Powell: How to fix America's retirement problems

When it comes to retirement in the U.S., there's no shortage of problems. People haven't saved enough money for their golden years. They're going to outlive their assets. They won't be able to afford health care in retirement. And the list goes on and on and on.

But these problems are not without solutions. Here's a look at what experts say are the biggest problems facing those saving for and/or living in retirement, and how to solve those problems.

Social Security needs fixing. "The first pillar of old-age support, namely our national Social Security system, is running into the red," says Olivia Mitchell, a professor at The Wharton School at the University of Pennsylvania and executive director of the Pension Research Council. "This represents big trouble."

Mitchell says "serious reform must be implemented ASAP to ensure that those workers in the bottom half of the wage distribution will receive Social Security benefits that will be critical to them in retirement."

Her solution: Reduce the growth rate of benefits by pegging it to price inflation, not wages. When you're working, the Social Security Administration calculates your future benefit based how fast wages rise. But your actual benefit, when you claim it, is based on inflation (CPI). Wages tend to grow faster than inflation, so switching from wages to inflation would reduce the overall benefits to be paid out.

"This in and of itself will return the system to balance, albeit with some transition financing," says Mitchell.

No one thinks thoughtfully about when to claim Social Security. "The biggest problem is that (Americans) don't consider the importance of choosing the age at which they retire," says Alicia Munnell, director of the Center for Retirement Research at Boston College. "If they can postpone retirement from 62 to 70, their monthly Social Security benefit goes up by 76%, their 401(k) assets nearly double, and they reduce by eight years the length of the period over which they need to stretch their retirement nest egg."

Longevity risk is real. Most Americans face the real possibility of longevity risk, the risk of living longer than they can afford given their assets, says Mitchell. Her solution: New insurance products are needed to help convert retirement savings into lifetime income, ideally with deferred participating annuity products, which pool longevity risk. At the moment, investors can purchase such products as deferred-income annuities, single-premium immediate annuities as well as qualified longevity annuity contracts (QLACs) to manage longevity risk.

Others share that point of view. "Couples beginning retirement have a problem previous generations would have envied," said John Laitner, a professor at the University of Michigan and director of the Michigan Retirement Research Center. "Individuals of retirement age can now expect to live many years."

And to cope with such longevity, Laitner says individuals should think about annuitizing at least part of their pension equity, which would provide protection against outliving their resources.

Access to employer-sponsored retirement plans. Experts say that only one-half of American workers have retirement plans, such as a 401(k), at work. And that lack of access is a problem, particularly for part-time workers and those at small employers, says Jeffrey Brown, a professor at the University of Illinois at Urbana-Champaign.

No retirement plan equals no retirement savings, according to research from the Employee Benefit Research Institute.

To address this problem, Brown wants the Labor Department to 1) make it simple and low-cost for small employers to offer plans, 2) make sure that non-discrimination testing is not accidentally leading employers to leave part-timers out of the plan, 3) promote multiple-employer plans, and 4) establish auto-IRAs at the federal level.

Not enough annuity options in 401(k) plans. Workers who have access to an employer-sponsored retirement plan have plenty of investment options, but hardly any annuity options, say Brown. Having annuity options could help workers convert some of their retirement assets into guaranteed lifetime income.

To address this, Brown says the Labor Department must go "much further in providing fiduciary comfort to plan sponsors so that they feel comfortable offering lifetime income products inside 401(k) plans."

What's more, Brown says he liked to see the lifetime income-disclosure rules become finalized "so that we can start to change the conversation from a focus on wealth accumulation and toward a focus on income."

Don't forget your home equity. Home equity can help solve retirement problems as well. "Maintaining equity in one's primary residence provides a place to live and a degree of hedging against inflation," says Laitner. "Equity in one's residence tends to be protected against some government means-tested assistance. And, the equity can provide cash in the event of a surviving spouse's illness."

Robert Powell is editor of Retirement Weekly, contributes regularly to USA TODAY, The Wall Street Journal and MarketWatch and teaches at Boston University. Got questions about retirement? Email Bob at rpowell@allthingsretirement.com.