Making Good Choices (Winter 2005-2006 Trust Magazine article)

In partnership with Georgetown University’s Public Policy Institute and the Brookings Institution, the two-year, $3.9-million project is, in effect, trying to replicate around the country what was achieved in St. Louis. Backed by an advisory board that includes members of five presidential administrations (see "Experience and Expertise at the Helm" below), RSP is looking for practical, commonsense ways to both prompt people to save more and identify incentives to saving embedded in government programs and policies.

The project originated in discussions between Orszag and Health and Human Services staff at the Trusts about policies that might help America grapple with the problem of an aging population. “We wrote a paper called ‘Aging in America,’” Orszag says. “Out of that came retirement savings and long-term care as pressing issues.”

And the idea for RSP sprang from the discussions that followed. It is an attempt to address what Orszag sees as an imbalance in Washington policy debates about retirement saving. “You have pension lobbyists who are interested in an approach that doesn’t always benefit middle- and lowerincome earners,” he explains. “And you have academics who are interested in helping less affluent people but have no real way of influencing the debate. And there was growing evidence about reforms that could work.”

RSP’s premise is that Americans need help saving. The average U.S. household puts away about 2 percent of its income, compared with 5 percent for the average Japanese household and 10 percent for the average European household, according to a study by the Organization of Economic Co-operation and Development.

The average Social Security benefit is just over $10,000 a year, and although most Americans know that Social Security will not be enough to live on, many do not have much more than that. In fact, the median retirement savings in a 401(k)-type plan or individual retirement account in households approaching retirement age (from 55 to 59) is about $10,400, according to the Survey of Consumer Finances. The median for those with incomes less than $30,000 is zero.

Some might say, “So what?” After all, this country’s economy remains the largest in the world.

But by failing to save, Americans imperil both their personal welfare and the economy’s future health, says William G. Gale, Ph.D., a principal at RSP and a senior fellow at the Brookings Institution.

“At the individual level, the costs are direct. If you don’t save, you miss opportunities to buy a house, go to college or get a car to drive to work. At the societal level, the costs are subtler, but just as real. The less that we save as a country, the less we have to invest. Just like a family that saves less has less future income, a country that saves less will invest less and have less future income.”

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The Retirement Security Project is located at 1755 Massachusetts Avenue, Suite 550, Washington, DC 20036, and its Web site is www.retirementsecurityproject.org. Contact the project by phone at 202.483.1370 or via the Web at info@retirementsecurityproject.org.