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Center for Retirement Research at Boston College Begins Email Newsletter

Excerpt: WELCOME to the first edition of the Center for Retirement Research newsletter. The newsletter will provide a quick and easy way to stay on top of our latest research findings and activities. We hope you find it both insightful and lively. -- Alicia H. Munnell, Director' Subscription form is at http://www.netcasters.com/cgi-bin/crr/contact.pl (link is in lower right-hand corner of the newsletter)

A Bird's Eye View of the Social Security Debate by Alicia H. Munnell (PDF)

10 pages. Excerpt: This Issue in Brief is intended to highlight the key points in the debate. First, it documents the magnitude of the Social Security financing problem. .... Second, it clarifies that the privatization debate usually encompasses two separate issues -- how to close Social Security's financing gap and how to structure benefits. Third, it addresses the slightly esoteric, but quite important, issue of how to account for the higher expected returns earned on more risky assets.

More Households Are Prepared for Retirement, But This Good News Might Not Last

"The 2022 [National Retirement Risk Index (NRRI)] shows that ... between 2019 and 2022, the share at risk dropped from 47 percent to 39 percent.... Two major contributors to the stunning improvement in the NRRI seem unlikely to persist. First, housing prices are about 14 percent above their long-run trend for the last 30 years, and may well revert to trend over time. Second, 'new saving' is almost certainly a one-shot COVID phenomenon. Indeed, personal saving rates have returned to pre-pandemic levels and so has credit card borrowing."

Who Claims Social Security While They Are Still Working – and Why?

"43 percent of individuals interviewed between ages 56-75 combined work and benefits for at least some period of time ... [T]wo-thirds of them claimed before the FRA -- typically right at age 62 -- while another 30 percent claimed between the FRA and age 69 -- typically right at the FRA. This pattern suggests different circumstances and different reasons for claiming."

Do We Really Want Roth Retirement Plans to Be More Generous Than Traditional Plans?

"The SECURE 2.0 Act eliminated required minimum distributions (RMDs) for Roth 401(k)s.... That ability to continue to save tax free makes Roths considerably more valuable.... One argument for changing the RMD rules appears to have been to make the treatment of Roth 401(k)s consistent with the treatment of Roth IRAs, which have never been subject to RMDs. Consistency is a good goal. Congress simply flipped the wrong way."

Retirement Savers Should Be Protected Against Costly Financial Advice, Especially for Rollover IRAs

"The assumption by participants must be that the firms advertising rollovers are operating in the participants' interest, but, in fact, participants very often are moving from fiduciary protection and low-fees into an unprotected arena where their assets will be invested in high-fee mutual funds.... [P]rotections clearly are required for rollovers. If a fiduciary standard is appropriate when funds are in 401(k) plans, then such a safeguard is still appropriate when participants are contemplating moving those funds to an IRA."

Social Security's Real Retirement Age Is 70 (PDF)

"Due to increases in Social Security's Delayed Retirement Credit, the effective retirement age is now 70, with monthly benefits reduced for earlier claiming. Benefit levels at 70 appear appropriate given that rising deductions for Medicare and greater benefit taxation have reduced Social Security's net replacement rates. The shift to 70 should be feasible for many workers given increases in lifespans, health, and education. But vulnerable workers forced to claim early will have low benefits and will be particularly harmed by any further cuts. Policymakers need to inform those who can work that 70 is the new retirement age and devise ways to protect those who cannot work."

What Is IBM Doing with Its Retirement Plans? and Why?

"IBM held a surplus of about $3.5 billion in its DB plan, while it paid out $550 million annually in its matching contributions to the 401(k). Faced with no funding requirements for its over-funded plan, IBM can use the $3.5 billion surplus to pay for the 5-percent annual contributions for at least the next 6 or 7 years -- improving its bottom line by $550 million each year.... [T]his clever maneuver -- while leaving employees worse off -- certainly benefits shareholders."

'Rothification' Would Be Likely to Reduce Retirement Saving (PDF)

"As part of tax reform, Congress considered changes to 401(k)s that would require most new contributions to go to a Roth, rather than a traditional, account. This budget gimmick would help pay for tax cuts because Roths are taxed up-front, rather than in retirement. Such a change, however, could also affect how much people save. Some could save more by keeping their contribution steady. Some may save the same by reducing their contribution to maintain their take-home pay. But many, especially those who have lower incomes or are cash-strapped, may overreact and save much less. Rather than risk disrupting the retirement savings system, a better idea is to focus on actions to boost saving and expand access to workplace retirement plans."

The Savers Match Could Really Help Low- And Middle-Income Workers

"[E]stimates from the Morningstar study ... show that, depending on the behavioral response, the Saver's Match could increase retirement wealth at 65 for Gen Z and Millennials by 8 to 12 percent ... Since Roths are currently used in state auto-IRA programs, the states will need to ensure that workers have access to a separate traditional account for receiving the Saver's Match. So far, they appear to be stepping up, but the withdrawal process may still be hard for workers to understand."