Menu Close
Report  | September 2013

Strengthening the U.S. Retirement Savings System

By Nam D. Pham, Ph.D. and Alexander Triantis, Ph.D.

The U.S. private retirement savings system has matured successfully over the past four decades. Asset growth has been significant, fostered by innovative products, features and services that have further incentivized retirement savings. Adapting to higher job mobility in the labor market and the desire for greater flexibility and customization, defined contribution plans have become increasingly dominant relative to defined benefit plans. In addition, the number of IRA accounts and the assets invested therein have increased substantially since their inception in the mid-1970s.

The financial services industry, backed by supportive government policies, has introduced a number of products and services to further grow retirement savings. Plan sponsors and financial advisors have helped individuals become more familiar and comfortable with retirement savings products and investment strategies. As a result, more than two-thirds of American households have accumulated $19.2 trillion in retirement assets, investing across equities and fixed income securities in the U.S. capital markets.

With higher life expectancy and an increasing standard of living in the U.S, sufficient replacement rates are needed during retirement years. Thus, policies that further incentivize retirement savings for all economic and demographic groups and ensure small businesses to be able to offer plans are needed. Furthermore, contribution limits should be increased and auto-enrollment and auto-escalation features should become more universal. Importantly, policymakers must be careful not to implement measures to achieve short-term fiscal goals at the expense of longer-term retirement security and economic growth. Since the U.S. retirement savings system is proven to work, policymakers, plan sponsors, and service providers should work together to implement additional measures to strengthen our retirement savings system.