Tips for retirement planning under the Biden administration

Matthew Rutledge, Research Fellow at the Center for Retirement Research at Boston College, joined Yahoo Finance Live to discuss his outlook for retirement planning during Biden's presidency.

Video Transcript

[MUSIC PLAYING]

SEANA SMITH: It's time for our retirement segment, brought to you by Fidelity Investments. And for that, we want to bring in Matthew Rutledge. He's the Center for Retirement Research at Boston College. And Matthew, let's just start with-- we've talked a lot in the past how COVID has disrupted how people are saving in various retirement plans. But I'm curious just to get your take on the impact the new administration could potentially have on retirement planning or people's retirement plans.

MATTHEW RUTLEDGE: Well, I think there's a few things that the administration can do that would probably restore Obama era regulations. One thing that I think would help a lot is that there's a lot of people that just don't have the ability to save for retirement in a very easy way. They're not offered a 401(k) plan by their employer.

And so, one thing that the Obama administration was trying to do and that a lot of states have sort of taken the baton and run with is to set up an auto IRA plan. Those plans are very similar to the 401(k), where you have the tax advantages of saving. And you reduce your taxable income in that year. But really, I think the main thing that it does is just make saving very easy by automatically withdrawing your pay from your-- withdrawing from your paycheck and allowing you to save in a kind of an automatic way, so that people don't have to actually have to think about it.

ADAM SHAPIRO: Dan, help us--

MATTHEW RUTLEDGE: Another thing that I think the Obama administration could-- oh, sorry, go ahead.

ADAM SHAPIRO: That's OK. 401(k)s, it used to be 50% of the population had access to them. Only 50% of that 50% actually funded that. What are the numbers now, though? Because-- and we do need to address people who don't have access. But of those who have access, what are we funding at, at this point? It's gone up, I believe, hasn't it?

MATTHEW RUTLEDGE: Quite a bit up. And as a result of the greater use of auto enrollment, where you don't have to make it so that the employee actually has to do anything. They don't have to even sign a paper. In fact, the way auto enrollment works is, you have to sign a paper not to participate. You take advantage of people's laziness that way, that choice architecture as a way to really get people saving more. And so, among the people who are eligible, many more people are now contributing to saving. Something like 3/4 of the people who are offered are now actually saving something, which is so much of a big improvement.

I think the one thing we would be concerned about with auto enrollment, though, that they may be auto enrolled at a very low saving rate. And that's something that, to increase that level, would still require that extra level of effort on the part of the employee to actually save enough to retire. If they're defaulted in at only a 4% savings rate, you know, that's really not going to be enough to retire on.

So what you would want to make sure you have is something like auto escalation, where gradually over time, they would be saving more. Or try to make it so that people actually do make that active decision to try to save something more like 15% or 10% once you include the employer match. Now that's going to be a lot better. That's going to get people a lot more prepared for retirement.

SEANA SMITH: Well, there's still a lot of Americans, though, that don't have-- that are at a disadvantage because they don't have access to 401(k)s. Or companies don't provide matches like the ones that you're talking about. So what can they do? And also, how do we, more broadly speaking, address the part of the population that has fallen behind on retirement planning?

MATTHEW RUTLEDGE: Well, I think there's a couple of things that we would worry about. First is we want to make sure Social Security remains there. It's still the most important part of the safety net when it comes to retirement. There's still many people that don't really even-- even if 401(k)s were available, they probably wouldn't have the ability to save or not much flexibility in their budgets to find room to save.

And so, making sure that Social Security is there as at least the basic level of people's retirement consumption I think is really important. We haven't really seen much discussion of the importance of Social Security even in the presidential debates or even in the primaries. It's kind of surprising, considering that the weakened economy over the last year have probably made that Social Security trust fund exhaustion date move up. Some time within the next 15 or maybe even 12 years, we're going to have to do something to make sure that Social Security doesn't go away and put the onus entirely on people to actually save enough. Because we know they can't really do that.

Aside from that, I think it's going to be important to make sure that people do have access to, whether it's an employer plan or an auto IRA plan, or just make it very easy for especially small businesses to enroll their employees and the entrepreneur themselves into some sort of savings account and to some sort of investment income.

ADAM SHAPIRO: I'm glad you brought up small business because there's this issue a lot of small businesses face. The IRS actually has on its website very simple to follow program where you can create these four, and they're designed for small businesses. I want to get back to the Social Security issue you just brought up because lots of people walk around with the mistaken idea that it runs out of money. It doesn't run out of money. It runs out of the ability to pay 100 cents on the dollar. We're looking at $0.70 on the dollar. The problem is, right, that most people-- Social Security, if you don't have anything else, it just barely keeps you above poverty. So it's $0.70 on the dollar. That's the threat, right?

MATTHEW RUTLEDGE: Yeah, exactly. There's especially a concern among my students generation or even my generation that they're not going to get anything out of Social Security. And I think that makes people feel very defeatist. You know, like, there's nothing that they can-- that the government can do or that the people that they would be voting in can do to try to make it so that Social Security is still something that we can rely on.

That's just not true. As you mentioned, you know, we're still talking about 70% to 80% of what has been promised or what the typical earner in the previous generations would have been able to get out of Social Security. That's not nothing. It's just that when people are right on that border, any little bump down is going to make it that much harder to support themselves and the kind of lifestyle that they're used to living.

SEANA SMITH: Matthew Rutledge, great to talk to you, Center for Retirement Research at Boston College. Thanks for taking the time to join us.

MATTHEW RUTLEDGE: Thanks for having me.