Americans face a confusing array of options for IRAs and 401(k) plans that often carry high fees.
So what's the solution? Replace 401(k)s and IRAs with a single pension system, say Russell Olson, former director of Eastman Kodak's 401(k) plan, and Douglas Phillips, chief investment officer for the University of Rochester, in a new study published by the
Social Science Research Network.
"A single DC [defined-contribution] plan is necessary to give every American worker the same opportunity and to replace the complexity of 14 different DC plans," they tell
MarketWatch.
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"Without a single plan, it would not be viable to require every employer that currently withholds employee taxes to also withhold retirement contributions."
Defined contribution plans are ones in which the amount of contributions is fixed, but the returns depend on market moves. Defined benefit plans have fixed payouts.
"DC plans today operate under a patchwork of confusing regulations, and too few DC plan participants are competent to manage their investments in order to attain financial independence," the pair state in their study.
"The time has come to evaluate all ways to strengthen our DC retirement systems, including adapting some of the best practices of other countries — such as key parts of Australia's superannuation approach. The alternative is a future where a large number of Americans need to work far beyond retirement age or else require government assistance to supplement Social Security."
Meanwhile, many Americans are trying to figure out how much to save for retirement. Some financial commentators have tried to simplify the issue, saying you'll need $1 million in savings or annual retirement income equal to 80 percent of your salary.
But those estimates aren't necessarily helpful. "The rules of thumb that are thrown around out there can do more harm than good," Richard Stumpf, a certified financial planner in Wichita, Kans., tell
CNBC.
One couple he counseled was embarked on a risky investment strategy designed to return more than they would need for retirement. And another couple was going need more than 100 percent of their current income for their desired retirement lifestyle.
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