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05 Jul. 2012 | Comments (0)

The 2010 Survey of Consumer Finances has just been released, and it demonstrates a large decline in median family assets as well a more modest decline in income. The long term shift from defined benefit to defined contribution approaches to retirement continues, so that individuals are more responsible for their own retirement security. American households must meet that responsibility in the face of an environment that includes a number of challenges:

 

  • Longer life spans and continued mortality improvement
  • A challenging job market, with continued layoffs
  • Depressed housing prices
  • Low interest rates and economic fluctuations
  • Foreclosures

As we think about retirement in the future, some of the issues to be addressed include:

  • Supporting a different kind of retirement:  Many individuals are choosing to work as part of their retirement.
  • Later retirement ages:  Many individuals are trying to retire later, either because of insufficient assets or a desire to stay engaged longer, or a combination. 
  • Using savings for retirement: It is important to minimize the early use of plan assets.
  • Post-retirement solvency: Families need to determine how best to use their resources in retirement and what to do not to run out of money.
  • Disability risk: Defined contribution plans leave individuals vulnerable to disability risk.
  • Housing assets and retirement:  For many families non-financial assets are the majority of their assets, and housing is the majority of non-financial assets.

For more information on these issues, you can review The Conference Board Executive Action Series Number 380, Fostering Financial and Retirement Security in an Era of Individual Responsibility at http://www.conference-board.org/publications/publicationdetail.cfm?publicationid=2220

For future success in building retirement security, focus both on strategies inside the plan and on strategies outside of the plan.  Areas of focus inside the plan include:

  • Getting more employees to initiate savings: strategies include offering a contribution for all and/or a match, auto-enrollment, education and communication.
  • Encouraging higher contributions from those save: strategies include plan design structure, auto-increases, and targeted communication.
  • Discouraging use of funds too early. 
  • Offering strong investment structure and good default options.

Areas of focus beyond the plan:

  • Encouraging more long term planning by employees.
  • Using communication, education and advice effectively to encourage behavior.
  • Supporting longer work and alternative work options.
  • Helping employees manage disability risk.

Some highlights from the Survey of Consumer Finances

 

Median net worth fell 39% between 2007 and 2010.    The decline was greatest at 35-44, smaller at 45-64, and still smaller over age 65.  In both years nonfinancial assets were much larger than financial assets.  Housing was a major contributor to the decline in net worth.  For more information on the change in family finances, see the Federal Reserve Bulletin, June 2012, Vol. 98, No. 2

 

http://federalreserve.gov/pubs/bulletin/2012/PDF/scf12.pdf

 

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  • About the Author: Anna M. Rappaport

    Anna M. Rappaport

    Anna Rappaport is an internationally recognized expert on the impact of change on retirement systems and workforce issues. Following a 28-year career with Mercer Human Resource Consulting, Rappaport h…

    Full Bio | More from Anna M. Rappaport

     

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