TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, November 28, 2017

Batchelder Presents Improving Retirement Savings Choices Through Smart Defaults Today At Boston College

BatchelderLily Batchelder (NYU) presents Improving Retirement Savings Choices Through Smart Defaults at Boston College today as part of its Tax Policy Workshop Series hosted by Jim Repetti, Diane Ring, and Shu Yi Oei:

Many Americans are not financially prepared for retirement. One of the most powerful levers for influencing their retirement savings choices is defaults. Yet despite the overwhelming evidence of defaults’ power and new research on optimal retirement savings strategies, there have been relatively few reforms to leverage their influence over the past decade.

Making defaults “smarter”—including by taking the novel step of adjusting defaults based on socio-economic characteristics of savers—is a simple way that policymakers could dramatically improve retirement preparedness at little cost to taxpayers. This is true both in the employer plan context and as part of any reforms, such as new state-based auto-IRAs, that expand easy access to tax-preferred retirement savings vehicles outside of employer plans.

Nevertheless, making defaults smarter will require addressing a number of normative, legal, and practical challenges that have received relatively little attention to date. This paper aims to fill that gap. It lays out the major design choices and dilemmas that would arise in implementing smarter defaults for retirement savings, tax, investment, and distribution choices. In the course of identifying these challenges, it offers options for how to address them so that employers, states, or federal policymakers can move forward with such reforms.

https://taxprof.typepad.com/taxprof_blog/2017/11/batchelder-presents-improving-retirement-savings-choices-through-smart-defaults-today-at-boston-coll.html

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Comments

For the younger generation(s), student loan debt is an enormous obstacle to building retirement wealth (and home equity, and savings, and etc). At least one study has shown that for a couple with $50k in student loans, they will wind up a bit over $200k poorer at the end of their working careers than a couple with the same income histories and no student loans. All those student loan repayments represent a whole lot of money NOT being sunk into retirement savings and building home equity. Presuming that scales linearly, the ~$150k (pre-interest) balances that the average law student acquires equates to a bit of $600,000 in lost wealth-building. Ouch.

Posted by: Unemployed Northeastern | Nov 28, 2017 11:11:08 PM

Oh, and here's a different study concluding that $30k in student loan debt can equate to $325k in lost 401(k) wealth. If that scales linearly, $150k in student loan debt would equate to $1.5 million in lost 401(k) wealth. Rather takes a bit out of the fabled value of a JD. https://www.cnbc.com/2015/12/08/the-long-term-consequences-of-student-loans.html

Posted by: Unemployed Northeastern | Nov 29, 2017 5:51:59 PM