Retirement Savings and Defined Contribution Plans: A Fix is Needed
One of the more frequently reported retirement planning issues is what many perceive to be a critical shortfall in savings among future retirees. Time.com’s Money page, for example, not too long ago reported that a third of Americans have accumulated no savings for retirement, while more than half have accumulated less than $10,000. The significance of this grows in the face of the workforce’s continuing shift away from defined benefit plans and the continuing trend of early filing for Social Security benefits. Recognizing the long-range implications of all this, defined contribution plans–401k plans in particular–have emerged as a key ingredient in individuals’ self-preparation for their retirement years.
The shift to a defined contribution strategy is viewed in many quarters as the solution to the retirement cash quandary, but is it working? In a post on 401kspecialistmag.com, Retirement Clearinghouse’s Thomas Hawkins suggests that, in its present state, this concept has become unsustainable and is in need of a fix. Citing 401k “cashout craziness,” stranded small-balance accounts, and portability issues in the “gig economy,” Hawkins advocates for increased attention to the management of individual retirement income accounts, specifically by adopting measures that make it easier and simpler to transfer accounts from one employment situation to another.
The Association of Mature Americans (AMAC) has likewise recognized the need for improvement in the defined contribution plan arena, and has included in its “Social Security Guarantee Act of 2017” provisions for an “Early Retirement Account (ERA)” designed to “provide a means for all earners to have more income available at retirement.” Under AMAC’s plan, the employee is the owner of the Early Retirement Account, and if the employee changes jobs, the new employer would be required to add payroll access for the ERA. Withdrawals from the ERA would be prohibited until the employee attains age 62, although access would be provided in the event of death or total disability. Employees may elect to start receiving payouts at any age between 62 and 70 ½, with the death benefit being the accrued Account value at time of death. And, as noted before, withdrawals, including accumulated interest, would be tax-free.