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Jeffrey Brown, a TIAA trustee, is Josef and Margot Lakonishok Professor and Dean of the University of Illinois' Gies College of Business. He also serves as a fellow at the TIAA Institute.
No one has ever said the point of retirement is to have $1 million at age 65. That’s because having a certain amount of money shouldn’t be the goal. It’s an intermediate step that’s only part of creating a secure and happy retirement.
Our well-being does not come from how much money is in our account on a given day. Unfortunately, the U.S. retirement system is built around wealth accumulation.
Wealth doesn’t guarantee financial security
There’s a disconnect between what we want from retirement and how we’ve been told to get there. We obsess about how much money we’ll have the day we retire, when we really need to know how much money we can spend each month.
Policymakers feed this obsession. The government endorses default investment options that focus solely on growing wealth. The IRS requires you to start withdrawing from retirement accounts after a certain age, whether or not you’ll have enough money left when you’re older. Regulators impose fiduciary duties to ensure diversified investment options and low costs, but no duty to consider lifetime income.
What should be the goal is having enough retirement income to cover basic needs. Financial security and peace of mind come from having the money we need when we need it.
Guaranteed retirement income means guaranteed retirement security
So how do we change a system focused on wealth accumulation?
We need to recalibrate how we talk about retirement. Education will help, but it isn’t the answer. We need to reconsider plan design. If we built guaranteed retirement income options into our plans and products—making lifetime annuities a default option in 401(k)s, for instance—people could have happier, more secure retirements.
And we need to stop talking about wealth as the goal. We should stop making account balances the yardsticks of success. We should maybe even stop talking about whether someone has “saved enough” for retirement.
Instead, we should talk about how much future income we’ve provided ourselves. About how we’ve ensured we can maintain our standard of living. About what we have done to guarantee that we won’t run out of money in retirement.
Income is the outcome. It’s time we started acting that way.
Find out how Jeff Brown arrived at his life’s work after watching his parents save for retirement in his full story hereOpens pdf. This article was adapted from his presentation at the TMRW conference in February 2023.
