I listened Tuesday morning to some economic gurus from Prudential Financial talk about the issues facing people doing retirement planning. Jamie Kalamarides, senior vice president for Prudential Retirement, boiled it all down to one word -- savings.
Prudential manages retirement plans -- mostly 401(k)s for thousands of companies and millions of employees. Kalamarides said Prudential supports passage of a bill called the Lifetime Income Disclosure Act, which has nonpartisan support -- but not enough to get it passed in the last year.
The bill require sponsors of 401(k) and and other defined contribution retirement plans to annually tell participants how much monthly income they could expect at retirement, based on their current account balance.
The report mandated in the bill is modeled after the Social Security Administration’s annual statements. The requirements for calculating the monthly payout aren't clear yet, but the concept is backed by AARP and the Women's Institute for a Secure Retirement.
Kalamarides reports that it has been his company's experience that this approach jolts people into saving more at younger ages. "Prudential has found that showing the gap between current statements and future needs gets double the results of any other method," he says.
Prudential also is pushing to make it easier and cheaper for small public and private employers to band together to offer their employees 401(k)s and other retirement savings plans. The Internal Revenue Service has presented what it considers a model plan, and Kalamarides says Prudential believes that making this plan available would reduce costs, mitigate fear of liability and trim administrative responsibilities for small companies.
If this worked, it would help make workplace-sponsored retirement plans available to the 50 percent of employees that don't have them.
Finally, Kalamarides urges workers to save the extra money that they'll get this year due to lowered Social Security payroll taxes. "Before you notice it's gone, increase your investments and put an extra 2 percent or 3 percent in your 401(k)," he advises.