Retirement planning experts Alicia Munnell and Andrew Biggs are advocating for changes to the societal approach towards retirement. Despite resistance due to concerns over disparities in retirement savings among income groups and doubts over current retirement policies, they steadfastly press on, rejecting the idea of reducing current social security benefits and advocate for securing future generations financially instead.
Their arguments, largely centered around the 401(k) program which promotes retirement savings by reducing taxable income, have stirred controversy. They criticize the program, despite its popular tax advantages and employer’s matching contributions, citing failures in achieving overall retirement savings and exacerbating financial inequalities.
Munnell and Biggs argue that the benefits of 401(k) are skewed towards high earners who, as a result, enjoy larger tax deductions. They also point out that the program places the burden of investment decisions on individuals who may lack financial expertise, potentially leading to unsound investment choices and jeopardizing retirement security.
They have proposed an innovative approach to address these issues, with a focus on strengthening Social Security.
Shifting perspectives in retirement savings
Acknowledging its crucial role in maintaining the economic stability of senior citizens, they emphasize that it’s more necessary than ever to ensure the program continues to support the financial wellbeing of retirees effectively.
Social Security, upon which more than 66 million Americans depend monthly, faces a critical situation with depleting resources. Enhancing financial support for it has become an urgent issue, especially considering many dependents are retired, disabled, or relatives of deceased workers who heavily rely on these benefits.
Taking into account recent Federal Reserve findings on the disparities in retirement savings, with the top 10% households having an average savings of $1.29 million compared to $87,000 for median middle-class households, the need to limit tax advantages for top earners becomes clear. This would necessitate an adjustment in contribution limits to ensure a more fair spread of tax breaks among all income levels.
Overall, reform is essential not just for the system’s longevity but, more crucially, for the millions of beneficiaries who rely on Social Security as their primary or only source of income. As a starting point, policymakers need to find comprehensive and long-term solutions to these issues.
