Thanks to advances in medicine and technology, more of us will live to see our grandchildren to adulthood.
As noted by Laura Carstensen, director of Stanford University's Center on Longevity, Americans have added more years to life expectancy in the past century than in all of human evolution to this point. In the mid-1800s in the U.S., most people on average lived to their mid-30s. By the end of the 20th century, that number had jumped to 77, and today it's 78. "Four, five, maybe a total of six generations within the same family can be alive at the same time today," Carstensen said.
From a retirement standpoint, however, longevity is widely considered a "defining challenge."
Last month, BlackRock's CEO Laurence Fink stood at a podium before a packed room of about 200 students and faculty at New York University's Stern School of Business and laid out the scary reality before them: "Longevity is the defining challenge of our age," he said, noting that one in four Americans age 65 today is expected to live until the age of 90.
According to Fink, the traditional mix of retirement funding from Social Security, pensions, and personal savings is in the grip of "a systematic crisis that is threatening not only retirement systems but also our economic futures."
Fink's main message: Don't delay saving for retirement until it's too late. A stronger, more desperate conversation among politicians, regulators, and the general public is needed. Now!
His remarks came following results from BlackRock's Investor Pulse Survey, which found that while more than half of respondents fear they will outlive their savings, about 73% are more concerned about keeping their savings "safe" than generating the returns they will need to fund increasingly lengthy retirements that come with longer lifespans. "We're not going to change human behavior, but we need to find a way to influence it," Fink said.
"Investors don't take a long-term view. They are too concerned about all the noise out there, all the ups and downs in the markets."
By many measures, the U.S. retirement system is far from ideal. News and research reports daily point to the crumbling of America's struggling system. The generous and unsustainable defined-benefit model is being replaced by a defined-contribution system that transfers the risks of savings from employers to employees.
According to the Melbourne Mercer Global Pension Index, an annual study that ranks national retirement systems on measures such as tax incentives, sustainability, and regulation, the U.S. is ranked ninth among 18 nations.
Why so low? Mercer researchers blame American 401(k) rules that permit savers to borrow from their accounts and take penalty-free distributions when they reach the age of 591/2.
But, over the past two decades, one country has become consistently championed as having a stellar model: Australia, with its superannuation system, which according to Mercer's index, lags behind only Denmark and the Netherlands.
Fink has also loudly endorsed Australia's retirement system. "Superannuation has been a huge success in supplementing the government pension scheme and taking the strain off it -- an attractive prospect as we think about how to relieve the burden on Social Security in this country," he told NYU's students.
He highlighted the main difference-a very simple one-between the retirement systems of Australia and the U.S. Australians have no choice but to save, with compulsory enrollment and contribution-escalation provisions.
The key features of the Australian system are:
* Compulsory employer-based savings accounts, which resemble 401(k)s. Employees cannot opt out. All employers must contribute at least 9% of earnings, which is gradually increasing to 12% over this decade.
* More advice and a fiduciary duty on anyone advising a plan participant. "The compulsory system means that there is stronger regulation and compliance. This covers both the trustees (who run the funds) and the financial advisors, who speak to members," said David Knox, a senior partner at Mercer.
* In 2005, the country established a financial literacy foundation, with a financial literacy strategy that is ongoing.
* Tighter restrictions on taking early distributions, known as leakage. Funds are preserved until age 55, which is gradually increasing to age 60.
5. A future financial advice initiative, promoting low-cost, simple advice focused on retirement planning.
The result is that in Australia, more than 90% of working Australians have savings in an employer-based savings account. By comparison, in the U.S., fewer than 50% of workers have money in a 401(k) or similar plan.
Senator Tom Harkin (D-Iowa) has been a vocal advocate for retirement reform and the desperate need for savings. "As a country, we are woefully underprepared for retirement," he wrote in a report last year. The report identified a $6.6 trillion gap between what Americans have saved and what they will need. He recently proposed a national plan-titled "USA" for "Universal, Secure and Adaptable," which would create the ability for workers without a retirement plan to create one by authorizing automatic withdrawals from their paychecks.
As the chair of the Senate Health, Labor, Education, and Pensions Committee, Harkin has said that this pension proposal is one of the last main legislative goals he wishes to achieve before retiring from Washington.
