Modern health care has extended the lifespan and quality of life for millions of Americans. However, the sheer magnitude of our aging population portends serious economic consequences for our nation. Consider these facts: Today, one in eight Americans is 65 years or older. By 2030, one in five--about 68 million people--will be of retirement age. More than 80 million people will be receiving benefits from the Social Security retirement and disability program, almost double the number of recipients in 1993.

[Expanded Picture]As average life expectancies continue to increase, America's baby boomers--which number some 76 million--can anticipate spending nearly one-third of their adult lives in retirement. However, few begin planning for retirement until age 40.

Meanwhile, American business has largely moved out of the retirement guaranty business. Instead, companies are offering defined-contribution plans--usually 401(k) plans. These offer some very attractive benefits, but participation is strictly voluntary, and studies suggest that up to one-third of those eligible to participate do not. Perhaps the most critical concern is that employees are required to select their investments on their own. Having little or no experience with 30-year investment horizons, risk analysis and asset allocation decisions, they tend to choose investments that appear the safest--often money market funds or guaranteed, fixed-return investments that typically do a poor job of outpacing inflation.

Are They Up to It?

In effect, we are asking American workers to think and act like professional pension fund managers. The risks associated with this experiment are enormous, considering that vast numbers of baby boomers may be ill-prepared for their retirement years.

No less disturbing is the fact that many Americans wrongly believe that the federal government will step in and fill the void. One government survey found that 40% of people between ages 51 and 61 expect to retire with no income other than that from Social Security. However, the current maximum Social Security payment is just over $14,000 annually, which covers less than one-third of the average retiree's pre-retirement income level. Financial experts agree that 70% to 80% of pre-retirement income is required to sustain a comparable standard of living after retirement.

The facts suggest that Americans increasingly will have to rely on private savings during retirement--and yet almost 40% of U.S. households have no such savings. The federal government has been less than helpful with regard to this issue. Despite a great need to stimulate savings, key incentives to do so have been eliminated. What is needed is a comprehensive national retirement savings policy that can stem the current tide of national savings neglect.

This policy should have the following tenets:

* Encourage voluntary savings and investment through economic incentives,

Pretax contributions to IRAs should be raised, and individual contributions to 401(k) plans that function as an individual's primary pension plan should be subject to the types of limits that apply to any other qualified plan. Complicated nondiscrimination rules within qualified plans also should be simplified. And we must continue to encourage private investment of after-tax dollars, and revisit the issue of a reduction in the capital gains tax.

* We must address the problems faced by our Social Security system. Now is the time to mandate reforms, such as a rise in our nation's retirement age.

* ERISA should be overhauled. The federal government's current set of requirements of what businesses must offer employees is overwhelmingly complex for. small employers.

* We must continue to find ways to improve the ability of the average American to make wise investment choices. A comprehensive, national retirement savings education campaign should be launched at the federal level, with ongoing support from the public and private sectors.

There has been a great deal of talk in Washington about personal responsibility and self-reliance. What is clearly needed is to apply that thinking to one of the most important social and economic issues facing the nation--the retirement security of generations to come.

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