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Retirement: Expert explains how to get more Americans to invest in employer programs

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Aspen Institute Financial Security Program Vice President Ida Rademacher joins Yahoo Finance's Karina Mitchell and Alexis Christoforous to give insight on how some Americans aren’t saving for retirement due to the wage disparity and present solutions to help this issue.

Video Transcript

KARINA MITCHELL: Welcome back. Well, retirement benefits in the workplace are an important perk. So why are so many not taking advantage of it? Here to discuss that is Ida Rademacher, Aspen Institute Financial Security Program Vice President. Thank you so much for your time, Ida, today.

I was very surprised to read in your notes, you say that retirement savings is an under-recognized component of wealth-building in the US. I would have thought everyone who had access would-- you know, it's a no-brainer to invest in this. And a very interesting statistic I saw according to the Census Bureau, only 32% of working Americans actually invest, 59% have access. However, you say the access is uneven. In what ways?

IDA RADEMACHER: Yeah, well, it's great to be here. And it is-- strangely, even though we've been talking so much to the last year about wealth disparities and about how to solve for those problems, retirement doesn't come up. Retirement savings doesn't come up as one of those no-brainer solutions that you and I think it might be. The reality is, it's second only to home ownership in this country as a source of wealth for households.

And that's the case even when, to your point, you know, there are so many millions of people that don't even have access or aren't fully utilizing that retirement savings at the workplace. When you dig under the big headline numbers, though, it's not really that it's not that people-- it's that they don't have access, but it's also, for some, a bigger issue of the job itself doesn't have the availability or the individual might not have the additional disposable income to invest.

So a lot of folks-- it is an income issue. We have a wage disparity in this country. That's a big part of what's driving differences in retirement outcomes. But the good news is it's a solvable problem. And more and more, leaders in the public and private sector are honing into that and looking for solutions.

ALEXIS CHRISTOFOROUS: So let's talk, Ida, about some of those solutions. What are some real ways that public and private partnerships can work together to bring access to more people?

IDA RADEMACHER: Yeah. Look, I mean, the ultimate publix-private partnership in terms of retirement savings was the way that we initially thought of a three-legged stool. We had Social Security, just the pillar of kind of-- there's a lot of talk these days about guaranteed income. Social Security is the way that we've tried to do that in this country. In addition to Social Security, there is employer-based retirement savings systems.

And then there's private savings. So in terms of public-private partnerships, there was always a sense that it wasn't just about the public benefit of retirement savings. It was also about private savings facilitated through your workplace, through your employer. And of course, as the tenure at a job has gone from 20 years to two years over the last few decades, and the way that benefits structures are so various across different kinds of employers, there's just not universal access to retirement savings at a workplace.

And when you do move from job to job so quickly, it often doesn't roll over. There's not a lot of portability there. So it really boils down to three major solutions. And these are all things that are part of the conversation in bipartisan ways in Washington these days about making retirement savings that key tool in the toolbox for wealth creation. One of those would be universal access, where every worker no matter where they work or how they get paid has access to retirement savings that work through their payroll.

So automatic enrollment and portability, those are two. And then the third part of that is really making sure that it's connected to how we understand people's real financial lives, which is it's got short-term and long-term savings needs. And there's a lot of pilots going on now as well to see how you can help people save for both through payroll deduction and through the workplace.

KARINA MITCHELL: And I just wanted to touch on the benefits of having this access, because there are employer contributions. And then people are able to tap into their retirement accounts if need be, right? Are there penalties involved? How does that work?

IDA RADEMACHER: You are able to tap into accounts. And of course, it depends on which retirement account you're talking about. A lot of innovations happening at the state level, because, quite frankly, the state leaders are recognizing that financial insecurity in your retirement years becomes a state burden. And so they want to solve for that.

And they also want to help their citizens have dignified lives in retirement with real choice. So a lot of states have been leading the way on creating a requirement that all employers offer a retirement savings system. And if the employer doesn't start a 401(k), you can default that worker-- and the worker themselves can choose to participate or not, but the option is to opt out.

If they're in that workplace savings program, it's an IRA, which means that there actually isn't a lot of penalty for withdrawing the money you put in. That's good for low income workers who may, to your point, need that money. But it's even better if we might have a dual account system that sits side by side so we understand that it's actually a success for people to draw down and build up savings over time as a short-term savings piece to protect the long-term savings that they really want to try to put into a lockbox so that it can appreciate through the interest that we all appreciate. That's really where wealth creation comes from in this country.

KARINA MITCHELL: All right. Well, thank you so much. Both my kids just got jobs-- the first thing I did was maximize your 401(k) contributions. Ida Rademacher, Aspen Institute Financial Security Program Vice President, thank you so much for your time today.