Savings for Life: A Pathway to Financial Security for All Americans

Abstract

The US savings system consists of a confusing patchwork of plans, most of them income-based programs that rely on tax subsidies to generate retirement savings. These subsidies, which now total more than $300 billion a year, disproportionately favor those who already fall into higher income brackets and need no government help to save. The U.S. needs a sensible savings system that allows all Americans to save, invest and own at every stage of life. The government must step up to the challenge by building durable on-ramps to the savings system for low- and moderate-income citizens. What is needed is the right nexus to bring the financial services sector and low- and moderate-income Americans together. Today, nearly half of the nation's households have virtually no connection to the financial services industry. And the business community has not adequately engaged them because it has not perceived their full potential as new consumers. Given the right savings vehicles with the right incentives for both individual savers and the financial services industry, more Americans can access the pathway to greater savings. The Initiative on Financial Security at the Aspen Institute has developed a package of four complementary savings vehicles that can significantly improve the savings options for all Americans across the lifespan: - Child Accounts to build savings from the beginning of life. The government would give a beginning endowment to a market-based, retail-sold account, giving all children a financial jump start in life and helping to build financial literacy in families. - Home Accounts to be used for a down payment on a home. These FDIC-insured accounts would enable more low- and moderate-income families to become homeowners by providing a modest government match on their savings. - America's IRA, to build retirement savings among Americans who do not have access to an employer plan at work. These simple Individual Retirement Accounts would feature a government match and a one-time account opening incentive for low- and moderate-income savers. - Security Plus Annuities to provide an additional layer of lifetime, guaranteed income in retirement. This program would partner the familiar and universal Social Security program with the private market to provide many of the 80 million soon-to-retire baby boomers with a simple, low-cost annuity product that protects them from outliving their savings or losing them in a market downturn.