Word: systemically
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...years, the way we save for retirement has come to be dominated by one plan: the 401(k). But the financial crisis and resulting market meltdown showed the 401(k) to be far from perfect. A number of academics and others have proposed either changes to the 401(k) system or scrapping it altogether. Roger Ferguson Jr., chief executive of the investment firm TIAA-CREF, is one of the few financial executives who have backed changing the system. Ferguson's opinion is sure to have some sway. He is a former vice chairman of the Federal Reserve and a member...
Unsurprisingly, his solution is the one his company already sells - a 401(k)-like plan that Ferguson says has done a better job of boosting retirement savings than the original. The 3½ million retirement accounts in the TIAA-CREF system have an account that is on average 50% higher than the average 401(k). Ferguson pitched his company's solution to the retirement-savings problem to TIME. (Listen to TIME's Financial Toolkit: Should We Scrap...
What's wrong with the 401(k)? The goal of a retirement system should be to help people save safely while they are working, and then to provide an amount of income in retirement that they can't outlive and that is sufficient to their needs. The 401(k) doesn't do that. It was never meant to be the nation's primary retirement system...
What should be done to fix the nation's retirement system? Any retirement-savings system that is to be used by a majority of Americans should accomplish a number of goals. First of all, it should encourage participation. Second, it should help working Americans manage risk by providing the tools needed to diversify their portfolio without overwhelming them with investment choices. Third, built into the system should be some form of objective, non-commissioned advice. And lastly, we need to ensure that once people have hit retirement, they have access to a product that provides low-cost, guaranteed income throughout...
...from what we have now to what you are describing? The first thing we need to do is to return to a system where the 401(k) is not the sole retirement-savings vehicle. Also, employers have to acknowledge that they have a shared responsibility along with employees to produce safe retirements. Lastly, we all have to realize that there is a role for government to play in creating the right legislative environment that enables workers to enroll in a sound retirement plan...