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America’s looming retirement savings crisis

Americans today face a retirement savings crisis. If current trends continue, we estimate that the number of poor and near-poor retirees will nearly triple to 25 million by 2050*, representing a rate of poverty among senior citizens not seen since the Great Depression.

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The strain of this newly poor population on our social safety net will devastate local, state, and federal budgets for decades to come. It should come as no surprise that when polled, people consistently cite retirement security as their greatest economic concern.

Americans between the ages of 40 and 55 have an average retirement account balance of $14,500. But estimates suggest that they'll need up to 20 times that amount to maintain their standard of living after they stop working. It may be tempting to blame savings rates, but the fact is that today's stagnant wages, rising health, rent, and childcare costs, and massive student loan debt serve as tremendous obstacles that inhibit Americans from building a strong retirement foundation.

Fewer employers are sponsoring retirement plans for fewer employees. Based on our research, barely 50 percent** of workers have access to a workplace retirement plan and among those who do, most must rely on a woefully inadequate patchwork of IRAs and 401(k)s. Americans are ill-served by these voluntary plans' short-term investment in stocks and bonds. Savers are forced to pay for sub par investment results in exchange for liquidity they don't need, while more traditional pension plans investing in both long- and short- term investments consistently outperform without increased risk.

Our country deserves better, and we believe Guaranteed Retirement Accounts (GRAs) are a pragmatic approach to ensure that all workers can save to retire. Our plan would provide universal coverage and is built on personal responsibility, personal choice, and effective investment. Workers make regular payments of 1.5 percent of their income into a GRA. That amount would be matched by their employer and invested in longer-term strategies, to be paid out upon retirement as guaranteed income through an annuity using existing government infrastructure.

While funds would be pooled, individuals legally own their GRA and would be able to select and change managers based on performance. Today's 401(k) tax deductions would be redirected to reimburse the first $600 of savings per worker, fully paying for the contribution of households below median income.

Finally, for the many who find financial, emotional, and health benefits in continuing to work later in life, our plan proposes a meaningful incentive by providing a doubled credit for all GRA and Social Security contributions made by workers between the ages of 65 and 72. Medicare would become the primary health coverage for those over 65, even if they are still working, and eliminating insurance costs for employers covering those workers.

Implementing this plan would require congressional legislation, and we believe it is politically viable and has bipartisan appeal. By leveraging existing infrastructure to create government-backed retirement savings accounts, it wouldn't impact the budget, raise taxes, or create new bureaucracy.

Importantly, the federal government would guarantee a minimum return of 2 percent, an essentially cost less promise given the high likelihood that the accounts perform significantly better over the long term, and smoothing the threat of market volatility if someone retires at a "bad time."

The looming retirement crisis may be daunting, but it is not insurmountable. If we find the political will, we can still guarantee most Americans a comfortable retirement at modest cost. If we don't act, millions will face poverty. Our proposal is practical and effective, and can help set the United States on a sustainable retirement trajectory for years to come.

* This calculation the Organization for Economic Cooperation and Development's measure of impoverishment and current rates of population growth as a guide.

** This calculation uses data from the U.S. Census Bureau and the University of Minnesota.

Commentary by Hamilton "Tony" James and Teresa Ghilarducci. James is the president and chief operating officer of asset-management firm BlackStone. Ghilarducci is an economist at the New School for Social Research, specializing in retirement and labor issues. Follow her on Twitter @tghilarducci.

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