About 15 percent of Americans don't have healthcare coverage, so President Obama brought about the Patient Protection and Affordable Care Act to remedy the problem. At the same time, 90 percent of Americans working in the private sector can't afford to retire. The remedy? Let some of them save their own money with a workplace IRA.
President Obama described his proposal for myRA, a new retirement savings vehicle, as "a new savings bond that encourages folks to build a nest egg," aimed at those who don't currently have a retirement plan at work. According to CNBC, money will be invested in the Government Securities Investment Fund available to federal workers. That fund has an average annual return for the past three years of 2.24 percent -- barely beating inflation, given that the average annual inflation rate for consumer prices over the past three years was 2.07 percent.
So our solution to our retirement crisis is to offer those who work for a company with no plan an opportunity to bankroll most of the cost of their retirement? What's even more outrageous is that even those people covered by a 401(k) plan are far behind due to the puny employer contributions. According to the Employee Benefit Research Institute's 2013 Retirement Confidence Survey, 57 percent of households reported that they had less than $25,000 in retirement savings, including 28 percent with less than $1,000. Count me among those individuals. Despite spending more than two decades in the workforce before I started my business, I have zero retirement savings outside of Social Security -- if I weren't married to a successful businessperson, I'd be up a creek. And very few Americans are covered by a regular more-generous pension, given that only 11 percent of the Fortune 1,000 companies offer them to new hires, according to Towers Watson.
Compare the typical American's situation with that of the typical Australian. Since the introduction of its Superannuation program in 1992, assets in their version of our 401(k) plan have grown to $1.52 trillion -- more than the country's gross domestic product. By comparison, Americans have less than twice that amount, $2.8 trillion, in their 401(k) accounts, despite having a population that's 14 times the size of Australia's. The driver behind the difference? Australian employers must contribute the equivalent of nine percent of pay, compared to three percent in the U.S.
What's more, our Social Security system is among the least generous government pensions in the advanced world -- along with the UK's state pension, according to the Organization for Economic Cooperation and Development, offering only around two-thirds of the average benefit for OECD countries.
The UK may not be improving its state pension, but at least its leadership is requiring its employers to contribute to their version of our 401(k) plans -- along with requiring most employers to offer them. As of 2018, virtually every UK employer that doesn't currently offer a plan is required to enroll employees in a 401(k) style plan that features a minimum employer contribution of three percent of pay. Only the "low earners" are excluded, presumably because the state pension replaces most of their income.
If we can't enact retirement reform, the least we can do is require the folks that advise employees that they need to stay on the job until they've accumulated 10 times their salary in savings, the rule of thumb used by pension actuaries. If this goal is ever communicated to American workers, I'd be astounded. When I did a literature search on retirement readiness, I only found 10 articles that addressed this topic, and none of them discussed this rule of thumb.
This nation should be ashamed of its indifference to this crisis.