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A "Less Risky" Approach to Retirement Savings?

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Wednesday, August 28, 2013   

PHOENIX - Many people aren't saving enough for retirement, and even those who are saw their savings take alarming dips during the recession. Now, a new report calls the traditional IRA and 401(k) plans inefficient and risky - and suggests a different kind of retirement account.

The Center for American Progress calls it the "SAFE Plan," professionally managed but overseen by a board made up partly of plan members.

Gary Burris, senior policy associate for the Economic Opportunity Institute, said the SAFE Plan uses an investment strategy known as "smoothing" for less risk and more long-term stability.

"What smoothing means is, in years when you have a high return rate, you don't put all of that money back into the pool - you sort of save that for the years when there's a low return rate," he said. "So that those people who are in the retirement phase of the plan aren't seeing big drops or gains in their retirement payouts."

Too many hidden fees are associated with the current crop of retirement accounts - fees that erode investors' nest eggs, the report said.

The SAFE Plan would require approval by Congress.

The attraction for employers is that they wouldn't have to guarantee specific returns for retirees. According to the report, a SAFE Plan would be run more efficiently than a traditional retirement account, so it has a better chance of achieving its growth targets.

Burris said businesses would be more likely to offer a retirement plan if it cost them less - which is key to getting more people to save.

"There are people who are already in plans, and there's definitely some need there to get more efficient and better returns and less cost," he said. "But the much bigger problems are those people that don't have anything right now - and that's mainly the small business workforce."

There's room for a state such as Arizona to come up with a workable plan more quickly than waiting for the feds to do it, Burris said.

The report on the SAFE Retirement Plan is online at americanprogress.org.


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