An event from Yahoo Finance, the Bipartisan Policy Center’s Funding our Future coalition, and the Alliance for Lifetime Income looks at the challenges facing America’s retirees in a high-inflation economy. Featuring interviews with Sen. Roger Marshall (R-KS), Jean Chatzky, and more.
RACHELLE AKUFFO: Good afternoon, everyone, and thank you for joining me for this important program. Now today, inflation is disrupting household finances, as higher prices erode workers' recent wage gains and retirees' monthly budgets. Meanwhile, a volatile bear market is putting retirees' income-producing investments at risk. This event will connect the dots between inflation, financial resiliency, and retirement income security.
Our guests today include Senator Roger Marshall of Kansas and some of the nation's brightest minds in retirement security. And we'll discuss how policy changes, paired with new programs and financial industry innovation, can help Americans establish financial security, even amid the tumult.
Now, I want to thank the Bipartisan Policy Center's Funding our Future Coalition and the Alliance for Lifetime Income for sponsoring this terrific event with us. Now, the Funding our Future is a cross-sector coalition working to secure a better retirement for all Americans by making retirement policy a top priority for lawmakers. You can find out more about their work at FundingOurFuture.us.
Now, the Alliance for Lifetime Income is a nonprofit organization created to educate Americans about the importance of having protected income in retirement. You can learn more and access their free financial planning tools at ProtectedIncome.org. Well, now let's turn to my interview with Senator Marshall. We started by talking about how retirees are doing at the moment.
ROGER MARSHALL: Well, certainly, the number one topic back home is the cost of groceries and gasoline, the cost of rent. So whether you're retired or a young married couple with two kids, that inflation is absolutely a social injustice, that it hits them, impacts them more than anybody. And the challenge right now is this double whammy. Whatever the peak of your retirement accounts value was, it's now about 20% to 25% less.
And then on top of that, inflation, you know, over two years is probably 13%, 8% of the past year, 5% the year before. So at the end of the day, you only have about 70% of your purchasing power. So you were counting on your nest egg to be this big, and all of a sudden, it's this big. So it's a huge problem right now.
RACHELLE AKUFFO: And we know that there are 20 million Americans who are actually nearing retirement or those who perhaps, if they want to get an early start, obviously, they've lived through different kinds of financial crises, and they're seeing what some of their parents, perhaps, are going through. Talk about the most significant changes that the Rise and Shine Act in the works in the Senate brings, and what the SECURE 2.0 Act adds to it as well.
ROGER MARSHALL: Right. So this Rise and Shine Act in the Senate, what its goal is to number one, is to give employees and employers more flexibility, more options, more transparency. And what I really liked about it is this rainy day fund. So I'm a big Dave Ramsey fan. My wife and I took that early on. We teach it at our church. I don't teach it, but our friends teach the course, so setting up a rainy day fund. So this would allow some more flexibility and setting up that rainy day fund for three to six months of cash.
But it's all just spitting in the wind, if you'll forgive me right now, with inflation where it is and with the stock market down so much. It's just not going to do any good. We try and try, we're putting fingers in the dikes, but the real problem is inflation and the stock market.
RACHELLE AKUFFO: So for people who are wondering about the provisions in the Rise and Shine Act, how would you describe how it impacts them? What can they expect?
ROGER MARSHALL: Well, you know, first of all, it's going nowhere. You know, this was not a priority for this president or this Senate. So it was turned into more of a messaging bill. Its opportunities were to give more flexibility and especially, if your people are taking out their funds as one chunk of the retirement plan, all at the same time, is to set some protections around that.
I think people are probably leaving some money on the table when they take out a mass lump. And we were trying to protect the consumer, so to speak. So there were good things in it, but basically, it had nothing to do with carbon, so therefore, it's not a priority for this president or Leader Schumer.
RACHELLE AKUFFO: So I want to talk about you obviously proposing this study when it comes to retirement savings there. What is it that you're hoping to achieve? And what would you like people to really do with the results of this study as well?
ROGER MARSHALL: Right. So think about the reference time of when we were offering this amendment. So we're considering a bill about retirement, maybe six months ago. And even then, I was much more concerned about inflation than I was trying to set up these perfect retirement plans.
So the purpose of that amendment was to point out to my colleagues that inflation was the true problem. So I was going to hopefully set up a proactive study of how inflation would effect retirement plans. But guess what? Now we can do a retrospective study. So the retrospective study is just about everything we're talking about today, how 13% inflation, additive inflation over the two years has impacted your purchasing power to the dollar and eventually, how it impacted the value of your stocks as well. So that was the purpose of it.
RACHELLE AKUFFO: But clearly, this is something that you're very passionate about. How did you come to be so passionate about this? What were really the driving forces behind you moving forward on this?
ROGER MARSHALL: Oh, you know, I think it was the right thing to do. Sort of, it was a bipartisan opportunity. I'm a sandwich generation person, so I've got parents that are certainly retired, and at the same time, I've got kids with young families. So, you know, whenever we have an opportunity to help people out, to make their lives a little bit more comfortable, then we want to do it. I think the transparency is always good. So I think that was a great part of the bill.
RACHELLE AKUFFO: Now, of course, once lawmakers, everyday Americans, employees are sort of wondering how all of this plays out for them. If you're an employer and you're seeing some of these provisions coming to pass, what messages do you have for them about what they can expect?
ROGER MARSHALL: Are you saying that if this would pass?
RACHELLE AKUFFO: Yes.
ROGER MARSHALL: OK. So first of all, it's going nowhere. It's dead at this point in time. We're running out of days to pass it. It was not a priority for the Democrat party, but if it would have passed, I think it would have given employers more opportunities, more options, if you will.
And certainly, I'm not a financial expert. So I think if you're a small business or a big business, you would use your HR people to say, how can we design a better retirement plan? But what I was really excited about was this rainy day fund, is how could you help your employee set up this rainy day fund because we all do have a rainy day at some point in time. Maybe it's. you lose your air conditioner. Maybe a hurricane hits, and you lose your range, your washer, and your dryer.
RACHELLE AKUFFO: And so as you look at some of the other provisions of SECURE 2.0, what really stands out to you is what could be potential game changes for Americans who are looking at the cost of living, who are looking at retirement?
ROGER MARSHALL: Well, you know, unfortunately, with 13% inflation over the last two years, they're just not much in there that could be a game changer. That's the real problem here. The real problem is inflation and the stock market tanking because of horrible policies coming out of the White House, policies that drive up the cost of energy, policies that drive up the price of groceries, and policies that drive up the cost of housing.
So this would have been a small piece of the puzzle. It could have helped people, but right now, the problem is inflation, and the problem is just the lack of financial security people have.
RACHELLE AKUFFO: So is there any hope in terms of perhaps harmonizing what we see in SECURE 2.0, Rise and Shine, like, in terms of seeing how those might at some point get harmonized or some point see some movement? I know it's difficult in a midterm election year, as we do get so close to it. Any sort of optimism that you see as a path forward, perhaps, with retirement savings?
ROGER MARSHALL: Well, I wish there was, but I can just be pretty frank here and tell you that there's just not a conversation right now. Right now, we're just trying to keep the government open. We're living from crisis to crisis. And what the big concern is the White House is not reversing any of its policies. That's why I've said since, you know, over a year and a half ago, inflation is not transitory. It's going to continue to get worse.
RACHELLE AKUFFO: And if you were able to wave your political wand, what would be your top five priorities that you would want the administration to focus on, that would be the most beneficial to retirees?
ROGER MARSHALL: Yeah. You know, I think number one, of course, is inflation. So the drivers of inflation, like I said before, energy, food, and housing. So what policies could decrease the cost of energy? Well, that would be giving more flexibility to American energy companies to set American energy free.
When it comes to the cost of groceries, this president has declared a war not only in American energy, but also on American agriculture, which is driving up the price of food production.
When it comes to the price of housing, the supply disruption has been created by this president, paying people more to stay at home than to go back to work. So we need policies that would get people to go back to work rather than to stay home. So that's where I would start.
RACHELLE AKUFFO: I mean, it is tough because obviously, for a lot of people, their nest egg is in their home. And as we've seen house prices go up, it means people want to sort hold on to their equity and not move, and that's really not also helping with the housing crisis.
In terms of the cost of living, then, do you have any expectations, then, as you look at what's happening with inflation and some of the stickier parts that perhaps there will be some relief, that we will see inflation start to temper down any time soon?
ROGER MARSHALL: No, not at all. I mean, again, the president is doubling down on his policies that have caused inflation. And we have a president that don't even recognize that there's inflation. Look, inflation, the cost of living is up 8% compared to a year ago, which is up 5% compared to the year ago before that. And you have a president who's saying, inflation is up just about an inch.
We have a president who says that the stock market value has no relevance to Americans, American retirees as well. So unless there is a huge change up here, inflation is going to continue. And we're really getting this double whammy of quantitative tightening along with these regulatory policies that are driving up the cost of living.
RACHELLE AKUFFO: So then, obviously, then, if you're saying this is dead in the water in terms of the policies for what we're seeing with retirement savings, what advice would you have for people then who, essentially, at least for now, will have to take their retirement planning into their own hands?
ROGER MARSHALL: Get out and vote in November to change the policies of the White House, which is killing the value of your retirement plan and that's driving up inflation. Look, elections do have consequences. And certainly, you know, what advice would I give my parents? Don't make any big changes. Don't try to get rich quick. Go take a Dave Ramsey course. Use a trusted financial advisor.
I'm a physician. You would want to come to me to get advice on-- if I'm an OB/GYN, if you had breast cancer, ovarian cancer, you would want to come to me and get advice about that. Your retirement plan is your nest egg. Your home and that retirement account are probably your greatest assets, so find a trusted person that you have a long-term relationship with that's not this get-rich-quick scheme and make a plan for you, and enjoy your time.
Enjoy your time with your family. Focus on things that matter, the spending time with your family, doing things that you enjoy. And it's not always-- money doesn't buy the happiness. Doing fun things shouldn't necessarily be the most expensive things to do.
RACHELLE AKUFFO: We certainly hope not. A big thank you, Senator Marshall, for joining me this afternoon on Yahoo. Thank you so much.
ROGER MARSHALL: Of course. Thank you.
JASON FICHTNER: Hello I'm Jason Fichtner, Vice President and Chief Economist at the Bipartisan Policy Center. For more on the retirement policy landscape, we're now joined by Andrew Biggs, a senior fellow at the American Enterprise Institute, and Teresa Ghilarducci, a labor economist focusing on retirement security at the New School. Thank you both for joining us.
TERESA GHILARDUCCI: Good to be here.
JASON FICHTNER: So want to get-- sorry. I want to get started right away because we have limited time. There's a popular narrative now that we have, basically, a tale of two retirements, one for the haves and one for the have-nots.
And while that narrative is framed along income and wealth, another way of viewing the narrative is generational, where the Baby Boom generation had access to defined benefit pension plans with income paid out in retirement for life, while the younger Millennial and Gen Z generations have a defined contribution plan, which may or may not come with an employer match, and there's questions surrounding access. What are your thoughts? Do we have a tale of two retirements? And Teresa, I'll let you go first please.
TERESA GHILARDUCCI: We definitely have a tale of two retirements, Jason, but it really has nothing much to do with the DB or 401(k) distinction. The DB pensions really hadn't covered everyone. They were best when unions negotiated them, but since unions have been crushed in the last 30 years, the defined benefit system really only lives in the private sector.
We have a tale of two retirements in the 401(k), do-it-yourself voluntary, commercial, individual directed space. Take two people. They could be Millennials or Gen Z people. One will have jobs like Andrew and me, and others will have jobs like my cousin, who went into construction at 18 or my other cousin, who went into personal training after college at about 25.
The person like Andrew and me who have had a stable life, a stable work. We've been covered by 401(k)-type plans all of our lives. We'll work 40 years or more. We've had no time out of the labor market. We haven't been unemployed, and we've continually saved 8% to 15% of pay. And crucially, we have gotten raises, so saving our raise and saving a little bit more was fine. And we'll do just fine in the DC world.
They're especially fine because we got federal and state subsidies in the form of sheltering our taxes when we contributed to those plans. And, you know, 70% of those tax expenditures go to the top 20%, so we'll be OK, but my cousins have had divorces.
They have jobs that forced them out way before they were ready to. They had intermittent employment. They had intermittent savings accounts. They had conservative investment portfolios. They never had the benefit of a professional manager, and they won't be OK. And they probably paid penalties to take money out during their work lives, rather than get the kind of cushy subsidies that we gained. So that's about as different as a projection of retirement, and it all comes from our American system.
JASON FICHTNER: And Andrew, I have some follow-up-- I want to hear your thoughts first, and I'll ask some follow-up questions for you both.
ANDREW BIGGS: Sure. Well, I thought Teresa laid out a lot of interesting, useful stuff. I think, in a sense, we have kind of a tale of three cities. I don't want to complicate it, but, you know, the first one would be the traditional defined benefit system, and that worked well for some people. First, you had to have a defined benefit plan. And most people never did. And you also need to stay with the same employer for your whole career. If you did that, it was great.
Then we shifted into the early 401(k) plans, and those had advantages in the sense you could take them from job to job, if you were switching jobs. They were also much more common. It was employers are much more willing to offer a 401(k) than they were a traditional pension, but they had downsides. The fees were too high. A lot of people fail to sign up for the plans. The investments were often confusing. And there weren't really any options for converting that lump sum of money into income and retirement.
Today, I think we're shifting into sort of our third retirement city, where the defined contribution plans, the 401(k)s are adopting some of the things that made traditional pensions work. Going towards automatic enrollment, so we don't have to choose whether to participate. We simply sign people up. That's a step in the right direction.
Shifting from sort of a do-it-yourself investment portfolio to what's called target date or lifecycle funds, where that you're automatically shifted from stocks to bonds as you get older. That's been very, very helpful for people. Fees on these funds have dropped considerably as you more competition, as we shifted out of active investments.
The next step, I think, is how do we convert those lump sums. And people really do have quite a bit of retirement savings today. How do we convert that into an income that'll last you for life similar to what pensions had?
So I think the progression of retirement savings in the US has been kind of messy because everything in the US is messy, but I think, ultimately, we're going in the right direction. Retirement savings are up. Participation in these plans is up. Retirement incomes are up. So I think we are going in the right direction.
JASON FICHTNER: So Teresa, let me follow up on the question on this because what Andrew lays out seems to make historical sense when you look at the landscape of what's been happening historically, and where we are today, and how we're moving forward with the retirement landscape, with defined contribution plans, adopting these DB-like systems.
You pointed out sort of the loss of union wages and union power, but I don't think the DB system's coming back. And you mentioned your cousin who has different jobs and moves around. As Andrew mentioned, the DB system was designed for one job, and you basically got incremental benefits the longer you stayed, which doesn't help those who have intermittent jobs or move around.
With the DC plan now, we're trying to make that wealth accumulate and then maybe have some sort of payout structure, but you have to then have wealth at retirement in order to have a good payout. So if we're going to that defined, that DC world that has NDB payouts, how do we help those who have the intermittent jobs or the gig workers? What can we do to help them, if that's the world we're going into?
TERESA GHILARDUCCI: Right. Yeah, let's not debate DB versus DC. It does turn out that people who've had a little bit of DB coverage all their lives, they turn out to actually be a lot better than people at DC coverage all their lives, but that's over. What can we do now, forward, to help people like my cousin?
Well, it might be a little too late for my cousin, but we need to make sure that people start accumulating retirement savings from the very beginning. Voluntary incentives haven't worked. With voluntary plans, you get half of the people in a plan, and that really kind of is stuck. And you can see that over almost every national system. International comparisons show the rule of thumb is if you have voluntary contribution, you're going to have half of the workforce.
So I have proposed-- I think we've talked about my plan with Kevin Hassett. Looking very far to my right, he advised President Trump and his council of Economic Advisors, we both have a plan to really bring everybody into a retirement plan from the very beginning that they work, whether they work on and off, like my cousins and intermittent or informal employment, formal and informal employment.
You just contribute, just like you contribute to your Social Security plan. And that money is managed professionally, and it's only available for when you leave for retirement. And you also distribute the tax subsidies for that plan in a much more equal way. So we need a mandatory universal pension system that goes along with Social Security.
JASON FICHTNER: So we'll come back at the third and final question with policy recommendation. So Andrew, I'll give you some time to think about what you'd recommend, but I want to turn to the second question, which is, the Federal Reserve has been rapidly increasing interest rates. And we're hearing a lot of discussion about inflation, the possibility of a recession, and the Federal Reserve hitting the brakes too hard and having a hard landing for the economy.
Is this going to impact retirees or is Social Security going to have a nice cost-of-living increase, where retirees won't feel a thing? How is inflation and interest rates affecting retirees and other disproportionate impacts on retirees versus other consumers?
ANDREW BIGGS: Well, I think that's a real good question. I think it's, on average-- and averages can be deceiving-- on average, I think retirees will come through this better than working-age households. One reason is that retirees tend to be net asset holders. They have a lot of investments in their retirement accounts. They tend to own their homes outright. So in those cases, higher interest rates can sometimes be beneficial.
Likewise, retirees are mostly out of the labor market. And so if we do have a hard landing, it's obviously going to hit younger people more, but again, it's a very mixed bag because those higher interest rates are coming with higher inflation.
Some retirees, the lowest-income retirees, will tend to be mostly protected by Social Security. People at the top are protected because they'll have their assets as a hedge. It's folks in the middle where I worry a little bit more about that. So there isn't a single story to tell. And I think we just have to see, you know, how things are going to play out over time.
JASON FICHTNER: Teresa, you have any additional thoughts?
TERESA GHILARDUCCI: Yeah. You want to bottle this answer. I agree with everything Andrew said. I do want to point out--
ANDREW BIGGS: Thanks. We're done.
TERESA GHILARDUCCI: [LAUGHS] I do want to point out, though, there are some people that may even be very much benefited from the higher interest rates. And those are retirees that have put some of their savings in very conservative accounts, you know, so they're seeing actually the benefit of interest rates on their savings.
The stories that we're hearing about retirees that are really suffering from price increases are pretty typical. They are people, like Andrew says, are poor, and they rely on most of their income from Social Security. And true, the Social Security benefits are indexed to inflation. Things would be a lot worse if they didn't, but that Social Security was never enough to begin with. And so their fate-- and if they rent and they don't own their houses, their rent is going up.
So we saw, you know, last month-- Jason and Andrew, I'm sure you were shocked by it-- that the poverty among elders in this country has gone up. And some of that is just their income has not gone up, but it's probably under-reported how much fragility they're facing because their are other costs have gone up and not really in line with Social Security.
JASON FICHTNER: This is a good, you know, segue, sort of our last suite of questions because, you know, for all the partisanship and rancor we're seeing in Congress right now and across America, the one area where there is a lot of bipartisan agreement is on retirement security and trying to help people save for retirement and secure a better financial security in retirement.
And Congress passed SECURE Act-- we call it now 1.0-- and they're currently considering a suite of bipartisan bills aimed at addressing and improving retirement security, which we're often now referring to is 2.0 version of the SECURE Act. And does what's being considered in Congress now do enough to help retirement and people in retirement? Is it not going far enough? Are there things we're missing? So Teresa, I'll ask you. And then Andrew, I'll ask you to sort of close out with what you think we should be doing. Teresa.
TERESA GHILARDUCCI: I wish I could say that they're going to-- that these proposals will solve a significant amount of the problem, but it just won't. And I think a lot of the worst ideas in the bill have gotten preserved, and some of the best ones got thrown out. Let me just say, the clearinghouse for people to find their lost accounts is a good idea. The Pension Rights Center is one of that. It's still there, but it's not going to move the needle on average at all. It'll help one or two people, a handful of people.
It has two other things that people, we might like, but it really is regressive and doesn't help the retirement inequality. It certainly makes the tale of two retirements, the inequality, much, much worse. And that's allowing people to delay collecting from their IRAs without an income tax penalty from 70 to 72. Well, that helps the people who don't need their IRAs until they're older. They have a lot more in their accounts.
And then this other wacky idea to provide better catch-up contributions for people who are over 60. That's the idea that you get more of a tax break if you even put more money into your Social Security. And that really only helps people at the top.
There's only a handful of people who actually get real wage increases after the age of 40 and 50, you know, wage increases that beat inflation. A disproportionate number of those are white men with professional degrees. So if you want a proposal to help white men with professional degrees and high incomes, this would be the legislation for you.
JASON FICHTNER: And Andrew, in the final minute and a half we have, do you think SECURE Act 2.0 is, to Teresa's point, there's some good and some bad, so it's another case of the good, the bad, and the ugly? Is there more that Congress should be doing they're not talking about? What do you think we should be looking at and what should Congress do?
ANDREW BIGGS: Well, I'm a white man with a professional degree, so I should like the bill, but the reality is, I don't really like it much more than Teresa does. The reality is-- and I agree with Teresa on this-- the financial incentives to participate in retirement plans don't do a heck of a lot.
The provisions in the SECURE Act that were much touted in the press of moving towards automatic enrollment for 401(k)s are so weak and watered down, I don't think they're going to have any effect on retirement savings.
At the end of the day, you know, I'm optimistic about our system, but if you think more people need to be saving for retirement, we have to automatically enroll them or we have to mandatorily enroll them. The shifting of the deck chairs around in the SECURE Act, I'm not saying it's all bad. And Teresa makes some good points. But at the end of the day, if you are one of these people who thinks we face a retirement crisis, the SECURE Act and SECURE Act 2.0 aren't nearly enough to do the job.
JASON FICHTNER: Well, we are running out of time. And I would love to make the offer to have you guys come back on again so we could have another 15 minute chat and just talk about solutions because we could get into how we can help people delay claiming Social Security, how we could help people better annuitize or partially annuitize their 401(k) balances.
So we'll put that up to Yahoo Finance to bring us back on and do us again at some point for another 15 minutes. But for now, I'll say, thank you, and thank you all for joining us. Now, I'll hand it back to Rochelle Akuffo for more on the personal finance side of these important issues. Thank you.
RACHELLE AKUFFO: Thanks so much, Jason. Now, the last thing we have for you today is a conversation with three personal finance experts. We'll be joined by Jean Chatzky, the CEO of Her Money, David Blanchett, the head of Retirement Research at PGIM, and Ida Rademacher, the executive director of the Aspen Institute Financial Security Program right after this.
A big thank you to Jean, David, and Ida for joining us. So first, for a lot of people who were looking at their 401(k)s, they're seeing what's happening. For those who are currently in retirement or those who are approaching retirement, I wonder if each of you could give just a piece of advice for people who are worried about how inflation is going to be affecting them in the years ahead. Jean, if I could start with you, please.
JEAN CHATZKY: Sure. Absolutely. And I think controlling the things that you can control is sort of the order of the day when we're looking at inflation, when we're looking at the volatile markets, when we're looking at interest rates. There's only so much that an individual can do to right their financial situation. And grabbing on to those things is really the key to being resilient during these times.
And so if you can get yourself to focus on your budget and making sure that you're paying attention to where your money is going, that you're tracking your spending, that you're spending in a way that makes sense to you, and you're not going overboard, particularly, as we head into the holiday season.
Also, when you're looking at those interest rates, now's the time to try to grab a little bit of additional money on your cash. Now's the time to be aggressive in the areas where you know that you can be aggressive. And just try to keep your head down and move ahead on the straight and narrow, and you'll get through it over time.
RACHELLE AKUFFO: And, David, advice from you. Obviously, it can be quite overwhelming for people looking at their 401(k)s, especially right now.
DAVID BLANCHETT: Yeah. I mean, the first thing is that inflation is a very personal number, right? The CPI is a weighted basket of goods that all Americans consume. And so the first, kind of understand how this has affected you. And I think more importantly, the question is, is what do you want to do going forward?
And I think that for a lot of folks, for example, who weren't maybe interested in delaying claiming Social Security, it gives them an option to kind of hedge against future inflation increases. So I think the key thing is to understand what it's done for you, then what you can do in the future if this happens again.
RACHELLE AKUFFO: And also, Ida, for you, because a lot of people are wondering, should I retire? Should I hold off on it? What sort of advice do you have for people who are trying to really try and make these decisions right now?
IDA RADEMACHER: Yeah. I think I'd follow suit with the advice already given for those who are close to retiring. As we look at inflation and recession, I'd point out that for those that are younger in their working careers, there is less retirement savings for those, you know. We still have about 57 million people in the US who didn't have access to retirement savings.
Those who have long horizons should take part in their plans, and there's policy changes that are going to make that even more accessible for people to have retirement savings plans. So the long-term practices shouldn't change, the idea of investing in your future. And if anything, the sobering realities of what's happening right now in terms of both rising costs and the need for thinking about long-term savings should be something that doesn't dissuade you from investing and from saving for retirement.
RACHELLE AKUFFO: And Jean, Ida raises a good point. Obviously, we already have high inflation that people are dealing with, also potentially planning for a recession, depending on whether the Fed can stick that soft landing. So when you have this sort of one-two punch, how does that affect people depending on the saving and income levels that they're at?
JEAN CHATZKY: Yeah, it's incredibly different depending on where you are. We know that this kind of a one-two punch impacts people at lower incomes, people living paycheck to paycheck most because they don't have the wiggle room to deal with inflation.
But Ida made a terrific point that, you know, if you are older and if you're at your higher earning levels and you can, in fact, delay retirement for a little while, opt not to retire, not to make those big changes right now, even hanging on for another six months, another year, another year and a half, if you can gives you that opportunity to delay Social Security, to allow the money in your retirement accounts to continue to grow because you're contributing to it, but also potentially to come back from this sort of a downfall.
And for those folks in the middle, if you don't have, as she said, the opportunity to contribute to a work-based plan, getting into an IRA, getting into some sort of a plan for retirement that you have ginned up yourself is really the order of the day. You know, many of the strategies that we're talking about are the tried and true sort of save, invest, stay with it, don't panic, but that's what's going to get us through this period.
RACHELLE AKUFFO: And David, a lot of people are wondering, how can I protect what I already have or perhaps how can I maximize what I already have? Talk about some of, perhaps, the policies or the new ideas that are in the best position to protect these sorts of investments.
DAVID BLANCHETT: I think that, again, everyone's in a different spot in terms of saving for retirement, right? I think that, you know, there's definitely under savings. I think that individuals haven't saved enough. And so the first thing we need to is get people to save more. You know, as I mentioned, I think we need to increase coverage and increase savings rates.
And then I think as you approach retirement, you start asking questions, you know. How am I going to make the income that I have-- or excuse me, the savings that I have last for a lifetime? And that's a really tough thing to figure out. So I think that we need to give people more access to savings, better strategies to help them kind of figure out how they're going to make their money last.
RACHELLE AKUFFO: And Jean, people in the middle class seem to be getting squeezed the most in these sort of situations because they are actually at greater risk of running out of money in retirement. How should they go about protecting themselves?
JEAN CHATZKY: You know, it's interesting. This question of running out of money in retirement is not one that we have really educated people on nearly enough. We've talked for years about the need to accumulate money for retirement. You should save. You should max out. You should grab the matching dollars in your 401(k). You should open an IRA or a Sep IRA if you don't have access. Contribute, contribute, contribute.
But the question of running out is a very different question and requires a strategy that is just as well thought out because we're talking about a period of retirement that can last 30, 40 years.
And so that involves thinking about things like, how can I delay Social Security so that I am able to get the most for that investment that I've made in my own future? How can I put my career into a trajectory so that I can continue to work and put off taking Social Security until I'm full retirement age or even longer?
And then it involves thinking about things like ways to make the money that you've saved yourself last. We're embarking on an era where more plans will be able to offer things like annuities within retirement plans. That's going to beg some understanding. It's going to require increased education, but those are the sort of strategies that particularly people in the middle class are going to need to think about in order to make sure that their money goes the distance.
RACHELLE AKUFFO: And Ida, as we know, when it comes to money, when it comes to anything, really, simple and easy don't always go hand in hand, but a lot of people are actually sacrificing some of their essentials to try and make ends meet because of inflation. So Ida, are there any sort of public policy proposals that are either in place or in the works to really help people so that they don't have to make some of these very hard choices?
IDA RADEMACHER: Yeah. I think that there's-- people don't just have a short-term financial life and a long-term financial life and then the rest of their life. They have to think about their health care, their housing, their retirement. And they'd have to think about that now, and, as Jean said, for longer and longer life spans.
And those issues are especially critical for women, who tend to have even longer life spans and have, you know, a wage gap and a wealth gap to contend with as well. Many also work part time, and there has been relatively few opportunities for retirement savings in part-time work. And that is, hopefully, another thing that will change.
And I think the other thing that is critical, especially during a recession or any time is just understanding that people today who are working and are trying to even extend those working years, like we just talked about, are probably going to be working with multiple employers over time. And the savings you accumulate here or there in very small pots often don't talk to each other. They don't connect. They don't actually come into the same account.
So increasingly, when we really want to help folks, we want to think both about the portability of retirement savings. We want to make it easy for them. And we need to think as well about how else do we manage expenses? And not just on an individual level, which is important, but in terms of policy. You know, the biggest issues in addition to savings and continuing to work and get earned income is what's going to happen with rising costs?
Long-term care insurance, health insurance, all of those things come into play as well. And there's other policy dimensions that we should be thinking of as well to help make sure that as much of the routinely positive cash flow people are getting into their wallets can stay with them to handle the essentials.
RACHELLE AKUFFO: And it's tough because obviously, David, you can only plan for so much. Obviously, nobody saw COVID coming. And with inflation at a 40-year high, you have an entire generation of people who've never experienced inflation on these levels. So when people are trying to really figure out how they can ensure that their retirement accounts for some of these potential inflation risks, what sort of strategies do you recommend?
DAVID BLANCHETT: Well, I mean, the problem is is there's not necessarily a ton of strategies out there that are linked directly to inflation. I think we've all mentioned this already, but the one strategy that does have an explicit inflation hedge is the late claim of Social Security. Benefits are linked to the CPIW. It's a great way to kind of hedge both inflational risk and longevity risk.
I think that, you know, there's a need for other types of investments called real assets and portfolios, you know, things like commodities, things like tips, infrastructure, assets that just tend to do well when inflation is higher. I think that too often, investors think about just stocks and bonds. I think adding things to portfolios that can help ensure when inflation is high, the portfolio does better is really important for investors that have 20 or 30 year time horizon.
RACHELLE AKUFFO: And Jean, how do you see protected income playing a role in this, this sort of strategy that people can have?
JEAN CHATZKY: Look, I'm a fan of making sure that you've got enough protected lifetime income to at least cover your fixed costs. I think we would all agree that the length of retirement is so long, you are going to need growth on your investments throughout. You're going to need money in the market throughout retirement in order to do things like keeping up with inflation.
But having enough protected income in the form of Social Security, any pensions, if you're fortunate enough to have them-- and many people are not these days, most people are not these days-- as well as annuities that you have crafted or picked up along the way, just enough to make sure that you can keep a roof over your head, that you can make your Medicare premium payments, that you can put food on the table, that you know that your fixed costs are covered and that you don't have to worry about those things.
The wild card-- and Ida talked about this-- is health care and long-term care. And that's where it gets very, very difficult to insure for the outcomes because we don't know what the outcomes are going to be.
RACHELLE AKUFFO: So then, David, a lot of people then get a lot of acronyms about different sort of accounts that they can use to perhaps help them with market volatility or as best as they can, be an inflation hedge. Are there specific types, though, of retirement accounts that you would recommend that it will help better protect people?
DAVID BLANCHETT: Well, you know, there's certain types of accounts, right? I mean, there's 401(k)s, there's IRAs, there's taxable accounts, and all of that. I think the key is really kind of trying to understand, you know, how this all makes you feel to some extent, right?
I work for an investment company. We spend all day building these efficient portfolios, and this is maybe to Jean's point. If you can't sleep because the market's down 25%, inflation's up 8%, you have the wrong strategy.
I think that there's the academic aspect of these decisions and the behavioral. Aspect I think that there are assets that you conclude in portfolios, but to me, there's these larger structural issues about, how do I craft a plan that makes me comfortable with all the uncertainties that exist out there? So I think that that's kind of the key, is understanding not only what is the right kind of portfolio aspect of things, but also just the right strategy.
RACHELLE AKUFFO: And David, you raise an interesting point because, obviously, everyone has their own personal relationship with money and risk that's really going to inform how they approach these things. And you mentioned, if these are the sort of things keeping you up at night, perhaps a different strategy, a different sort of retirement account.
Ida, I want to bring you in here because as we look at the demographics, how they're changing, by 2024, the US is expected to hit peak 65, when the greatest surge of Americans turning 65 comes into play. So when you think of things like employers and financial professionals, what role do you think this holistically can all play in really improving the outcomes for some of these retirement savings accounts?
IDA RADEMACHER: Yeah, it's a great point. And as Jean said, you know, even though pensions, defined benefit plans are on the wane, this is the last generation that had some kind of high proportion of folks that had access to that. And of course, those pension plans did help with the cost of living as it rises.
When you're in just 401(k) savings or you don't have any savings at all, these are the things that we have to start to contend with as we look at retirement policy for those 65 and below and how we make sure that we have access for every worker in this country. Because of that, the role that employers play is critical, and it's changing rapidly. We really have seen a whole new generation of benefits coming together on some of the platforms in terms of your benefits bundle to help people manage both their short and long-term financial lives.
So emergency savings offered through an employer increasingly. Obviously, the other kinds of different savings accounts that are helpful. We've been looking at people even just in terms of scheduling for folks so that they can pursue either multiple jobs or jobs in career education. It's not too late to think about what is the additional way to get training to continue to stay viable in the labor market for longer.
I think that we're excited to also look at the next generation of benefits being the way that private employer benefits operate in tandem with public benefits and the safety net that's out there because that's going to be important in an inflationary space as well. I think that the more employers really understand that the priorities of some rising generations are paying off student loan debt, and some of the new retirement legislation that's working through Congress right now kind of recognizes and incentivizes employers to help address student loan debt at the same time they're helping people build for retirement.
So I would say, watch this space. This is a place for employers who care about the financial well-being of their workers to really lean in on an exciting new set of innovations and benefits that are going to be coming online in the next few years.
RACHELLE AKUFFO: So Jean, then, as we look at this sort of next generation of benefits, it does sort of shake up what we traditionally look at when we think of financial planning, not just, obviously, Social Security education, but things like how we approach student loans, but even health and lifestyle as well. Tell us more about that and how people should be considering that also as part of their financial planning.
JEAN CHATZKY: Well, I don't think there's any doubt that you can't separate health and wellness, health and financial wellness anymore. If you are not healthy going forward, your financial life is very quickly going to run off the tracks. And if you don't have your finances working for you, that may be OK in your 20s and your 30s, but by the time you get to your 40s and 50s and 60s, it's going to be much harder to stay healthy if you don't have the money to do that.
Employers are realizing this, and they're also realizing that their workforce is counting on them to step up and help them with all aspects of their wellness, not just their health and their financial wellness, but their mental health as well. There's been a lot of research on this. And employees are willing to switch jobs today, to jump to a company that they believe actually cares about them in these areas.
So I think Ida's right. I think we are on just the precipice of a whole new layer of benefits, offerings that will help with these things. And I would say, for consumers, we know there's a very frustrating statistic out there that consumers spend less time choosing their health plan each year than they spend time choosing a vacation, right? We don't pay enough attention to these things.
For consumers, it's your job to actually pay attention in October, in open enrollment to see what your employer is teeing up and to see if you can actually find some additional resources to help you during these difficult times.
RACHELLE AKUFFO: And just lastly, I mean, obviously, policymakers trying to push things forward to help with retirement savings. I want to just get quickly each of your reaction. I spoke to Senator Marshall earlier, and he discussed the bipartisan retirement security legislation currently being negotiated in Congress, commonly referred to as SECURE 2.0.
Now, he sounded very skeptical about the passage, essentially saying that it's dead in the water, as the administration has its other priorities. So I just wanted to get one of his sound bites.
ROGER MARSHALL: You know, unfortunately, with 13% inflation over the last two years, there's just not much in there that could be a game changer. That's the real problem here. The real problem is inflation and the stock market tanking because of horrible policies coming out of the White House.
RACHELLE AKUFFO: So David, I want to first start with your take. Is there anything you think perhaps either policymakers or even the private sector could really be doing to at least make retirement savings more resilient?
DAVID BLANCHETT: I mean, to me, I think the biggest thing is just more coverage. I think that we're doing well by the folks who have access to employer-sponsored defined contribution plans. We need to do more as a country to give access to these plans, these strategies to help you who can't say via their employer. So I'd like to see more movement there.
RACHELLE AKUFFO: And Ida.
IDA RADEMACHER: Yeah, I definitely would echo David there. I would say that if there's ever a place to look for hope, you know, the retirement legislation passed unanimously in the House or I think there were five votes against, 400 something for. And in the Senate, it passed out of committee with all Republican and Democratic support.
So I do think that there's momentum. People are starting to make this kitchen table issue a national policy issue that can get bipartisan support. So I don't think that my own sense of hearing from different stakeholders and those mixes that we shouldn't have hope, that we can and do need to do more on retirement savings. Obviously, the access issues.
And then for those that are lower income, it's also important to think about how we actually structure and incentivize savings so that it can accumulate, so a refundable saver's credit, expanding and simplifying the saver's credit for those lower-income savers is also critical.
Again, the emergency saving aspects, the connection to student loans, starting to think about an inclusive savings and investment system in this country. Not just the infrastructure in the market space, but how do we create the policy environment that actually creates a lifetime opportunity to save and invest in your financial future?
RACHELLE AKUFFO: And you, lastly, your ideal outlook here.
JEAN CHATZKY: Look, there's a lot of good in this bill that we all hope will be able to move forward. It provides for emergency savings. It provides for additional automation into retirement plans, which is fantastic because we know that when people are automatically enrolled, enrollment goes up.
But I would say for now, you know, don't forget the states. There are a number of states that have, in the past few years, put work and save programs into place for smaller employers that don't have 401(k)s, that don't have work-based retirement plans so that they can make paycheck deductions flow into IRAs. And when that happens, workers are 15 times more likely to save.
Other states are following Oregon and New York in teeing this up. Maryland's got something moving along, so you know, we hope that we'll see more of those as well. It's great when it occurs on a federal level, but the states have a lot that they can accomplish too.
RACHELLE AKUFFO: Well, we'll have to leave it there, but a big thank you to our panelists. We do appreciate you joining us today. And from all of us at the Bipartisan Policy Center and Yahoo Finance, a big thank you for joining us. Take care.