Household savings can produce economic growth and empower Americans to attain a college education, start a business, buy a home, or earn a secure retirement. As policymakers from across the political spectrum began to once again examine our nation’s tax code, the Aspen Institute Initiative on Financial Security hosted a congressional briefing to explore what legislation could advance savings policies to enable all Americans to invest in their futures and attain lifelong financial security.
At the event, three US senators from across the partisan divide offered their thoughtful endorsement of making household savings policies a priority. Sen. Orrin Hatch (R-UT), who introduced the SAFE Retirement Act of 2013 earlier this session, argued that “financial security and retirement policy in particular have never been more important than they are right now.”
Sen. Ben Cardin (D-MD), primary author of past significant bipartisan retirement reforms, agreed. “In a tough economic time you want to pump money into the economy and encourage consumption, but part of consumption is putting money away for your retirement,” he said. “I don’t care how tough times are; you need to make sure you take care of all of your needs, including your savings needs.”
Sen. Chris Murphy (D-CT) added that current debates need bolder thinking not only on retirement, but also on a culture change through children’s savings accounts. “In this environment in which we are now all talking about the issue of poverty, we grapple with what new ideas [we can] put forward to try to make young adults and families think about savings at a moment when they just don’t have the oxygen to think about that issue, when they have lost the ability for their employers to contribute to their retirement future, and when there simply isn’t the money around to do it,” he said. “[Children’s savings accounts] are something whose time has come.”
Opening an account in a child’s name at birth and seeding the account with a small initial deposit, while allowing family and friends to contribute over the years, can eventually become a substantial investment for college, a car, or to fund another major life expense. “It’s not enough just to teach kids about the value of savings,” Murphy said. “It is a wholly different thing for them to actually experience it. It doesn’t do much good to give a kid a driver’s license if they don’t actually have a car.”
Consumer advocates and financial industry executives revealed painful statistics about American workers who work their entire lives without accumulating adequate — or too often, any — savings. Nearly half of all workers are not able to save through employer policies, said Debra Whitman, executive vice president for policy, strategy, and international affairs at AARP. This trend is partially why four in 10 workers nearing retirement age — 45 to 64 years old — have no savings set aside for retirement. “It’s not just what you earn, it’s also what you own,” said Andrea Levere, president of Corporation for Enterprise Development.
Robert Doyle, vice president at Prudential Financial, added that many of today’s workers are going to live 20 to 30 years longer than they may have expected. Doyle, speaking on behalf of Prudential Retirement’s President Christine Marcks, asserted that the biggest risks facing individuals today are not being covered by employer-provided retirement plans. Whitman remarked that “this is not an old person’s issue, because it’s too late for the current retirees. This is an issue for the coming generations that if we don’t fix it now and allow new solutions, it is going to be a problem throughout the next decade and for many decades to come.”
Senators and attendees alike shared hope that progress on household savings policies can be made in 2014. All speakers acknowledged that policy solutions exist to encourage more household saving. Many require modest tweaks to existing laws and are a relatively low-cost investment in American families.
Senators Hatch and Cardin emphasized their continuing commitment to strengthening retirement policies with the intention of bringing more workers into the savings system, incentivizing them to save more, and assisting them in stretching their savings to last throughout their lives. Hatch said that “the private employer-based pension system has become the greatest wealth creator for the middle class in history, especially through 401(k) plans and individual retirement accounts (IRAs). He suggested that Congress’ goal should be to create and support policy that encourages employers to establish and maintain a workplace retirement plan. He included a Starter 401(k) in his SAFE Retirement Act as a new type of 401(k) plan that allows employees to save for retirement while placing minimal burden on employers.
All of the distinguished guests agreed that, whether through new policies or by fuller implementation of existing ones, the time to act is now.
Colby Farber is the senior associate at the Aspen Institute Initiative on Financial Security, a leading policy program dedicated to helping bring about the policies and financial products that enable all Americans to save, invest, and own.