The continued elevation of the cost of living has become a normal topic of conversation. The housing market is still nuts and buying a car is not fun — nor is the grocery bill. Refocusing our finances on needs versus wants is a thing, but a hyper-focus on short-term spending can short-circuit longer-term goals.  

Accumulating financial resources for decades into the future is an investing consideration. An investor can have many goals, but by far the most common, and necessary, is saving for retirement. Generations ago, in the good old days, people started working in their youth, and continued until they physically couldn’t anymore. Relatives provided care for them until they died due to short life expectancies. An industrialized economy saw the creation of Social Security and employee pension plans. 

The nature of work has changed greatly in recent generations: people thankfully started living longer, but pension plan investment pools didn’t reach optimistic long-term estimates. There has been a drift away from traditional pensions, now requiring most Americans to realize the modern deal is to build their own retirement savings to supplement a minimal baseline of Social Security income.  

Back in the 1970s, the government realized that Social Security was not going to be enough, so it created qualified retirement accounts such as the 401(k) and IRAs, using the carrot of tax advantages to lure people to save for this good purpose. 

For most Americans, using the retirement plan sponsored by their current employer is their best opportunity to do so. An employee can choose to have payroll deduct a certain percentage of each paycheck into their retirement account, and the employer often matches the employee’s contributions by at least 3 or 4 percent.  

Yeah, But How’s That Working Out?  

A good half century on, this has been quite successful … but only for half of Americans. 

According to the U.S. Bureau of Labor Statistics, only 69 percent of private sector workers even have access to workplace retirement benefits. That means nearly one-third of workers must take the initiative to go do their own thing. And that isn’t happening. The Employee Benefit Research Institute reports that 49.5 percent of American families have $0 saved for retirement. 

That’s right. About half of Americans don’t have jack saved to live on in old age. This negligent self-condemnation results in living in poverty and/or working until the day they die.  

Kick-Start the Savings Habit  

While Americans need encouragement and incentives toward long-term retirement savings habits, modern retirement plans can get better — because they have to.

First, instead of a common policy of making new employees wait at least a year before they can start saving at their new employer’s retirement plan, allow employees to start saving soon after starting a new job, say within just one to three months.  

Once an employee becomes eligible to start saving, instead of requiring an employee to act, make it the default, via an auto enrollment feature so they must opt-out to not save. The default savings rate might start at something small — like 3 percent. An auto escalation feature is also an option, whereby that savings percentage automatically increases each year.  

Switch to Autopilot  

Old school retirement plan investment options offered employees a laundry list of mutual funds to pick from. This can work, but for most people, investing is not their thing, so they want to keep it simple. 

Diversified investment models, such as target date retirement funds are a more modern option, offering age-appropriate choices for employees of any age. A typical line-up would be offered in five-year increments, for when an employee would reach retirement, say about age 65.  

For example, a younger worker who would turn 65 in the year 2060 could use the 2060 target dated fund. That fund would be aggressive while they are young, but starting in middle age would automatically begin a gradual “glidepath” where the fund gets more conservative as the employee nears retirement age, which is exactly what most people would want to do. This puts retirement investing on autopilot. 

Translate to a Monthly Income Benefit  

Still, no matter how logical that sounds, it makes a good number of folks nervous seeing the ups and downs of their asset values.

Guaranteed income products exist today, but often have high fees and are hard to trade in and out of. Industry players such as global annuity provider Allianz are working on a new generation of retirement income investment options within retirement plans. The holy grail promise on the horizon is to develop an option for employees to build up a projected retirement income stream that doesn’t drop in value, and that can be portable with them if they change employers. That would allow more Americans to recreate something that feels like their own little pension plan. 

Social Security is by no means intended to replace most of someone’s working age income in retirement. Therefore, workplace retirement plans become of primary importance, as Americans need to be building a nest egg to replace their paycheck in their golden years. Employers should be upping their game to assist their employees to be able to get there.

Steve Spellman is a lifelong Columbia-area resident and political observer.