New York Times is Pessimistic about Americans’ Retirement. Let’s Fix That.

The New York Times pens an editorial today that’s half-kvetching at the current state of retirement security and half-prescriptive for policymakers interested in preserving a comfortable retirement for the boomers and beyond. Are they optimistic about a market rebound that acts as a cure for shockingly low account balances (and can you tell I just got my quarterly statement)? Consider the following passages:

The last 25 years was a time of low inflation rates and low interest rates, which boosted stock prices. Going forward, inflation and interest rates have nowhere to go but up…

So far, the cumulative wipe-out of household retirement savings totals about $2 trillion, and no one believes that the downturn is anywhere near over. As a result, participants in 401(k)’s are in greater danger than ever of coming up short in retirement…

The wipeout in 401(k)’s has made it clear that it is not enough to get more people to save more…

Decidedly pessmistic. Alas, the piece is not bereft of hope or constructive talk. The Times cites President Obama’s campaign proposal (that has acheived bi-partisan support) for a universal/automatic IRA as a way to give workers access to a savings vehicle. Good. They also give oxygen to an idea out of the Center for Retirement Research at Boston College that focuses on a shared-risk account that could provide a buffer of security for middle-class retirees. There are many ideas along this line on a broad range of economic ills, and some deserve serious thought from Congress and the new Administration.

“There needs to be a better way to reasonably ensure that a lifetime of savings can’t be undone by forces beyond one’s control.” Agreed. Just as important, however, is the need for a better way to reasonably ensure access and enticements for those who do not currently have adequate savings. This is a near impossible sell in an age of dwindling consumer spending, and the Times piece has an appropriate dooms-day quality to it.

But there seems to be an underlying implication that the 401k system is tragically flawed. This seems to me unfounded. There are big ideas that don’t completely destroy our current system. The policy fix, it seems, in a world where retirement savings is on the burden of the individual, is to share risk, incentivize and reward good behavior, increase transparency, and create a “confidence floor” for people so they aren’t worried about losing everything in a wretched market. And when they start losing a lifetime of savings by doing what they’ve always been told to do, there needs to be some sort of backstop. All of this is doable.

More positive news: fixes that jive with these principles aren’t all that expensive. The auto IRA would bring with it minimal costs. As would a saver’s bonus. 401k fee transparency was in in 2008. And the cost of big ideas like KIDS accounts, universal 401ks, and national 401k insurance pales in comparison to the figures leaping out of Capitol Hill these days.

“Many Americans didn’t have enough savings coming into the downturn.” Congress and the new President are trying to fix our economy. In doing so, let’s also fix that.