Chris Spence of TIAA and Chris Gaston of Davis & Harman join Surya Kolluri to explore innovative approaches for addressing the retirement income guarantee gap.
Fireside Chat: Bridging the Guaranteed Income Gap
Moderator: Surya Kolluri, Head of the TIAA Institute in conversation with Chris Spence of TIAA and Chris Gaston of Davis Harmon
Surya Kolluri: Hello, everyone. I'm Surya Kolluri from the TIAA Institute, and I'm delighted to moderate today's conversation on what we call the "guarantee gap”, a critical challenge facing America's retirement system. Joining me are two distinguished guests: Chris Spence from TIAA Government Relations, and Chris Gaston from Davis Harmon, who together deep expertise in retirement services and income solutions, and both have been instrumental in navigating the regulatory landscape around retirement security
Let me set the stage with a sobering statistic: 45% of American households are projected to run short of money in retirement. Even more striking, 64% of Americans worry more about running out of money than their own mortality. Chris Spence, let's start with you. When we talk about the "guarantee gap," what exactly are we describing?
Chris Spence (TIAA): Thank you, Surya. The guarantee gap is really quite straightforward, yet profoundly important. While defined contribution plans like 401(k)s have done an admirable job helping Americans save for retirement, we feel they've fallen short in the next critical step, converting those accumulated savings into guaranteed income designed to last throughout retirement. Think about it: you spend 30 or 40 years building a nest egg, and then you're suddenly on your own to figure out how to make it last for what could be another 30 years in retirement. That's the gap we're addressing.
Surya Kolluri: The psychological dimension is fascinating. About a third of people who've already retired cite not addressing the risk of outliving their savings as their top financial regret. Chris Gaston, from a legal and regulatory perspective, what's been holding back broader adoption of lifetime income solutions?
Chris Gaston (Davis Harmon): Well, Surya, there are several factors at play. First, we have to acknowledge that Congress has taken important bipartisan steps with the SECURE Act and SECURE 2.0. Chairman Walberg's annuity provider safe harbor legislation was particularly significant. However, plan sponsors still face perceived barriers, regulatory uncertainty, fiduciary concerns, and frankly, some misperceptions about complexity and cost. Many employers sponsoring 401(k) plans hesitate because they're not entirely clear on their obligations and protections when offering these products.
Surya Kolluri: Let's dig into those misperceptions. Chris Spence, what are you hearing from plan participants themselves? What do they actually want?
Chris Spence (TIAA): Recent research from Capital Group found that sixty percent of investors of all ages believe generating steady income is more important than growing assets.1 That's a remarkable finding because it cuts across generations. Participants value security, predictability, and simplicity. They want to know they'll have a monthly or regular check in retirement, just like they did during their working years. Yet here's the troubling reality: less than twenty percent of 401(k) plans offer participants access to lifetime income options.2 And among those that do, some are simply systematic withdrawals that don't actually protect against longevity risk.
Chris Gaston (Davis Harmon): That's a critical distinction, Chris. Not all "income options" are created equal. From a legal standpoint, we need clear definitions and standards for what constitutes true longevity protection versus what's merely a distribution strategy.
Surya Kolluri: Exactly. Which brings us to solutions. As you both know, I recently testified before the House Subcommittee on Health, Employment, Labor, and Pensions with three specific policy proposals. Let's walk through them. The first involves amending the Department of Labor's qualified default investment alternative, or QDIA, regulations. Chris Gaston, can you explain why this matters?
Chris Gaston (Davis Harmon): Certainly. QDIAs are the default investments where participant contributions go if they don't make an active choice. They're incredibly powerful because of participant inertia, most people end up in the default. Currently, we feel the safe harbor regulations don't adequately encourage guaranteed lifetime income products as part of these defaults. The Lifetime Income for Employees Act, bipartisan legislation previously introduced by Chairman Walberg and Congressman Norcross, takes steps toward addressing this. But we also would like the Department of Labor to provide greater clarity to give plan sponsors confidence when integrating lifetime income solutions.
Surya Kolluri: Chris Spence, from the practitioner's side, how would amending QDIA regulations change the landscape?
Chris Spence (TIAA): It could be transformative. When lifetime income becomes part of the default, it normalizes these solutions. Plan sponsors would have a clearer path forward, and participants would naturally accumulate both savings and income protection throughout their careers. It shifts the conversation from "Should I consider an annuity?" to "This is how might retirement work, you save, and that saving could automatically converts to lifetime income."
Surya Kolluri: The second proposal involves requiring defined contribution plans to offer what we call Q-POPs, qualified payout options. Walk us through this concept.
Chris Spence (TIAA): Q-POPs would create a menu of options at retirement, including guaranteed lifetime income solutions, systematic withdrawal approaches, managed payout strategies, or access to an exchange platform offering various approaches. The key word is "menu." We're not mandating that everyone take lifetime income, but we're ensuring that everyone has access to it as a legitimate, fiduciary-approved option.
Chris Gaston (Davis Harmon): From a legal perspective, this addresses one of the fundamental misperceptions among plan sponsors, that offering these options creates liability. By establishing clear standards for what qualifies as a Q-POP and providing safe harbor protections, Congress can reassure employers that they're fulfilling their fiduciary duty, not increasing their risk.
Surya Kolluri: The third proposal is perhaps the most fundamental, improving what we call "longevity literacy." Just so we are all working from a shared understanding. Longevity literacy is simply an understanding of how long an individual is likely to live in retirement. The Institute’s research consistently shows that savers underestimate their life expectancy. They plan for 15 years in retirement when they should be planning for 25 or 30.3 This creates what we call longevity risk, the risk of outliving your savings. If people understood how long they're likely to live, they'd make very different choices about income protection.
Chris Spence, what role can policymakers play in improving longevity literacy?
Chris Spence (TIAA): We have over 30 million Baby Boomers approaching retirement age right now, many of whom can expect to live 30 years or more in retirement. There are several levers available for policymakers. Congress could require more robust lifetime income illustrations in participant statements, showing what their accumulated balance could generate in monthly income. The Department of Labor could mandate educational materials that help people understand longevity risk. We could even look at incentivizing employers to provide retirement planning resources that include longevity projections. The key is making this information accessible and actionable, not buried in disclosure documents that nobody reads.
Surya Kolluri: Let's talk implementation. Chris Gaston, if Congress enacted these three reforms tomorrow, what would the rollout look like from an industry perspective?
Chris Gaston (Davis Harmon): We'd need a thoughtful transition period, certainly. Plan sponsors would need time to evaluate lifetime income providers, update their plan documents, and communicate changes to participants. The Department of Labor would need to issue guidance on the QDIA amendments. But here's the exciting part, the infrastructure largely exists. Providers like TIAA have decades of experience delivering guaranteed lifetime income. The products are tested and proven. We're really just removing barriers and creating clearer pathways.
Surya Kolluri: Chris Spence – anything to add?
Chris Spence (TIAA): I'd add that we'd likely see some standardization emerge, which would benefit everyone. Just as target-date funds became the dominant QDIA over time, we might see certain structures for lifetime income options become industry standard, making it easier for plan sponsors to compare and select providers.
Surya Kolluri: One question I'm often asked: wouldn't mandating or encouraging lifetime income options reduce flexibility for participants who want to manage their own withdrawals?
Chris Spence (TIAA): That's a common concern, but the Q-POP approach addresses it directly. We're not forcing anyone into lifetime income, we're ensuring it's available alongside other options. Some participants will want complete control and flexibility. Others will value the security of guaranteed income. Many will want a blend, perhaps covering essential expenses with guaranteed income and maintaining some assets for discretionary spending and legacy goals. The menu approach accommodates all of these preferences.
Surya Kolluri: Chris Gaston, are there legal precedents for this kind of mandated menu approach?
Chris Gaston (Davis Harmon): Absolutely. We already see this with investment options in 401(k) plans. ERISA doesn't dictate specific investments, but it does establish standards for fiduciary selection and monitoring. The Q-POP concept follows similar logic, establishing standards for what qualifies as an appropriate payout option while leaving specific selections to plan sponsors and participant choices to individuals.
Surya Kolluri: Let's address the elephant in the room: cost. Critics sometimes argue that guaranteed lifetime income products are expensive or represent poor value compared to DIY withdrawal strategies. Chris Spence, how do you respond?
Chris Spence (TIAA): It's important to distinguish between cost and value. Yes, insurance products have costs, you're paying for longevity protection, professional management, and guaranteed outcomes. But what's the cost of running out of money at age 85? What's the cost of the anxiety that 64% of Americans feel about outliving their savings?4 When you factor in the psychological benefits, the protection against poor market timing at retirement, and the insurance against outliving your assets, many participants find tremendous value in these products. And increased adoption through QDIA integration would likely drive costs down through economies of scale.
Chris Gaston (Davis Harmon): I'd also note that the SECURE Acts included provisions requiring clearer disclosure of fees and features, which helps participants make informed comparisons. Transparency is the best disinfectant for any concerns about cost.
Surya Kolluri: We're living in an era of increasing longevity, yet also increasing economic uncertainty. How do these three reforms position America's retirement system for the next generation?
Chris Spence (TIAA): They fundamentally complete the retirement security framework. Social Security provides a foundation. Defined contribution plans have successfully created a savings culture. These reforms add the third leg of the stool, systematic conversion of savings into lifetime income. Together, they enable Americans to retire with dignity, which should be our ultimate goal.
Chris Gaston (Davis Harmon): From a policy perspective, these reforms also represent a bipartisan opportunity. Chairman Walberg and Congressman Norcross have already demonstrated that lifetime income solutions can attract support across the aisle. These aren't partisan issues; they're about fulfilling the promise of retirement security for all Americans.
Surya Kolluri: As we close, I want to return to that statistic about retirees' top financial regret, not addressing the risk of outliving their savings. Chris Spence, if you could speak directly to someone who's five or ten years from retirement, what would you tell them?
Chris Spence (TIAA): I'd tell them that they have more options than they might realize, and that those options will continue to improve as these policy reforms move forward. I'd encourage them to think about retirement income the same way they think about their regular check during their working years, as something reliable and guaranteed. And I'd urge them to have conversations now with their plan sponsor about lifetime income options, because demand from participants is one of the most powerful drivers of change.
Surya Kolluri: Chris Gaston, your final thoughts
Chris Gaston (Davis Harmon): We're at an inflection point. The legal and regulatory framework is evolving to support lifetime income solutions. The industry has the products and expertise to deliver them. What we need now is the policy certainty that comes from Congressional action on QDIA reform, Q-POP legislation, and longevity literacy initiatives. These three reforms, working together, can help millions of Americans retire with confidence and security.
Surya Kolluri: Thank you both for this illuminating conversation. The guarantee gap is real, the solutions are within reach, and the time to act is now. With over 30 million Baby Boomers approaching retirement, we have both the urgency and the opportunity to modernize our retirement system and help Americans retire with dignity. We look forward to sharing this conversation with our partners along with the related research. Thank you for joining us today.
This material is for informational or educational purposes only and is not fiduciary investment advice, or a securities, investment strategy, or insurance product recommendation. This material does not consider an individual’s own objectives or circumstances which should be the basis of any investment decision.
**TIAA Institute Research Academy - Fellows Chat: Social
Security**
**Speakers:**
- Surya P. Kolluri (Host)
- Gopi Shah Goda (Fellow, Director of Retirement Security
Project, Alice M. Rivlin Chair at Brookings Institution)
---
**Kolluri:** Hello, everyone. Welcome to the TIAA Institute
Research Academy. As we know, we launched the TIAA Institute Research Academy
last year, and we have featured several topics that we have engaged with you
on. They're on the TIAA Institute Research Academy website. So this year, we
are going more in-depth.
I think as many of us know, at the Institute, we have a
Fellows program, and so we thought we would have deeper subject matter
conversations on specific topics with our fellows. And so welcome to this
inaugural edition of the Fellows Chats.
So today, we're going to be talking about a topic that all
of us care about, which is Social Security. Now, as we have heard our colleague
at the Institute, Benny Goodman, say, Social Security forms a very important
foundation when we think about our financial security in retirement. So the way
Benny describes it is, think of Social Security as the floor that gives us a
foundation, and then generating lifetime income from our retirement savings as
the mattress that allows us to sleep comfortably. And if there are excess
assets beyond that, that becomes the roof.
And so that's an easy metaphor to think about how we can
have financial security in retirement, but Social Security has a very important
role to play, which is the foundation, the floor. So today, I am delighted to
have with us Gopi Shah Goda, who is the Director of Retirement Security
Project, and the Alice M. Rivlin Chair at Brookings Institution.
She's also an NBER Research Associate. Now, the head of NBER
is a trustee of ours, Jim Poterba, who's actually the chair of our CRAF
committee. So, Gopi is an NBER Research Associate, and she was formerly a
senior economist for the Council of Economic Advisors. And of course, we're
proud to call Gopi a fellow of the TIAA Institute. So, Gopi, welcome.
**Goda:** Thank you, Surya, it's great to be here.
**Kolluri:** So, this is a very interesting topic, both
internally, Gopi, as well as with our clients. It would be good, I suppose, to
start with, what are the types of Social Security benefits?
**Goda:** Sure. Social Security is actually a huge program
that serves many beneficiaries. The three different kinds of beneficiaries that
Social Security has are retirement beneficiaries, disability beneficiaries, and
those receiving survivor benefits.
There's also another part of the program that is called
Supplemental Security Income, and that also serves a different set of people.
So, let me just go through each of them very quickly, and then I think we'll
focus more on the retirement part of the program for the rest of the
discussion.
So, retirement benefits are paid to those who are at least
62 years old who have worked a certain number of years, and their benefits are
based on their earnings history and when they start receiving those Social
Security benefits.
Disability benefits are paid to those who cannot work due to
a disability that meets the Social Security Administration's medical and
insured requirements. These benefits, similar to retirement benefits, can also
support spouses, children, and other dependents of the disabled worker.
Finally, there's survivor benefits that are paid to family
members of a worker who dies, including spouses, children, and dependent
parents. And this other piece of the program, Supplemental Security Income, is
a program that provides monthly benefits to people with limited income and
resources, including those with disabilities, blindness, or those who are 65
years or older.
**Kolluri:** This is so interesting. So, retirement
benefits, disability benefits, survivor benefits, and supplemental security
income. The scale is vast, right, Gopi? I mean, millions of recipients of
Social Security.
**Goda:** Yeah, it's actually hard to appreciate just how
big the program is. So, in total, 74 million people receive some form of Social
Security benefits. That is more than 1 in 5 Americans.
And about 56 million of those are receiving retirement
benefits, either as the retired worker themselves, or as the spouse of a
retired worker, or in some rarer cases, even the children of retired workers.
So that 56 million people, again, that's about 1 in 6 Americans total, are
receiving some retirement benefits from Social Security.
**Kolluri:** That is just stunning to me. 1 in 5, that's 20%
or more. It's just a pretty incredible number in terms of how important this
program is. So, the 56 out of the 74 is on retirement income, so let's talk a
little bit, Gopi, about the importance of Social Security for retirees.
**Goda:** Sure. So, if you just take the average benefit
that is paid to retired workers, this amounts to about $1,900 each month that
is paid until someone dies.
And another way to think about just how much income that is,
is to think about how much income that replaces from those workers' salaries
prior to retirement. And one important thing to note is that that varies a lot
across the income distribution. So, if you look at retirees who have low levels
of career earnings, their benefit replaces about 80% of their pre-retirement
wage earnings. However, if you look at someone at the higher end of the
lifetime income distribution, so those who have basically earned the maximum
amount that is taxable by Social Security every year, then it only replaces
about 28% of their pre-retirement earnings.
There's a lot of different ways to measure this, but the
basic fact is that the program is somewhat progressive in that it replaces a
higher share of earnings for those with lower levels of earnings.
**Kolluri:** Very interesting. You know, Gopi, Social
Security is in the news a lot. It tracks a lot of stories, and often the
headlines are, the system is under duress. And so there are financial
challenges, so it would be good to hear from you the dimensions of these
financial challenges.
**Goda:** Sure, yeah. So, first, I think it makes sense to
talk a little bit about just how Social Security is financed. So, Social
Security is set up as a pay-as-you-go program. And so that is very different
from a program like what we usually have with our employers or with TIAA, to
put money in an account that has our name on it, that is paying benefits to us,
or paying proceeds later in retirement.
By contrast, Social Security takes in contributions from
current workers, that is a share of their earnings that they're earning right
now, and pays out those same funds to current beneficiaries who are receiving
benefits from the program. So I like to think of it more as a checking account.
There's a trust fund that operates sort of as a checking account. It gets money
in every month. It puts money out every month.
And the benefits that are... or the amounts that are coming
in are based on a tax rate that is applied to all earnings below a certain
threshold, and the money going out is based on a certain formula that tells you
how much benefit someone has earned over their lifetime.
**Kolluri:** Very interesting. So I'm thinking of this,
maybe an image I have in my mind, Gopi, is like a water tank, so we put water
into it.
**Goda:** And we're taking water out of it. Yeah. There's a
reservoir of water.
**Kolluri:** Right. But is that reservoir shrinking? Is that
what people are talking about?
**Goda:** Yeah, so that's a great way to visualize it, and
basically one way you can think about it is that during the 1960s, when the
baby boomer generation was entering the workforce in large numbers, that
reservoir was filling faster than it was being depleted. And so that was
building up a reserve in this trust fund that would potentially be used to pay
future benefits later.
Now we are at the point where that reservoir is being
emptied at a faster rate than it's being filled. And so those reserves are
depleting. And at some point, they're going to be completely depleted, and that
date is not in the too-distant future. The Social Security actuaries predict
that that will happen by 2033 for the retirement program.
And at that point, the only benefits that can be paid are
what amounts to the money coming in to the program. So, you can't basically
drain it out faster than it is being filled.
**Kolluri:** Right, right, and so that's what they mean when
they're talking about they can only pay out 75%. It's like, whatever's coming
in is all you can pay out if there's no reserves.
**Goda:** Exactly. Exactly. And at that point, it seems that
we will have the ability to pay only about 80% of the scheduled benefits. So
we'll have to reduce the rate of those benefits being paid to exactly equal the
rate that the reservoir is being filled by.
And I'd like to take a moment to just talk about some of the
demographic challenges that are related to that. So, if you think about the
workforce in the early '60s, that was when the baby boomers were entering the
workforce in large numbers, and they were paying into the system just much more
quickly than the share of the population that was claiming benefits.
But since the early 2000s, the tables have really turned. So
the share of the population that is between 18 to 64, that we think of the main
population of those contributing into the program, has been declining, while
the share that is over 65 and older has grown at the fastest rate in over a
century. So it has gone from about 13% of the total population in 2010 to 17%
in 2020, and it's expected to grow further.
And that ratio of the share of the population receiving
benefits relative to the share of the population paying into the program is one
of the primary factors that is leading this reservoir to become depleted much
faster than it was before.
**Kolluri:** And I'm also thinking, the fact that a portion
of the population is now gig workers, right? And may not be contributing to
Social Security. So the amount of water coming in is not only the number of
people, but how much is coming in as well.
**Goda:** Yeah, I mean, and the other big factor here in
terms of just population dynamics is fertility rates, too, which have been on
the decline for several years. Over the last 15 years or so, we've seen much
lower fertility rates, and that means we can already see that in the future,
there are going to be fewer people contributing into the program.
**Kolluri:** So, given all that, what is the discussion,
particularly Brookings being nonpartisan, you're thinking about solutions you
want to propose to the policymakers. So, what are some potential solutions, and
what are the political realities of all of this?
**Goda:** Yeah, so from an economic standpoint, there are a
lot of plans that have been proposed to address the financing shortfall, but
they all come down to basically one of two things, or a combination of both.
You either have to reduce the benefits that are being paid out of the program,
or increase the revenue that is coming into the program, or do some combination
of both.
There's essentially no free lunch here, so in some cases,
it's just the math of the program and the economic reality that this reservoir
is being depleted faster than it's being filled, that is leading to that set of
circumstances.
There are different ways that you could do either of those,
so you could raise revenues by either increasing the rate that is applied to
earnings, and the same level of earnings that are being taxed right now for the
program, or you could increase the base to which that rate is applied. So you
could do things like increase the maximum level of earnings that is subject to
the Social Security tax. You could bring in other types of non-wage benefits
into that base to increase the set of earnings that that rate is applied to.
But overall, those are kind of your set of solutions if you're thinking about
ways to raise revenue into the program.
**Kolluri:** Yeah, either get more water in.
**Goda:** Yep. Less water out. Right. And in terms of the
less water out, there are, of course, a number of different ways that one could
design programs that get less water out by either reducing benefits across the
board, or reducing them more for certain types of beneficiaries versus others.
But in total, it all amounts to some kind of benefit reduction.
**Kolluri:** Yeah. Any final thoughts on this, Gopi? Because
I'm going to then also suggest to folks the paper you wrote for us on
withdrawal strategies for Social Security, but any final thoughts?
**Goda:** Well, so there are a couple of other things that I
think are important to think about. So, one is the sooner we take action, the
better, because it gives beneficiaries more opportunities to plan for the
future. And if we get to the point where we are very close to that date of
depletion of the trust fund reserves, it reduces that window of possible
options that we have, possible levers that we have to address the problem, and
makes it more abrupt for current beneficiaries.
The second thing is, not only should we think about how to
address the current shortfall, but we should give some thought to how to set up
the system so that it is more resilient to future changes. So, if you think
about pensions, we usually talk about defined benefit pensions or defined
contribution pensions. In one, the money going out is fixed, but the
contribution that employer makes on your behalf is variable, right? So those
are defined benefit pensions. If you think about defined contribution plans, the
money going in is fixed, but what you get out of it in retirement is somewhat
variable.
Well, Social Security is kind of like both a defined benefit
plan and a defined contribution system, where both sides have this rigidity in
it, right? And that leaves a lot of uncertainty in terms of how that rigidity
is resolved in the future. So, right now, it could be that future beneficiaries
face that risk in the form of lower benefits. It could be that future workers
face that risk in the form of higher contribution rates, or it could be that
general taxpayers face that risk, right, by general revenues going into the
program.
And the program is actually not explicit in terms of how
that rigidity gets resolved. And it would be nice, I think, for any kind of
reform to also kind of think more about how that risk could be resolved in the
future, just to give more understanding to the public of what it means for
demographic assumptions or economic assumptions to be changing in terms of how
that affects the program going forward.
**Kolluri:** Gopi, thank you for painting this picture at a
macroeconomic level on the Social Security system. You've also helped us in the
past think through how can individuals respond to Social Security, should they
file, etc. And I think the latest paper you wrote for us was around... focused
on gender. How should women be thinking about filing for Social Security in
light of all this. So, what we will do, in addition to posting this
conversation on our Academy website, we'll also include papers by Gopi and
other fellows on the topic of Social Security as well. So, Gopi, I really want
to thank you for joining us and kicking off this Fellows Chats program for the
TIAA Institute.
**Goda:** Thank you for having me.