The economic shocks of the past 18 months have shown it is time to address serious shortcomings in our nation's approach to retirement savings.

Research from McKinsey & Co. finds that the average American family will face a savings gap of $250,000 at the time of retirement.  Even with payments from Social Security and pensions, as well as personal savings in 401(k) and other retirement plans, the average family will have only about two-thirds of the income it will need.

America needs a holistic retirement system that helps people build financial security that lasts a lifetime.

"It's time to think of 401(k)s as income in retirement accounts, and to begin with the end in mind, by asking how much income in retirement people need," said Roger Ferguson, TIAA-CREF's chief executive.

A holistic system would:

Ensure full participation and sufficient funding by enrolling employees automatically on their first day of work.

Offer incentives for employers and employees that encourage total contributions between 10 and 14 percent of pay -- about double today's savings - helping individuals reach a target of replacing 70 percent of their pre-retirement income.

Help workers manage risk by offering a menu of 15 to 20 investment options to provide sufficient diversification without presenting an overwhelming number of choices.

Give workers financial education and objective, noncommissioned advice to help them build a portfolio that reflects their goals and risk tolerances.

Provide opportunities and incentives to save for retirement medical expenses.

Provide lifetime income through an affordable fixed annuity option.

"I believe a social contract exists in this country to help our colleagues, our neighbors, and our fellow citizens get safely to and through retirement," said Mr. Ferguson.

As the largest private retirement system in America, TIAA-CREF provides more than $10 billion in retirement income, guaranteed lifetime income and other payments to 500,000 participants each year.

1 "Restoring Americans' Financial Security: A Shared Responsibility," McKinsey & Company, October 19, 2009.

2 Subject to TIAA's claims paying ability.

© 2010 Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), New York, NY 10017   

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