Financial Literacy - Securing retirement
Rethinking retirement in tough times

Ironically, the good news is that American attitudes toward retirement savings may have turned a corner -- as a result of the bad news all around us. Hebeler says that as the national attention is focused on the credit crunch, failed mortgages and the souring economy, many of us are starting to ask more questions about saving.

"There's a wakeup call out there right now, and I believe a lot of people will heed it," he says. "People are going to be much, much more dependent on personal savings in the future."

Reardon adds that baby boomers may be ushering in a new period of austerity where ditching McMansions and SUVs for a downsized lifestyle will have "more to do with our current savings rate than anything else."

He predicts the future may hold a progression toward more federal programs and higher Social Security payments, as well as a spike in households with three generations under one roof.

There is increased chatter about the need to revamp how defined-contribution plans, such as 401(k) and 403(b) plans, are administered. Employers may have to take a look at the types of retirement plans they're offering to employees and provide better education about how to choose investments based on individual retirement goals.

Some changes in the way retirement plans are administered have already been felt. Even before the Pension Protection Act was passed in 2006, many companies had adopted automatic enrollment, in which new employees actually have to take action to opt out of their retirement plan to avoid saving money. An informal poll by in 2008 found that the automatic enrollment trend continues to grow among companies offering defined contribution plans, with nearly four out of 10 companies participating in the poll now offering this feature -- one in five introducing it in 2008 alone.

Studies have shown that automatic enrollment does increase plan participation. For example, prior to automatic enrollment, 45 percent of employees at 50 different companies participated in their respective plan, according to one study by the Vanguard Center for Retirement Research. Under automatic enrollment, 86 percent participated.

Another idea that's gaining momentum is to increase the default contribution setting on employer-sponsored 401(k) plans.

"The default settings determine to a great extent what people end up doing," says Stephen Horan, CFA and head of private wealth and investor education at the CFA Institute in Charlottesville, Va. "Suppose you join a company 401(k) plan and they say 'We're going to put 5 percent of your salary into a 401(k) but you can change that if you like.'

"Those default settings have a dramatic effect on what people ultimately do," Horan says. "If the default is zero, participation is far lower than if the default is 5 percent."

Trammel predicts the emergence of custom retirement plans that will no longer be geared toward how you're doing against an index fund like the S&P 500. Instead, she envisions plans that take into account your specific situation, where you are in life in terms of time horizon, liquidity needs and so on.

"You'll have the creation, the bundling and the packaging of products that are really very much tailored toward you," she says. "This may come from people who will understand what your needs are in terms of saving, long-term health care and disability -- and you will actually be able to see from month to month where you are in terms of your planned goals."


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