The White House Conference on Aging that concluded this month was remarkable for its acknowledgement that too few Americans are assured of a secure late-in-life retirement. The conference did not, however, fully spell out how to solve the problems it raised.
The conference’s final report also concluded that the three-legged stool of Social Security, personal savings and employer savings arrangements is a little wobbly, putting millions of retirees in danger of running out of money in old age. In addition, as retirees age they often see their incomes fall and face unplanned medical and long-term care costs–thus magnifying the problem.
The Conference on Aging listed the favorable qualities of annuities, mentioning that income annuities “reduce the risks that retirees will outlive their savings or that their living standards will be eroded by investment losses or inflation.”
How health and financial security relate
Besides retirement security, the report addressed the topic of “Long Term Services and Support.” The opening of that section states that “Many older adults will eventually develop some degree of limitations and need additional paid or unpaid help with basic daily living activities.” Several initiatives to support caregivers and improve the quality of long-term care were announced as part of the conference.
In our view, the issues of retirement security and long-term care services are inextricably linked and need to be considered together. According to a study by the Employee Benefit Research Institute, the likelihood of retirees running through their savings doubles (or more) when home health care and long-term care costs are considered. The problem with most retirement plans is that they only take the individual to life expectancy. Yet 50% of the population will live longer and will incur these costs that aren’t planned for.
Why income annuities work
The Conference on Aging mentioned income annuities purchased through a 401(k) or IRA as a sensible move for retirees to consider. Interestingly, the report fails to mention the Qualifying Longevity Annuity Contract, or QLAC, a product recently approved by the U.S. Department of the Treasury. By providing late-in-retirement lifetime income, a QLAC can address both income security and late-in-life expenses.
For the next White House Conference on Aging, I believe these proposals and themes should be reviewed:
- Setting default options for retiring participants with 401(k) plans
- Creating strategies to encourage use of income annuities by the low- and middle-income retiree
- Strengthening Social Security
- Providing income or resources for home health and long-term care service
- Determining how to financially support caregivers who are family or friend
- Revising IRA/401(k) distribution rules.
We applaud the conference and its objectives. However, like most large organizations, the White House considered the problems of retirement finances as separate silos. A solution requires a holistic approach to most effectively use the limited resources of both individuals and governments.