Saving for a Bleaker Tomorrow: iOMe Challenge 2010

38 Pages Posted: 25 Jan 2011 Last revised: 30 Jan 2011

See all articles by Chris Browning

Chris Browning

Texas Tech University

Benjamin F. Cummings

The American College of Financial Services

Michael S. Finke

The American College

Thomas Charles O'Malley

Texas Tech University - Department of Personal Financial Planning

Shaun Alvin Pfeiffer

Texas Tech University - Applied and Professional Studies

Date Written: January 24, 2011

Abstract

The Millennial generation in the U.S. faces greater expected retirement needs, yet it has come of age in a period of declining household savings. A combination of reduced defined benefit availability, threats to Social Security and Medicare, increasing public debt, rising taxes, reduced expectations of economic growth and asset yields, and increasing longevity suggest that Millennials need to save more than prior generations. Evidence from nationally representative surveys suggests that 20ā€somethings are saving less now than in the recent past, and may have fallen even further behind during the Great Recession after loading up on housing debt. There is also ample evidence that individual investors in general do not have the knowledge or patience to make effective investment decisions within discretionary retirement accounts. Perhaps of even more concern is the widening disparity in saving among the Millennials due to greater individual responsibility for funding retirement income coupled with low financial literacy and an increasingly complex financial marketplace.

To increase savings rates, we suggest an emphasis on improving financial knowledge and marketing that highlights the consequences of low retirement savings to help young people visualize the trade-off from the choices they make today. In addition to generating increased awareness of the benefits from saving, the entire system of retirement saving in the U.S. needs to be simplified in order to improve participation rates, tax efficiency and investor performance. We propose improved disclosure that allows investors to see how their savings translates into an annuity stream at retirement, simplified investment options that allow the average investor to make better choices and more realistic employer participation rates that will lead to a more progressive, portable retirement savings system that is more likely to provide an adequate retirement income for a greater proportion of today's young investors.

Keywords: Retirement Policy, Social Security, Household Finance

JEL Classification: H31, H55, J26

Suggested Citation

Browning, Chris and Cummings, Benjamin F. and Finke, Michael S. and O'Malley, Thomas Charles and Pfeiffer, Shaun Alvin, Saving for a Bleaker Tomorrow: iOMe Challenge 2010 (January 24, 2011). Available at SSRN: https://ssrn.com/abstract=1747027 or http://dx.doi.org/10.2139/ssrn.1747027

Chris Browning

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Benjamin F. Cummings

The American College of Financial Services ( email )

270 S. Bryn Mawr Avenue
Bryn Mawr, PA 19010
United States

Michael S. Finke (Contact Author)

The American College ( email )

Bryn Mawr, PA 19010
United States

Thomas Charles O'Malley

Texas Tech University - Department of Personal Financial Planning ( email )

United States
7194599385 (Phone)

Shaun Alvin Pfeiffer

Texas Tech University - Applied and Professional Studies ( email )

United States

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