Fidelity Investments’ president of asset management, Ronald O’Hanley, issued a stern warning Wednesday before a gathering of the US Chamber of Commerce that Americans are not saving enough for retirement and are in danger of living their later years in poverty.
O’Hanley told attendees at the chamber’s capital markets summit that the country needs to “act now to avert the looming catastrophe America faces if we don’t get serious about addressing the inadequacy of our retirement savings system.”
Already, nearly four in 10 retiree households do not have enough income to cover their monthly expenses, according to the Boston mutual fund giant’s research. And well over half of Americans have less than $25,000 in total savings, not counting their homes or pension plans, O’Hanley said.
With $13 trillion in individual retirement accounts and workplace plans like a 401(k), there are still many people who are not saving at all, O’Hanley said.
“I’m not sure what would be worse — millions of elderly unable to house and feed themselves or the intergenerational strife that surely would erupt if young people are forced to lower their standard of living to pay for our failure to act in a timely manner to avert this crisis.”
To address the problem, O’Hanley suggested that more companies offer workplace retirement plans to their workers. Currently, one-third of Americans have no retirement plan at work, O’Hanley said. He suggested lawmakers need to make this easier for employers.
He also said Americans, forced to be responsible for their own retirement investments, need more financial education: “In our schools, we teach children about sex and drugs but not about money.”
The tax-deferral benefit of 401(k) plans is a big incentive and should not be removed as Congress looks for ways to raise revenue, O’Hanley urged.
He pressed for further adoption of automatic enrollment in retirement plans when workers join a company, and said a minimum of 6 percent of pay should be set for employees’ contribution. They could still opt out, he said, but experience at Fidelity and other firms has shown that employees tend to stick with their initial contribution level — which often is not enough.
Employees should save 10 percent to 15 percent, O’Hanley said, including employer matches, if they are to work toward a goal of accumulating eight times their annual salary to live on in retirement.
With 10,000 people a day turning 65, “it’s clear that these current savings levels are drastically inadequate,’’ O’Hanley said.