Falling Short: The Coming Retirement Crisis and What to Do About It
August 2015 | Written by: Richard Baker
Falling Short: The Coming Retirement Crisis and What to Do About It, written by benefit experts, Charles Ellis, Alicia Munnell and Andrew Eschtruth, is a great resource for plan sponsors. It provides an analysis of what the authors call the “retirement security challenge.” The book presents a concise historical account of retirement, illuminates the magnitude of this era’s problem and proposes changes that individuals and the nation can make to remedy the situation.
Since the early 1980s, the predominant pension plan offered by private employers has shifted from defined benefit plans to defined contribution plans, primarily 401(k)s. The primary responsibility for savings and investment decisions has transitioned from the government and employers to the individual. Not all individuals have been prepared for this responsibility. To alleviate this obstacle, plan designers have devised features to aid participants.
As pointed out in Falling Short, individuals face several other challenges in their attempt to achieve a secure retirement.
- An increasing life expectancy will require a larger nest egg.
- A reduction of the purchasing power of savings over time due to inflation will require larger yearly distributions.
- Rising health care costs will consume a greater share of retirement savings.
- A reduction in investment returns in the future, as forecasted by most investment experts, will require more savings prior to retirement.
To compound matters, Social Security benefits are decreasing due to:
- Increasing full retirement age.
- Increasing Medicare premiums (which are paid out of Social Security benefits).
- Increasing Social Security taxation.
Additionally, the Social Security trust funds are expected to be exhausted by 2033, which – absent of other changes – will require a 25% reduction in benefits.
None of this is good news. However, there are actions we can take to mitigate the impact. As experienced auditors of retirement plans, firms like SLD are in a position to help. We have unique insight based on the large number and varied design of plans we audit. This enables us to provide independent advice on how to improve plans.
About the Author
Richard Baker, an Audit Principal at Shea Labagh Dobberstein, has more than twenty-five years of public accounting experience and heads the Employee Benefit Plan practice. He spent six years as a CFO of two closely-held software companies and also worked as an audit partner with a large international accounting firm.Richard offers in-depth experience providing audit and advisory services to companies with both defined benefit and defined contribution employee benefit plans.
He obtained a BA in Business Administration from California State University, Hayward, and is a member of the American Institute of Certified Public Accountants, as well as the California State Society of CPAs.
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Richard Baker is available to you to discuss any matters of concern or questions that you might have regarding your employee benefit plan.
Email Richard for more information.