Wednesday, September 7, 2016

New paper: “Can We Increase Retirement Saving?”

The Center for Retirement Research at Boston College has released a new Issue in Brief:

“Can We Increase Retirement Saving?”

by Steven A. Sass

The brief’s key findings are:

  • Today’s workers must save on their own for a secure retirement, so researchers have examined existing options for encouraging them.
  • Tax incentives: recent research suggests that increasing the generosity of tax incentives for 401(k)s and IRAs would not significantly increase saving.
  • 401(k) design: auto-enrollment has boosted participation, but, to date, low default contribution rates and little auto-escalation have dampened the rise in saving.
  • Auto-IRAs: recently adopted by some states, they would require employers without a plan to enroll their workers in an IRA, with the ability to opt out.
This brief is available here.


WilliamLarsen said...

Hard to save when SS-OASI takes the first 10.6% of wages for a program that is unable to pay scheduled benefits and has such a poor ROR. Prior to SS, families saved. After SS, families looked at SS as their savings. Turns out SS is nothing more than a glorified government ponzi scheme.

How do you extract yourself from SS? If you reduce the tax, SS payable benefit drops even more. IF you raise the payroll tax you eliminated even more people from saving.

The legacy debt is killing our economy.

Andrew G. Biggs said...

Sure, but not impossible. Contributions to private retirement plans rose by about 2 percent of wages from the mid-70s to today, at the same time the payroll tax rate rose by about the same amount.

Arne said...


The amount we need to spend to support our parents will always be a tax on our ability to save for ourselves. You dramatically overstate your case when you pretend that there would 10.6 percent to become the basis for workers' retirement savings.


Since the 70s there has been a significant drop in workers' ability to rely on pensions. Have contributions to private plans (such as 401ks) actually made up for that?

Andrew G. Biggs said...

I'm not sure what a drop in worker's ability to rely on pensions means?

Arne said...

I mean moving from defined benefit plans to defined contribution plans. Both of the companies I worked for in the 90s eliminated their pension plans and moved to increasing the company match for 401ks. But the value of the match was nowhere near the value of the pension.

Andrew G. Biggs said...

This paper gives some details on DB pensions, both in terms of availability of benefits and how much employers paid into these plans.

Not as many people received DB pensions as we sometimes think, and employer contributions toward pensions are higher today than they were in the past.

WilliamLarsen said...


"The amount we need to spend to support our parents will always be a tax on our ability to save for ourselves. You dramatically overstate your case when you pretend that there would 10.6 percent to become the basis for workers' retirement savings."

Arne, I assume you think that without SS, we as a society would spend the same amount to support the seniors whether they be our own parents or others. This support may be in the form of direct payment to our parents from children or payment from government agencies supported by tax dollars.

This makes the assumption that all seniors are equal in savings, wages and spending. My parents saved, my grandparents save, I have saved and I brought my children up to be savers. In fact they do not have SSN's which precludes them from being able to apply for SS benefits which requires them to save for themselves.

SS-OASI pays benefits based on age. Age is not a good definition of support. I disagree the sum total would be spent. I believe that without SS, people would save more themselves. I have spoken to many who save little because they believe they are entitled to SS-OASI. So SS disincentives many to save. It in some cases causes many to spend more now with the belief that SS will be there. Obvious it will only be there if my millennial children and others agree to pay higher payroll taxes to support my generation the boomers who in 1983 did not say a word about the situation then, but we face the same problem now.

SS takes current wealth and disburses it to current seniors not based on need by age alone. IT increases economic activity now at the expense of future economic growth rates. Now the government is attempting to get people to save, which if it is true 70% of our economy is based on the consumer we are now paying the price as they face higher payroll taxes, buying a home and saving for their own retirement. On top of this due to IRA, 401K and Roth incentives, we have reduced general revenues drastically adding to general budget borrowing now totaling $19.5 Trillion.

Government has artificially stimulated the economy and categories within the economy through SS and Medicare. For example the travel and healthcare.

As for defined pensions, how can a company even project a defined pension today? SS does not even come close. With the Treasury artificially controlling the markets and creating bubbles due to artificially low interest rates.

It is one thing to take care of those who actually need assistance, but to help those who do not need it is just plain waste. SS has created an "earned" mentality - I paid into it I want it. The problem is how to extract ourselves from it? $2.7 Trillion to pay 43 million beneficiaries today will last under four years if payroll taxes are repealed. Clearly there is a huge problem. Where is the over $8 Trillion paid by the boomers which would have a value of over $22 Trillion today? This $22 Trillion was pulled from the pockets of workers and put in SS beneficiary pockets which stimulated the economy. Now the ponzi scheme is coming to fruition. That $22 Trillion is gone. Do we rob our children and grandchildren?

If we as individuals cannot save as a total cohort enough to provide for our own retirement, then we are on an ever decreasing slope to oblivion. Both sides of the equation must balance. With SS it does not.