‘Make saving very easy’: Retirement planning tips for the Biden era

President Biden took office at a time when millions of workers have had to readjust their vision of their retirement years due to pandemic-induced job losses and rising health care costs.

To compensate for these financial shortfalls in golden years, Matthew Rutledge, a research fellow at the Center for Retirement Research at Boston College, recommended that the new administration set up automatic individual retirement account (IRA) plans for all Americans, particularly because not everyone is offered a 401(k) through their employer.

“Those plans are very similar to the 401(k), where you have the tax advantages of saving,” he said on Yahoo Finance Live (video above). “And you reduce your taxable income in that year. But really, I think the main thing that it does is just make saving very easy by automatically withdrawing from your paycheck and allowing you to save in a kind of an automatic way, so that people don’t have to actually have to think about it.”

‘You would want to make sure you have auto escalation’

At a time when one in three Americans have decreased or stopped their retirement savings altogether, according to a survey by FinanceBuzz, a fintech company, Rutledge proposed that the ideal government-sponsored IRA would help Americans feel prepared for their later chapters.

“As a result of the greater use of auto enrollment, where you don’t have to make it so that the employee actually has to do anything, they don’t have to even sign a paper,” he said. “In fact, the way auto enrollment works is, you have to sign a paper not to participate. You take advantage of people’s laziness that way, that choice architecture as a way to really get people saving more.”

Unlike any other IRA plan, Rutledge suggested one that auto escalates or deposits larger amounts over time. A 4% savings rate, he said, isn’t nearly enough to retire on by the time a person hits 65 years of age.

“What you would want to make sure is something like auto escalation, where gradually over time, they would be saving more,” Rutledge said. “Or try to make it so that people actually do make that active decision to try to save something more like 15% or 10% once you include an employer match.”

Additionally, he added, an automated IRA provides an ease in which anyone can save regardless of their financial literacy level.

‘We want to make sure Social Security remains there’

Though an automated IRA can provide an easy experience for retirement planners, it shouldn’t divert focus away from the other pillars of retirement.

Instead, it should be utilized to complement Social Security, which may not be as reliable in the coming years.

“It’s still the most important part of the safety net when it comes to retirement,” Rutledge said. “There’s still many people that don’t really even … even if 401(k)’s were available wouldn’t have the ability to save due to their budgets.”

At a time when President Biden has vowed to increase the minimum Social Security benefits to 125% of the federal poverty level, Rutledge, among other experts, is concerned about its liquidity.

“We’re still talking about 70% to 80% of what has been promised or what the typical earner in the previous generations would have been able to get out of Social Security,” Rutledge said. “That’s not nothing, but it’s just when people are right on that border, any little bump down is going to make it that much harder to support themselves and the kind of lifestyle that they’re used to living.”

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