Economic and societal trends—such as increases in debt and health care costs—can impede individuals’ ability to save for retirement.
Not a new statement, but always sounds more dire coming from a government entity, especially when it adds that the traditional “three-legged stool” of savings, including Social Security, employer-sponsored plans and individual savings, might not be enough to fund an affordable quality of life in retirement.
Tilted “The Nation’s Retirement System: A Comprehensive Re-evaluation Is Needed to Better Promote Future Retirement Security,” it calls for a reexamination of how the United States ensures retirement security for its citizens.
“The nation’s retirement system is made up of three main pillars, but fundamental changes have occurred over the past 40 years,” Gene Dodaro, Comptroller General of the United States and head of the GAO. “This has made it increasingly difficult for individuals to plan for and effectively manage retirement.”
In particular, he notes the “marked shift” away from defined benefit to defined contribution plans as the primary type of retirement plan offered by private sector employers, which has increased the responsibility and risk for individuals’ retirement security.
Dodaro also said that when it comes to Social Security, beginning in 2035, projections are that it will be unable to pay full benefits.
“Long-term fiscal projections show that, absent fiscal policy changes, the federal government is on an unsustainable fiscal path, largely due to spending increases driven largely by health care programs, demographic changes, and net interest on government debt,” he warned. “It has been nearly 40 years since there has been a comprehensive federal evaluation of the nation’s approach to financing retirement and the time has come for a new examination.”
GAO’s report focuses on four areas:
- The aforementioned changes in the traditional pillars of the U.S. retirement system—Social Security, employer-sponsored pensions or retirement savings plans, and individual savings—along with economic and societal trends, such as rising debt and health care costs, that have made it difficult for Americans to plan for and manage retirement;
- Key challenges individuals face in achieving a financially secure retirement, such as accessing retirement plans through employers, accumulating adequate retirement savings, and ensuring that savings and benefits last through retirement;
- Fiscal risks and benefit adequacy concerns that threaten the central elements of the U.S. retirement system;
- The need for a comprehensive reevaluation of the nation’s approach to financing retirement, one that will address the impact of recent economic trends and the introduction of new financial products.