Should the government make you save for your retirement?

Fewer younger workers are saving for retirement today than a decade ago, prompting some financial leaders to call for mandated retirement saving beyond Social Security. Many financial advisers aren't convinced it's a good idea.

Eduardo Munoz/Reuters/File
Real estate broker Leila Yusuf poses outside her upper East Side Manhattan office in New York last year. She typically socked away up to $10,000 a year in retirement savings until her income slid 30 percent as the housing market hit the doldrums, forcing her to stop making contributions. Fewer young workers are saving for retirement than a decade ago.

When pensions started giving way to 401(k) plans in the 1980s, baby boomers started saving for their own retirement. But younger workers aren't following through with the same verve. In the past decade, their participation in 401(k)s and other retirement savings programs has waned – and the drop-off is big enough that some in the finance industry are calling for the government to step in and force workers to save for retirement.

The idea is controversial, but not as far-fetched as it sounds. Social Security, after all, is a form of required retirement savings. England and Australia have their own forms of national retirement savings mandates.

"The current system is not working, and we need a comprehensive approach that includes some form of mandatory savings in addition to Social Security," said Larry Fink, chief executive of investment giant BlackRock Inc., in a speech in May. Growing life expectancy and underfunded retirement plans are threatening Americans’ retirement stability, he argued.

Some of the latest evidence of a falloff in retirement savings comes from the Employee Benefit Research Institute in Washington. Its most recent survey found that among employees age 25 to 34, the percentage saving for retirement has fallen from 65 percent a decade ago to 56 percent now; in the 35-44 group, the percentage has dropped even more: 77 percent to 63 percent.

Still, the idea that the federal government should force workers to save for retirement doesn't sit well with many financial advisers.

“If government truly wants to help, they should create more tax incentives for existing programs like 401(k)s [and] traditional and Roth IRAs,” says Brian Galey, a financial adviser in Newport Beach, Calif. “The incentive should be a comfortable retirement, but most young people fail to plan that far ahead.”

Or maybe 30-year-olds would like to save for retirement but can’t because of more pressing needs.

“We’ve seen stagnant real wages over the last 30 years for the majority of American workers,” says Chris Long, a certified financial planner in Chicago. “There have also been vast increases in health-care and college costs.”

Americans don’t need any incentive to save and invest for retirement, says Jerome Deutsch, vice president of Index Strategy Advisors, an investment advisory firm in Decatur, Ga. “My reading of the recent research points to the fact that the overwhelming majority of those polled do participate in retirement accounts, recognizing that this is the way towards future financial security.”

What workers need are a goal and a plan on how to get there, says financial adviser James Mathis of AEP Wealth Management in Dallas. “Take advantage of employer-sponsored plans such as 401(k)s…. The employer match is free money.  Contribute as much to the plan as you can.”

Savers must watch the fees on investment products, Mr. Mathis adds. “If your broker or adviser is using high-fee products, he'd better have a good reason.”

– Amelia Granger is a senior analyst at NerdWallet, a national personal finance website whose Ask an Advisor feature gives consumers a new way to connect with financial advisers.

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