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From savers to spenders

April 19, 2011

After three decades of talking to baby boomers about saving, the financial industry is now turning its attention to spending. It’s a matter of demographics. As more and more boomers reach retirement age, they’re increasingly tapping into the IRA and 401(k) assets that they’ve so carefully accumulated — and many of them are worried that those nest eggs won’t be sufficient to carry them through retirement.

“Savings to Last a Lifetime: The Changing Needs of American Retirees” was the topic of an executive roundtable in Washington, DC last Friday, hosted by The Aspen Institute Initiative on Financial Security as part of the program for National Retirement Planning Week. Representatives from the federal government, the financial industry and consumer organizations met to discuss this “decumulation phase” of the retirement planning process.

Many of the participants noted that savers could use help envisioning how lump sums translate into a steady income — and the financial industry is already developing tools to meet that need. For example, Putnam has posted a Lifetime Income Analysis on its website that allows individuals to see whether their current savings rate is on track to meet their retirement income goals. And beginning this year, the federal government has taken steps to help its employees plan for the future. The annual statements for its Thrift Savings Plan now provides a lifetime income equivalent of the account balance. Michael Davis, Deputy Assistant Secretary at the Department of Labor, commented, “It focuses the mind.”

But private employers are hesitant to follow the federal government’s lead — mainly because they are concerned that they will be exposed to considerable fiduciary liability if they provide any long-term projections. Many of the industry representatives at the roundtable called for a regulatory “safe harbor” that allows plan sponsors to make lifetime income projections without fear of lawsuits, though one executive suggested that the Department of Labor take on the task of providing this information to plan participants directly.

Everyone agreed that retirees need better options for converting their plan balances into a guaranteed income. Mark Iwry, Senior Advisor to the Secretary of the Treasury and Treasury’s Deputy Assistant Secretary for Retirement and Health Policy, noted that most retirement offer only an “all or nothing” option for annuitization upon retirement — even though most retirees want to take at least a portion of their accrued balance as a lump sum.

Gene Steuerle of The Urban Institute suggested an innovative approach to encouraging retirees to convert lump sums into steady income — by making it more attractive for them to defer receipt of Social Security payments, covering their income needs in the early years of their retirement by drawing down savings. Retirees incur a higher upfront cost, but receive a higher Social Security benefit for life in return.

The consensus opinion was that continued innovation is essential — innovation not just in products and communication but in regulation as well. As John Carter of Nationwide Financial phrased it, “Where innovation meets regulation can be very challenging.” Continued dialogue between the financial industry and its regulator will be critical to meeting the needs of tomorrow’s retirees.

NICSA is proud to be a member of the National Retirement Planning Coalition. Learn more about the Coalition at its website,

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