US Retirement Policy: Personalizing Retirement Security

Abstract

American households face high levels of risk and uncertainty concerning whether retirement income will be adequate, sustainable, and flexible. According to both objective and subjective measures, many Americans are not prepared to achieve financial satisfaction in retirement. The three pillars of the American Retirement System are Social Security, Employer-Sponsored Plans, and Private Savings. Though Social Security is the primary pillar, future retirees anticipate relying on employer-sponsored and private retirement savings. Reliance on these pillars varies substantially by income level. Three current problems of the American Retirement System are Social Security insolvency, longevity risk, and human decision-making errors. These current problems raise three challenges for policy reforms: (1) reduce dependence on Social Security, (2) build a “bridge” to fill the Social Security gap, and (3) promote retirement personalization and planning. In meeting these challenges, policy reforms will improve adequacy, sustainability, and flexibility. To meet these challenges, we propose three policy reforms: (1) Raise the Social Security Full Retirement Age (FRA) and implement lump-sum payments, (2) require third-party financial strength ratings of annuities, and (3) create a federal regulatory sandbox. These policies will comprehensively work to benefit Americans of all ages in both accumulation and decumulation phases. To feasibly implement these policies, Congress should consider various actions to relieve regulatory and social burdens. As a measure of success of these policy reforms, Congress should monitor both objective and subjective measures of retirement financial satisfaction. These measures reflect how well the policies promote the adequacy, sustainability, and flexibility of retirement income.