Do You Have Enough to Retire?

Roger Ferguson: 'A Retirement System for the 21st Century'


Roger W. Ferguson Jr., chief executive of retirement giant TIAA-CREF, jokes that he's a "grandchild of the Depression." That tendency toward thrift may serve Ferguson, who is 58 and a former vice-chairman of the Federal Reserve's board of governors, in good stead for his own retirement. More important, Ferguson is using his bully pulpit atop TIAA-CREF, with more than $400 billion in retirement assets, to push for what he calls "a retirement system for the 21st Century." Among other things, he believes retirees should have their basic financial needs covered by guaranteed income, just as their fathers (and grandfathers) did with pensions. Bloomberg BusinessWeek's Amy Feldman and Suzanne Woolley sat down with Ferguson in his New York City offices in late January to discuss the problems with Americans' retirement readiness—and what can be done. Here are excerpts from that interview.

ON WHY WASHINGTON NEEDS TO FOCUS ON RETIREMENT. Retirement is—or should be—one of the next domestic policy issues the President and Congress should attack. Is it 2010 or 2011? I don't know. I hope it will be sooner rather than later, because it will not get better with time. The average 401(k) balance was around $65,000 before the crisis. People were not saving enough before the crisis. Social Security doesn't pay enough. You have a gap.

ON FINANCIAL ADVICE FOR 401(k) PARTICIPANTS. The Department of Labor came out with regulations about advice that proved to be controversial. [At issue was who should be permitted to offer financial advice to 401(k) participants and what would be considered a conflict of interest. The Bush-era regulations were ultimately scrapped; new ones are expected this year.] There are important details to be worked out, but the goal of non-conflicted or non-commissioned advice is critical. If you have auto-enrollment and auto-escalation [meaning workers are automatically enrolled in their companies' 401(k) plan at a set level, and those contributions are automatically increased as their salaries go up], less advice is needed, but you still need some. There will still be questions: How to link retirement and non-retirement assets? How much to save? How much to annuitize? Whether to go for the default investment option or not?

ON THE DOWNSIDE OF CHOICE. One of the weaknesses of the 401(k) system may be too much choice in investment options. You can overwhelm people with too much choice. What's optimal is 15 to 20 investment choices.

ON CREATING A RETIREMENT SYSTEM THAT GETS PEOPLE INCOME FOR LIFE. The 401(k) system was never meant to be the core retirement system. It doesn't get you through retirement—it gets you to retirement. People should annuitize for basic expenses, such as rent or mortgage, and utilities [meaning they would receive a set monthly check to cover that amount]. You need the option of secure income for life. If annuities were required—if the government said this is one characteristic that a qualified plan must have—the sponsors would do it. If you wait for plan sponsors, it will only be as fast as the slowest person. [But] individuals should not be forced to take that. Mandated options are not popular and not likely to get through Congress.

ON THE ONE THING HE'D CHANGE TO SHORE UP AMERICA'S RETIREMENT SYSTEM. It's always dangerous to choose one thing that is most important. But the most important thing is to get people to start saving. [Offering participants] advice can be part of that. Auto-enrollment can be part of that. The overarching goal is to get people to save, and to get them to save enough. To get a 70% income replacement ratio [to be able to spend 70% of pre-retirement income in your non-working years], you need to save 10% to 14% of your income each year. It's an eye-opening number for the vast majority of people.


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