By Jacquelyn M. Basso, CPA

The Bureau of Labor Statistics has numbers that indicate 68% of workers have access to a retirement benefit. Of that amount, 29% have a defined benefit with a 91% participant rate and 55% have a defined contribution benefit with a 68% participation rate. According to the Employee Benefit Research Institute, individuals with a pension or annuity have on average $21,000 higher annual retirement income, and married persons have $16,000 more annual retirement income on average.

Pension plans, which provide a fixed-income option for retired workers, are going extinct. A change in accounting standards requiring companies to fund the difference between the projected benefit obligation and the accumulated benefit obligation, in addition to historically low interest rates, have hit the returns on these plans’ assets hard. Also, earnings pressures and the need to provide a return to stakeholders make profitability a more pressing concern over providing workers with retirement security.

Now, we are in the “save for yourself” era¹. The enactment of the IRS 401(k) code in 1980 allowed employers to match employee contributions with tax-deductible company contributions, and earnings on all contribution would be allowed to accumulate in a tax-deferred trust.

The introduction of the individual retirement account (IRA) in 1974 and the Roth IRA in 1997 provided additional “save on your own” retirement savings options. The SEP IRA and the SIMPLE provide a similar opportunity for the self-employed and the small-business owner to save now for retirement later.

Behavioral finance experts have found that workers who have access to a defined contribution plan with employer matching and higher annual contribution limits have the highest save-for-yourself success rates. But here’s the thing: workers still are not saving enough to avoid a retirement crisis. Are the pensionless generations X (born 1964-1978), Y (millennials born 1979-1995), and Z (born 1996-2010) prepared (and able) to save for themselves in either a 401(k) plan or an IRA to ensure a decent retirement standard of living?

Take Action to Avert the Crisis

America’s workers and individuals are not saving enough. The question isn’t just, “Why aren’t consumers saving enough for retirement?” It’s bigger than that. Most aren’t saving enough, period. In fact, four of 10 adults are unable to cover a $400 surprise expense.

So, what are we to do as personal finance and employee benefit professionals? The answer is to educate, advocate, and recommend.

We can provide our clients with help in the areas of household budgeting, share budgeting, and wealth management tools or apps.

Use the insight you gain from their tax returns to talk to clients about ways to save. Review W-2 statements and encourage more retirement savings, health savings accounts, and flexible spending accounts. Share details on how to minimize taxes or defer taxation on investments, savings, and retirement accounts.

We can offer personal financial planning services in addition to tax planning and return preparation. Help consumers navigate the complexity of taxes and retirement savings contributions and withdrawals.

Choose to provide financial literacy programs to middle and high school students to seed good savings habits. We can also work with new college graduates to help prepare them to manage their daily personal finances and to address the importance of saving early for retirement. With this, support PICPA advocacy efforts to ensure a personal finance curriculum is taught in schools.

We can educate, advocate, and recommend. We just can’t save for them.

Jacquelyn M. Basso, CPA, is owner at J.M. Basso & Associates in Downingtown, Pa. She is chair of the PICPA’s Personal Financial Planning Committee and a past president of the Greater Philadelphia Chapter.

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