[RunItUpTheGut]

President Barack Obama, in his State of the Union speech, didn’t really touch on the subject near and dear to the hearts of millions of Americans — the State of Retirement in the U.S.

No doubt he had other pressing matters to address. So allow us the pleasure of issuing — thanks in large part to a many experts on the topic — our State of Retirement column.

In short: Things are bad and, in the absence of action or in the presence of the ill-advised action, could get much worse.

“I think the state of retirement in America is endangered as the ‘Great Recession’ has taken a toll on the financial status of many and as retirement savings were not adequate for many prior to the ‘Great Recession,’” said Matthew Greenwald, the president of Matthew Greenwald & Associates, a leading retirement research firm. “There are several things that need to be fixed, including addressing Social Security and helping people feel confident in the viability of the system, more effective defined-contribution plans that do a better job of encouraging participants to defer more of their income and more effective advice to retirees that helps them use their financial assets most effectively when they retire.”

Others are in the same camp. “There are many challenges,” said Anna Rappaport, the president of Anna Rappaport Consulting and chair of the Society of Actuary’s Committee on Post-Retirement Needs and Risks. But Rappaport also said there’s a lot of opportunity to fix those challenges.

Here’s a look at the challenges and some ways to respond.

Social Security

The combined Social Security trust funds will be exhausted in 2036 and at that point there will only be enough income coming in to pay for 77% of scheduled benefits.

Read the trustees’ report here.

Now 24 years might seem like plenty of time to fix that problem but there doesn’t seem to be the political will to do so. Elected officials are seemingly afraid to tackle the issue; they would rather a greater fool put their bid to be re-elected at risk than address an issue that will affect some 78.1 million Americans a generation from now, which we should note is twice the number of Americans age 65 and older today.

But the truth of the matter is that it’s time that President Obama (or someone) take a page from President Ronald Reagan’s book when, in 1981, he established a commission led by Alan Greenspan to reform Social Security.

Some two years later, as a result of that commission’s work, amendments to Social Security included a provision for raising the full retirement age from age 65 to 67, phased in over time. At the time, the Congress cited improvements in the health of older people and increases in average life expectancy as primary reasons for increasing the normal retirement age.

Given the current and predicted future state of Social Security, it’s time to once again raise the full retirement age, according to Bob Reynolds, the president and CEO of Putnam Investments. This time, Reynolds suggests, we might peg the full retirement age to life expectancy so as to adjust for improvements in the health of older people and increases in average life expectancy.

In 1940, for instance, the average 65-year-old male in the U.S. had a life expectancy of 77.7. In 1990, it was 80.3. And by 2006, it was 81.6. “You have to adjust for that,” Reynolds said. “It’s just too costly.”

FYI: Using 1940 as the benchmark ratio, the full retirement age could be raised, by my calculations, to 70¾.

Of course, you would phase the increase in over a period of time so that people have time to prepare for it, Reynolds said. And you might leave the full retirement age for people over age 55 as is, while adjusting it upward for those under age 55.

Reynolds also favors increasing the amount of earnings subject to taxation for a given year. For 2012, the annual limit, the contribution and benefit base for Social Security, is $110,100. He suggests that the contribution and benefit base be increased to “somewhere around” $150,000. “That would provide the base for a stable system long term,” Reynolds said. He noted, for instance that there’s no limit on the amount one’s taxed to pay for Medicare.

What’s more, Reynolds is in favor of examining a needs-based system that would reduce one’s Social Security benefit one based on income or assets. “It’s something that should be looked at,” he said.

Others also see the need to shore up Social Security. For instance, Cynthia Egan, president of T. Rowe Price Retirement Plan Services, said: “Lower income earners, those who are not covered by a defined contribution plan, as well as ‘weak savers’ are going to be highly reliant on Social Security. It is what it is. So we must ensure the stability and reliability of the Social Security program for the future.”

Contribution rates

On average, workers — at least those who have such a plan — contribute about 7% of their compensation into their 401(k) plan and that, many experts say, is too low. According to Reynolds, one would need to save at least 10% to replace, when combined with Social Security benefits, 80% of one’s final pay in retirement. Others say contributions rates have to be even higher the longer one waits to save and the less one has socked away.

Maybe the time has come to put in place plans that would automatically escalate the amount one contributes to a 401(k) to a minimum of 10%, not just the 3% which is the norm. Others agreed. “People need to save more — and we need to figure out how to make that happen,” Rappaport said.

To be fair, not all experts are worried about contribution rates or the shortcomings of 401(k) plans.

For instance, Kevin Crain, head of Institutional Retirement & Benefit Services for Bank of America Merrill Lynch, offered the following: “We believe that privately sponsored corporate retirement systems are structured to be successful, and can be even more successful with employer’s continued focus on enhancements to their financial benefit plans and services. More specifically, within 401(k)s, we continue to see significant increases in employee engagement and utilization of these plans through such tools as auto enrollment and advice services.”

And Linda Wolohan, a spokeswoman for the Vanguard Group, said: “The U.S. retirement system, while rocked like any investment-based program during the severe market downturn of a few years ago, has shown great resilience.”

For instance, she noted that retirement wealth for the typical 401(k) plan participant grew over the past five years even in the face of the substantial market and economic shocks. What’s more, she said, while account balances have sometimes been cited as too low to be helpful in retirement, it’s important to note that the typical participant is a 46-year-old male who is saving 8.8%, with 20 to 25 more years to work and grow his account. “His retirement plan assets will be complemented by Social Security benefits and other savings, perhaps assets in other employer plans or a spouse’s plan, or personal savings,” she said. “Even though we always encourage people to save more — ideally at least 12% to 15% of their income — the reality is that more participants than you think may be on target for retirement.”

Coverage

Another issue plaguing the U.S. today is this: Just half of the 150 million or so working Americans have an employer-sponsored retirement plan at work. And the 75 million workers who don’t have a retirement plan at work aren’t saving anything at all for their golden years. But studies suggest that those workers might save if they did have a plan at work. So, Reynolds is in favor of creating what’s been called a universal, or automatic, IRA.

According to the Heritage Foundation, universal or automatic IRAs would provide a relatively simple, cost-effective way to increase retirement security for the millions of workers without plan coverage. The universal or automatic IRA, said the Heritage Foundation, is a way that employees of smaller businesses can choose to save for retirement by allowing their employers regularly transfer an amount from their paycheck to an IRA.

Read the Heritage Foundations report on automatic IRAs here.

For her part, Egan said there’s no need for another retirement plan, just incentives. “Small employers should be offered incentives to provide coverage,” she said. “We don’t need another vehicle. There are many, many providers who support small- and micro-plan services. We simply need to incent the smaller employer to make it happen and keep it simple for them.”

By the way, one big risk looming is the possibility that those folks who did the right thing and saved for retirement, might end up paying in one way or another for those who didn’t.