Motivating Americans to save for retirement

PERSONAL FINANCE

Dollars & Sense

March 10, 2002|By Eileen Ambrose

TOO MANY Americans aren't saving enough for their retirement, and a declining - some say disturbing - number are even bothering to figure out how much they'll need.

The problem of how to get Americans to save for retirement - when for some it's too far off to imagine, and for others there are too many goals competing for savings dollars - was the focus of the National Summit on Retirement Savings held recently in Washington.

The challenge was supported by a survey by the Employee Benefit Research Institute, released at the time of the summit.

While 67 percent of 1,000 adults surveyed this year said they saved for retirement, about the same as last year, far fewer were taking time to calculate how much they need to save. Thirty-two percent of those polled said they did the math, down from 39 percent last year and 51 percent in 2000.

"What it suggests is people were doing the calculation because the rate of returns were very high and the calculation made them feel good," said Dallas L. Salisbury, president of the Employee Benefit Research Institute and a delegate to the summit on savings.

Skipping the calculation may allow misconceptions about Social Security and medical benefits to go undetected until it's too late, Salisbury said. Many people assume they will be eligible for full Social Security benefits years before they actually will be, and most overestimate what Medicare will cover and underestimate medical costs, he said.

As a result, people may end up saving too little or retiring too early. And if they discover their mistake in retirement, it is often difficult for them to find a job comparable to the one they left, Salisbury said.

The savings summit was the second of three such meetings required by Congress. About 250 delegates this year came up with recommendations designed for four generations. The recommendations go to the Department of Labor, Congress and the White House.

Here are some of them for various age groups:

Millennial Generation: Under age 20, members of this generation are patriotic, conventional, used to working in groups, and - growing up with Day-Timer organizers and Palm Pilots - lead highly structured lives, delegates said. While baby boomers questioned authority, their millennial age children respect it.

"This is the generation that has been inculcated that they need to recycle, that their parents shouldn't smoke, that drinking is dangerous. They are very responsible," said Denise Voigt Crawford, a delegate and Texas securities commissioner.

Children in this generation can be encouraged to save by teaching them it's the responsible thing to do, Crawford said.

To make saving easier and more structured, the government could issue a new savings bond geared toward children, Crawford said. The bonds could be purchased for, say, $5 each at schools.

Other ideas include creating a "young patriots savers club" that could be launched by the White House, or a financial literacy campaign similar to the drug program, DARE (Drug Abuse Resistance Education).

Generation X: In their 20s and 30s, members of this generation entered the work force during a time of upheaval and may be more concerned with near-term turnover at their company than far-off retirement, delegates said.

Generation Xers want information and wide investment options so they can make up their own minds about saving, said Tom Conger, a delegate and futurist with Social Technologies Inc. in Arlington, Va.

One way to provide information is to show Generation Xers on their paycheck stubs how much money they leave on the table by not participating in a 401(k), Conger said. "That's information they need to base a decision. You don't need to make a stronger message than that," he said.

Because Generation X is comfortable with technology, delegates suggested a computer simulation where workers can plug in their finances and see a visual projection of what their retirement would look like based on their current savings rate.

Limits on individual retirement account contributions also should be raised to help Generation Xers, delegates said. This year the cap is $3,000 for those younger than 50.

"They may not be covered by an employer [retirement plan] but the limits on IRAs are so low that it makes it difficult to accumulate enough to have significant savings," said delegate Ray Kirk, of the U.S. Office of Personnel Management.

Baby Boomers: The largest generation, boomers are now in their 40s and 50s. "The boomers have done the least to prepare for retirement," said delegate Elaine Bedel, chair of the Certified Financial Planner Board of Standards Inc.

One reason is boomers may be financially helping their parents while paying their children's college tuition, Bedel said. But in some cases, boomers haven't realized the necessity to save or think they are saving enough when they aren't, she said.

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