En español | The following is the full transcript of AARP publications' Editor in Chief Robert Love's interview with President Barack Obama on Feb. 23. The president addressed the challenges facing Americans in retirement.
Q: Mr. President, thank you so much for coming here today. It's a pleasure to have you. Saving for retirement is a constant concern for our members. After this event, the press will take the news and they'll spin it right and they'll spin it left. But if you could explain what happened here today, to a 60-year-old aunt or cousin, how [would] you break it down?
A: Well, it's pretty straightforward. It used to be that most people had a pension through their employers and then they also had Social Security and then they might have some savings in the bank. But basically that three-legged stool is what assured you that you had a good retirement. Most employers have now moved off of what we call a defined benefit plan, a plan where you were guaranteed a certain amount of money, and now you've got a 401(k) plan. And Social Security is still there. It's still strong. But people are having to make more decisions now about their individual savings. Do they put it in a 401(k)? Do they maybe get their own IRA? And a lot of people are relying on financial advisers to make those decisions. And there are a lot of very good financial advisers out there.
But what's been happening is these financial advisers, because the rules governing them are outdated — a lot of them are giving advice to savers that is good for the financial adviser, but not good for the saver. So they might have a deal with some big company that says, "Here, buy this annuity." There's a lot of fine print in there. It turns out that you're going to get less of a return or you're going to have a lot higher fees than if you just kept your money in a 401(k). Or if you took some other low-fee option.
And unfortunately, right now, there are no rules preventing financial advisers from doing that. We know that there are families that are losing thousands of dollars because there aren't these safeguards. There are conflicts of interest that have to be guarded against. And what we're saying today is we're going to set up a rule that says financial advisers have to put the interests of clients first instead of putting their own financial interests first. And that could potentially mean billions of dollars that are either staying or increasing in the saver's account instead of resulting in a better deal for the financial adviser.
Q: So the three-legged stool is pretty much history for Americans. Now we use 401(k)s. Some of us are thinking we'll be working into our 70s. What do you think retirement security should look like in the future?
A: Well, first of all, Social Security is still going to be a key pillar to it. And I've committed from the day that I took office that we would make sure Social Security is there, not just for this generation but for future generations. And we're going to continue to do everything we need to do to make Social Security strong. But beyond Social Security, we're going to have to do more to encourage people to save and save effectively. Some rules that we've already passed or are in the process of implementing would, for example, encourage employers to auto-enroll their employees. It turns out that it makes a big difference when you first start a job if the employer says, "We're automatically enrolling you in a savings plan unless you opt out" or they say, "Do you want to opt in?" Well, a lot of people don't opt in, but if they're automatically enrolled, they're more likely to stick with it.
We're also going to help small businesses, who sometimes can't afford to set up that whole process, to create an employer-based savings system, because generally the employer-based systems typically do a better job and provide lower fees and better returns than being outside the 401(k) system.
Q: Is that because the people who manage them have experience in managing people's money? For others, rather than for you doing it for yourself?
A: I think that's part of it. And part of it is just kind of an economy of scale. If your employer has negotiated with your financial adviser, a lot of times they're asking some tougher questions. They've got somebody who is more familiar with the financial instruments that are out there. They're more likely to have lawyers on staff who might read the fee structures and can shop around a little bit more. So that's a key component that we're already implementing.
Of course a lot of this has to do with making sure that people are just getting paid enough that they can actually save, and that's why we put such an emphasis on issues like the higher minimum wage, making sure that people have health care so they're not having to take out-of-pocket costs that might deplete all their savings because one member of their family gets sick. We're going to have to use things like 401(k)s and individual savings, supplemented with Social Security, to make sure that people can build up the kinds of savings they need. But we've also got to improve wages and incomes so that people can save more effectively.
Q: Would you say that the great 401(k) experiment has completely passed [the test]? Or failed? Or somewhere in between?
A: I don't think it's failed. I think that what is absolutely true is that people don't have the same security that they had under a defined benefit retirement plan. And we don't have a lot of those plans left except for us in the public sector. There are far fewer private-sector companies that offer those.
So if in fact we are able to structure portable retirement accounts that travel with you as you change from job to job, because very rarely do people have the same job for 30 years now, then we've got to make sure that those are strong, that those work and that people are actually using them. Because one of the things that was an advantage about the defined benefit traditional program was that it got taken out of your paycheck, and you just saw that as part of the overall savings that you were going to be making.
Now people have to be a little more intentional. They've got to make an affirmative choice to save. And that's hard to do, especially when times are tight for a lot of folks. But we've got to create as many opportunities for a sound approach to individual retirement as we can.
Q: Today's announcement is one of the most significant steps your administration has taken to help people who are at risk for [or have] lost earnings. So my question is this: Is this a start of a new effort, in your last two years in office, to look out for the retirement security of Americans?
A: Look, when I first came to office, obviously our biggest concern was everybody who had 401(k)s were seeing that those savings were cut in half because of the crash in the market. We've spent a lot of time rebuilding the economy. The economy is now in much stronger shape. Job growth is the strongest it's been since the 1990s. And by passing the Affordable Care Act, we have strengthened the capacity for families, even if they're not getting health insurance through their employer, to have high-quality care. And by the way, we've done it while still strengthening Medicare and the Medicare Trust Fund, and we have already saved seniors about $12 billion in lower prescription drug costs. And we're going to be closing the doughnut hole. So that's been a big improvement.
Now, what we have to do is to make sure that as people's wages rise, and they can start saving again, that there are places for them to save that are going to be sound and secure. This is one part of what will be a broader effort to accomplish.
Q: Will these revised rules, in your opinion, help people with their self-reliance, help them to make smarter choices in the marketplace? Is that the logic behind it?
A: I think the logic is to make sure that for those persons who choose to use a financial adviser, they can feel more confident that that financial adviser has to abide by basic principles. When you go to a doctor, you're counting on the fact that the doctor is going to prescribe the right medicines for you or the right treatment based on what's needed to keep you healthy and not what's going to be padding their bank account. And the same should be true with a financial adviser. They're providing a service. It can be a useful service. But they have got to make sure that that service is one that looks out for the consumer. If we do that, then people can shop around, but they can do so with confidence. And as they obtain savings, they can look at the variety of financial instruments out there and tailor it to what's best for them. None of this requires people to take a cookie-cutter approach to retirement savings. People will still be saying to themselves, "Well, maybe something like an annuity works for me because of my life's circumstances. Maybe I'd prefer something that doesn't lock me in as much. I want more flexibility."
All those options are still going to be available, but you're going to be able to know up front what this means. There aren't going to be the kinds of hidden fees and backdoor payments that might lead you to think you're doing the best thing, and then it turns out actually that what you've done is just made additional dollars for the financial adviser.
Q: So the FCC and FINRA say they've got this covered.
A: Well, that's not quite right. As I said, we've had rules in place that are about 40 years old. We need to update those rules. And what this does is supplement a range of other regulations that are out there to make sure that the practices of this industry are up to snuff.
Q: We all know how important Social Security and Medicare are to lower-income seniors. We know that the average senior has an income of under $25,000 a year. So what would you say, what should the nation be saying to the typical 50-year-old middle-class worker today about the future of these programs? And then what would you tell a 30-year-old who, according to surveys, says time and time again that they don't expect the program, Social Security, will be there for her in her retirement?
A: Well, what I'd say, first of all, to the 50-year-old is even if we didn't make any changes whatsoever, Social Security and Medicare will be there for you. They're solvent. They are funded and it's a program that tens of millions of people rely on. Ultimately, we all rely on it at some level. So people shouldn't be concerned.
To the 30-year-old, what I'd say is that with just some modest tweaks, we can make sure that in fact Social Security is there for them as well. The good news about Medicare, which is really the one that is of more concern ... is that we've been able to slow health care inflation to the lowest rate in the last 50 years over the last four years. And as a consequence, we've already saved billions of dollars and extended the life of the Medicare trust funds substantially.
For us to continue to make more progress on that, we've got to continue to make our health care system more efficient. We're doing that with delivery system reforms that, for example, encourage hospitals and doctors to not just order more and more tests, but rather figure out what's going to make people healthy. And incentivize them to focus on quality of care and not the number of procedures they're carrying out.
If we can continue to make progress on that front, then I'm actually pretty confident that Medicare will be there. Social Security is an easier problem to solve. And it's just a matter of math. We've just got to make sure that the contributions that are made match up with the number of people who are retiring.
Now we do have an aging population. That means there may need to be some adjustments, but those are ones that can be done in a bipartisan, fair way. And we're happy to work with AARP and every other organization out here as long as the focus is on making Social Security stronger and not weakening what has been an incredibly successful program that has lifted millions of seniors out of poverty.
Q: Have you thought much about your own transition? Have you imagined your own days and nights outside of the bubble of the presidency?
A: Well, I've got two more years, and I'm pretty busy right now. So I haven't given too much thought to the post-presidency. I'll be pretty young when I get out. I'll be 55 years old. And obviously, my circumstances are different than the average 55-year-old in the sense that I wouldn't have a lot of financial worries about retirement.
But I will have, I think, the same concern that most people do, which is you're 55 years old and you're staying in pretty good shape. God willing, you're going to have a lot more years left of productive capacity. I think that whatever I do, it will involve continuing to try to strengthen our education system, trying to make sure that the economy's working fairly, trying to bring out more peace around the world. I suspect that I will probably take slightly longer vacations that I have over the last six, six-and-a-half years, and I suspect that during the wintertime, I'll be a little more mobile to take advantage of sunshine in my home state of Hawaii.
Q: I would do that if I were you. I think that's pretty much wrapped up what I wanted to ask you. One thing: Are there are other steps that we can take to help workers prepare for retirement? I think you've already mentioned a savings plan for the country.
A: Absolutely. As I said before, the announcement that we're making today is part of a broader package. Helping companies set up retirement savings accounts. Looking at auto-enrollment as a strategy to encourage more people to take advantage of these programs. Providing additional tax incentives for savings. We're experimenting with what we call MyRA, a program that a number of companies have started to adapt — targeting particularly lower-income workers who may not have a lot of savings to see if they can take advantage of it.
The basic principle of retirement is the miracle of compound interest. And a dollar you save today is going to be worth a lot more 30 years from now. And the sooner we can start our family saving, the better off they're going to be.
Q: That's so true. That's what we try to communicate to people in their 30s and 40s. That you've got to start a little bit at a time.
A: That's exactly right. And so often people assume, well, there's no point in me putting 10 bucks a week, 20 bucks a week in a savings accounts. That's not going to really help me. It helps! It adds up. And I think, as fewer and fewer people have that automatic program, you've seen more and more people unpleasantly surprised on the back end. We want to get back to making sure that people are in that habit of savings. And part of what we're also doing is starting young and working with younger people in the schools on financial literacy, so that kids getting out of school, their first job, they're already starting to take advantage of this stuff.
It's a little like health care. You know, young people, they think they're invincible. They think they've got all the time in the world. Next thing you know, you're 53 years old and you got a few aches and pains and you realize, "Maybe I've got to be paying attention to this stuff."
Q: Thank you for your time.
A: Thank you so much. I've enjoyed it.