How to Solve the Retirement Crisis

I recently read an article at Money Mamba titled “Solving the Retirement Crisis: A Tax Proposal.” The article includes studies stating that most people do not have enough saved for retirement and don’t know how much money they would need in retirement. The article also includes studies showing that after meeting with a financial representative most people significantly increase their rate of retirement savings. The author’s proposal therefore is “to halve the 7.65% FICA tax rate that an employer has to pay for hiring employees. In exchange, the company has to allow employees, twice per year, to sit with their 401k plan sponsoring agent to discuss their retirement goals, savings goals, and financial planning goals, whatever.” It seems logical that such a proposal would greatly increase the number of companies offering 401ks and increase the number of employees who use them and increase the amount of money saved in 401ks.

I think the proposal would greatly increase the availability of 401ks and many more people would have adequate retirement savings. The problem with the proposal is that there would need to be a corresponding reduction in Social Security and Medicare benefits. You can’t reduce the amount of taxes collected without also reducing the benefits paid out. Increasing people’s retirement savings wouldn’t reduce the amount of Social Security or Medicare benefits being paid out.

I think possibly a smaller reduction in the FICA tax rate along with a phased reduction in benefits paid might work although it would be difficult for such a measure to be passed by Congress. Some other ideas to increase retirement savings are to make all 401ks opt-out. Perhaps participation in 401ks could even be made mandatory. I also think it should be more difficult to take money out of your 401k before retirement. Any proposal that replaces Social Security with private savings would have to be carefully implemented to make sure it didn’t leave a large segment of the population without either enough private savings to live on or Social Security income.

Eventually something will have to be done and it will only be harder to solve the problem as more time goes by. What ideas do you have for solving the retirement crisis?