reduced activity, both of which are probably tied to leaving the workforce. Delay leaving the workforce, and there may be less chance of seeing those mental declines.

Delaying retirement also increases your likelihood of a financially secure retirement. No one likes the idea of outliving his or her nest egg. It’s harder to do so if you delay retirement, for four reasons. First, you’ll have fewer years when you’re living off your savings. If you have, say, $250,000 in retirement funds, it’s easier to make that stretch over 10 years than over 20.

Second, consider that those extra years of working should mean extra years of saving. If you’re able to sock away, say, $500 a month for the five years from the ages of 65 to 70, that’d work out to an extra $30,000 in savings.

Third, don’t forget the power of compounding. If you have additional long-term retirement savings stashed in equity markets via a 401(k), IRA, or brokerage account, those savings will have additional time to compound, hopefully growing your savings even more.

Finally, there are the benefits of delaying taking Social Security until age 70. For every year beyond your full retirement age that you delay taking Social Security benefits, the Social Security Administration will increase your monthly benefit by 8%.

No matter when you decide to retire, the most important thing is that you get the lifestyle you want. For different people that means different things. (My wife and I spend extra on travel — maybe you’d save money there but really like nice cars. You get the idea.) The easiest way to get there is to estimate your monthly expenses in retirement — my colleague Brian Stoffel has a collection of averages that should be a useful starting point for you. You’ll then want to estimate how much you’ll receive from Social Security. Once you’ve subtracted the amount you’ll get from Social Security from those monthly expenses, you have the amount of cash you plan to spend monthly that you won’t get from Social Security. Multiply by 12 to get a yearly amount, multiply that number by 25 — a commonly used rule of thumb — and you have the total many experts believe you need to save. From there, it’s simply a matter of working and saving.

 To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 


A Quarter Of Recent Retirees Would Delay Social Security If They Had a Do-Over

By Rodney Brooks, July 4, 2016, Washington Post

I seldom write about Social Security without a huge response from readers. That’s not a bad thing. It seems that just about everyone has an opinion about Social Security – especially when it comes to the decision on when to take it.

Many financial advisers recommend that people wait until 70, very few do. In fact, most people don’t even wait until full retirement age, and end up taking it as soon as they are eligible – at 62. Well, a new survey says that, given the chance, a quarter of Social Security recipients would take it later than they did. But that also means that most would not change their decision – for a variety of reasons.

The third annual “Nationwide Retirement Institute” survey of nearly 1,000 people 50 or older, approaching retirement or retired, found that 23 percent would change when they started drawing Social Security to a later age. And 24 percent of recent retirees said their benefits were less than expected.

Of those who said they would not change when they started receiving benefits, 39 percent said they were forced to start drawing benefits by a life event. Thirty-seven percent of current retirees said health problems keep them from living the retirement they expected. And 80 percent of recent retirees say those health problems came earlier than expected. In fact, health care expenses keep one in four current retirees from living the retirement they expected.

Other highlights:

People are waiting longer to take their benefits. In 2016 the average age that men began receiving Social Security is lower than it was in 2014 (60.5 vs. 62.3).

Those who have yet to collect expect to start at age 66 on average, compared to age 62 for recent retirees.

Of future retirees who plan to draw Social Security, only 29 percent plan to draw these benefits early.

The majority of retirees would not change the age they started drawing Social Security. Seventy-seven percent of people who had been retired for 10 or more years say they would not change the age, and 69 percent of recent retirees say they would make the same decision.

Of the people who would not change their decision on when they took benefits, the reasons varied:

They retired earlier than planned (24 percent of recent retirees, 27 percent of people retired for 10+years)

They needed the money (19 percent of recent retirees, 27 percent of 10+)

Forced to by health problems (19 percent recent, 20 percent 10+)

They didn’t think they would live long enough to optimize benefits (12 percent recent, 16 percent 10+)

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 


Four Ways To Bust Elder Financial Fraud

By John Wasik, July 4, 2016, Forbes

It’s not hard to sniff out how swindlers prey upon the elderly. They know they respond to mail, phone and front-door solicitations. Older people like to talk to people they don’t know. Holidays are a good time to talk about scam merchants. Families get together and it’s easier to talk about money stuff over beer and bbq.

Swindlers prey upon fear and insecurity. They blanket a neighborhood after a storm, offering to do “free storm damage asssessment.” They’ll pose as IRS agents or bill collectors to collect fake debts. There’s an art to elder financial fraud and it’s practiced every day. If you know the danger signals, you can ward off these scamsters.

The most basic defense is a recognition that when people get into their eighth decades and beyond, they process information differently. While they may have perfect memories of something that happened 60 years ago, it’s difficult for them to make complex decisions, including financial ones. This cognitive decline in “executive function” has been noted by neuro-scientists. The part of the brain responsible for decision making doesn’t work as well as it did 30 years ago. It’s a natural consequence of aging.

“While there are some ‘super agers’ in the population (individuals in their 80′s and beyond who function at much younger intellectual levels),” reports the SIFMA Senior Investor Protection Quarterly, “the vast majority of adults will experience at least some isolated cognitive decline associated with typical brain aging as they progress through their sixth, seventh, and eighth decades (or beyond). Cognitive change in older adults is uneven and dependent on many factors, including educational background, overall intellectual capacity, health conditions, and lifestyle habits.”

 To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 


Is Early Retirement Right For You?

By Abby Hayes, July 6, 2016, US News and World Report

Many retirement benefits don’t kick in until your 60s, so early retirees face extra hurdles. Early retirement requires a bigger nest egg because you need to pay for more years of retirement.

When you think about early retirement, you might get a dreamy, faraway look in your eyes. Perhaps you envision time spent traveling while you’re still young, or spending more time as a family because you’re no longer working full time. Or maybe you’re picturing walking away from a job you dislike and never dealing with a stressful deadline or boring meeting again.

Early retirement can be an escape from a bad work situation as well as an opportunity to spend time doing the things you truly want to be doing. However, the reality is that early retirement isn’t for everyone. Early retirement is a difficult goal to achieve, and it may not be what makes you happy in the long run. Here are some of the pros and cons of early retirement:

More leisure time. A boost in leisure time earlier in your life is a major bonus of early retirement. You will have more years to enjoy retirement and to tackle all the projects you have wanted to try. You will be able to invest in your family, spend more time with your children and grandchildren.

Less stress. Not working around the clock for an extra 10, 15 or 20 years can significantly reduce your levels of stress each day. You won’t have to rush to get out of the house every morning and sit in traffic during the morning rush hour, or be expected to work late or through the weekend. Now you don’t have to work at all unless you want to.

Finding health insurance. Early retirees often lose their employer-sponsored health insurance, but aren’t yet old enough to sign up for Medicare. If you retire before you’re eligible for government-funded health care at 65, you will need to find another source of health insurance that could cost much more.

Boredom. While relaxing is fun at the beginning of retirement, you might eventually want to find productive ways to fill your time. If you aren’t proactive about setting up social events or volunteering, boredom could creep into your retirement years.

Early withdrawal penalties. It can be difficult to access the money you’ve saved for retirement if you retire early. If you withdraw money from your individual retirement account before age 59 ½ there is typically a 10 percent early withdrawal penalty. While there are a couple of ways around the penalty, not everyone qualifies. This steep penalty can quickly eat into your retirement savings and make it even more difficult to fund a long retirement.

More years to pay for. When you retire early, your retirement savings needs to last longer. If you retire at 50, you may need to fund another 40 years of retirement using your nest egg. A significant amount of savings is often required to pay for several decades of retirement.

Consider a career change. If you’re tired of your career and want a more laid-back and enjoyable lifestyle, consider a career change. If you make a switch to the right new career, you could gain many of the benefits of early retirement, such as a less stressful life and more time with family, without the drawbacks of early retirement. The key is to figure out how to use your current skill set to transition into a new career. Alternatively, you could launch a completely new career. You might be able to return to school and get new credentials while still working at your current job.

Cut back your hours. There’s no reason you have to go cold turkey from full-time work to full-time retirement. Instead, consider transitioning into retirement gradually. You can start slow by cutting back on your work hours and focusing less on moving up in your career. Another option is to shift to working part time by slowly cutting back your hours and adjusting your lifestyle accordingly. Phasing into retirement can also be a more financially savvy option than retiring early because you still have some money coming in which gives your savings more time to grow.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®


Opinion: These Four Steps Would Fix Our Retirement-Savings Crisis

By Silvia Scarelli, July 5, 2016, MarketWatch.com

It’s no secret that Americans are lousy at saving for retirement, and many will struggle to live comfortably in old age.

A Vanguard report from 2015 says its clients over age 65 had, on average, about $214,000 in a 401(k) account — and that doesn’t include the many who don’t have access to one, regardless of which money manager is used. Numbers for households with members between 54 and 65 years old are even grimmer.

That’s the bad part. The good part is we have gotten better, thanks to tweaks to 401(k) policies. Most large companies now make participation in the retirement plan the default choice, meaning the real work is to opt out, not to sign up. And most have two other default choices: a 3% savings rate and a target-date fund.

But a few more changes could do more to get people to save more for retirement, says Richard Thaler, a behavioral economist at the University of Chicago.

“The only thing that works is making savings automatic,” he says.

He sat down with MarketWatch and spelled out his wish list…

Change the default savings rate to 6%

Companies use 3% because a letter from the Treasury Department in the 1990s assured them that automatic enrollment was legal and used that figure as an example, he says.

“That stuck,” he says. “It makes no sense.”

Make Annual Increases in the savings rate the default option

Thaler says we’re bad at starting today and good at procrastinating — whether it’s saving more, starting a diet or something else we know we should do. To capitalize on that, some 401(k) plans now allow participants to pre-program annual increases in their savings rate — something he calls “save more tomorrow” — but it’s not widespread.

“In my ideal plan, we start people at 6%, raise that 1% a year until they hit, say, 12%,” he says. “Those two things would pretty much solve the problem.”

So why don’t more companies do this?

Thaler says one reason may be that it could cost companies more because of the match they offer for some 401(k) savings; according to Vanguard, the most popular company match is 50 cents for every dollar saved for the first 6% of pay. Some might not want to do the programming work involved. Or no one sees it as their job.

“If your employees aren’t saving enough, it’s your fault,” he says he told a gathering of 600 company pension-fund representatives. “We know how to do this. If you have 70% participation rate instead of 90%, that’s your fault. If you have a 3% saving rate, that’s your fault.”

Offer a plan to those without a workplace 401(k)

Roughly 40% of employees don’t have a 401(k) plan offered where they work. Thaler is a backer of the Obama administration’s MyRA idea, a Roth IRA for those without a workplace 401(k). These “starter retirement accounts” were launched late last year but have constraints that 401(k) plans don’t have: They invest only in Treasurys and will be capped at $15,000.

“The irony is this should not be a partisan issue,” he says. “Remember, President George W. Bush wanted to partially privatize Social Security and create what he said was going to be an ownership society. This is really the same thing without touching Social Security. Who would be against facilitating private saving?”

Translate savings into monthly income

This idea borrows from annuities, which turn a pile of money into monthly payments for life. It would add one more line to the monthly statement that shows the resulting monthly income to help people better visualize whether they are saving enough.

“You look at some six-figure number and it looks like a big number,” he says. “You look at what monthly income it would buy and it looks like a small number. That can be highly motivating to get people to save more.”

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®