Time’s Money Magazine features my recent research on the damaging effects of income shocks on retirement savings in, “Here's How Much a Job Loss Now Will Cost You by Retirement.”

Income shocks are pervasive, with 96 percent of Americans experiencing at least four in their working years. For example, a drop of 10 percent or more four times in your life can reduce retirement savings by $25,000 on average. This average is higher for low-income Americans, whereas wealthier Americans have healthy emergency funds to draw from. I would like to challenge the notion that the retirement crisis is due to poor savings habits. Less privileged Americans have few options when unexpected hardship hits before retirement.

The chances of knowing - or becoming - a poor American in old age are growing thanks to a nationwide retirement crisis. In this interview with Investment News TV, I discuss how states are taking the first, innovative steps toward a policy solution.

Ghilarducci Interview

California, Illinois, and Oregon were the first to enact legislation known as Secure Choice plans that require some employers to enroll employees in state-sponsored individual retirement accounts (IRAs). A second state-level policy is the open multiple employer plan, where states pool together employers and employees who voluntarily choose to enroll in state-sponsored 401(k)-type retirement accounts. The scale provided allows for low fees, diversified investments, and the feasibility of annuities.

While state plans are not a long-term solution to the national problem of a systemic lack of retirement savings, the United States has a history of national social programs rising up from state innovation.

May 2017 Unemployment Report for Workers Over 55

The Bureau of Labor Statistics (BLS) today reported a 3.1% unemployment rate for workers age 55 and older in May, a decrease of 0.1 percentage points from April.

Near retirees with inadequate retirement savings face a stark choice between working longer to increase their retirement savings or retiring without adequate income. However, black men are more likely than white men to face a tradeoff between cutting their standard of living and never getting to retire.Tweet: More Blacks than Whites will die before retiring #MortalityGap #JobsReport pic.twitter.com/lGKr3vxcEM http://bit.ly/2qGFBS8 </a>/a>;

The racial mortality gap narrowed between 2005 and 2015, reflecting mortality reductions for black men, while mortality rates for white men barely budged. At 2005 mortality rates, 17.6% of black men aged 55 died by age 65, compared to 10.2% of white men, a difference of 7.4 percentage points. By 2015, 15.4% of black men aged 55 died by age 65, compared to 10.4% of white men, a difference of 5 percentage points.

Compared to Whites, a smaller share of black workers age 55 survive to the early retirement age (ERA) of 62 and even less make it to 67, the age at which those born in 1960 or later collect full Social Security benefits. Even fewer Blacks live to 70 when Social Security benefits max out.

Every worker is entitled to a secure and dignified retirement. Raising the early retirement age and increasing the full retirement age would further reduce the share of workers who can look forward to retirement. More people will die without retiring.

Rather than cut Social Security benefits -- raising the full retirement age from 65 to 67 reduces Social Security benefits by 13% -- policy makers should strengthen Social Security and provide all workers with Guaranteed Retirement Accounts (GRAs). GRAs are individual accounts requiring contributions from employees and employers and government throughout a worker’s career. They provide a safe, effective vehicle for workers to accumulate personal retirement savings.

#OWAAG

*Arrows reflect the change from the previous month's data for the U-3 and U-7 unemployment rate and the last quarter's data for the median real weekly earnings and low-paying jobs.


#U3


Low-Paying jobs


#low 


Median Weekly earnings


#LFP


 Percent without Pensions

 

April Unemployment Report for Workers Over 55

The headline unemployment rate for workers aged 55 and older is still low – 3.2% in April, according to today’s jobs report from the Bureau of Labor Statistics.

After Tuesday’s Senate vote to deny 63 million workers1 coverage through state-level retirement savings plans, fewer people will be able to retireTweet: #Jobs Report: Senate jeopardizes retirement coverage for over 1/2 million older workers pic.twitter.com/fqiwULOZwK http://bit.ly/2p6KzqW</a>/a>;.

Our “Older Workers at a Glance” (OWAAG) feature highlights how, despite a low unemployment rate, older workers condemned to work till they drop face difficulty finding jobs that allow them to save for retirement.

This month, we expand and update OWAAG to provide a comprehensive picture of older workers’ experience in the labor market. Highlights include:

  1. ReLab’s U-7 - a ReLab-constructed index that captures the true unemployment rate. ReLab’s U-7 measures the share of the older labor force who are unemployed, discouraged workers, or involuntarily working part-time but wanting a full-time job.
  2. Long-term Unemployment - A new feature using the Bureau of Labor Statistics definition of long-term unemployment - the share of older unemployed workers jobless for at least 21 weeks
  3. Low-paying Jobs - A new feature documenting trends in the share of college-educated older workers earning less than $15 per hour in real (2016) dollars
  4. Median Weekly earnings - Now updated quarterly rather than monthly, in line with Bureau of Labor Statistics conventions designed to limit volatility

Tracking older workers’ labor market outcomes is important for two reasons. First, low wages and a lack of retirement plan coverage make it difficult for many to save for retirement. Second, forcing older people to work longer by cutting Social Security benefits by a direct cut to benefits or raising the retirement age is not a solution to the retirement crisis.2 Many cannot work longer due to ill health or lack of employment opportunities, while increased competition for jobs lowers wages which makes the retirement savings crisis worse.

Instead, the federal and state governments need to provide all workers with Guaranteed Retirement Accounts in addition to Social Security. Guaranteed Retirement Accounts (GRAs) are individual accounts requiring contributions from both employees and employers throughout a worker’s career. GRAs provide a safe, effective vehicle for workers to accumulate personal retirement savings.

1We estimate 63 million workers age 25-64 in the public and private sector combined, including self-employed workers. AARP estimates 55 million workers age 18-64 in the private sector, excluding self-employed workers.
2Raising the Full Retirement Age from 66 to 67 is equivalent to a 6.7 percent cut in benefits because workers claiming at age 66 will no longer receive full benefits but will instead suffer a one-year early claiming penalty.

March Unemployment Report for Workers Over 55

The Bureau of Labor Statistics (BLS) today reported a 3.4 percent unemployment rate for workers age 55 and older in March, unchanged from February.

Elderly Poverty Rates

While the unemployment rate for older workers remains low, many lack a pathway to a secure retirement. Over one third (37%) lack access to a retirement plan at work.

Despite the need to expand coverage to curb old-age poverty, city efforts to create auto-IRAs for private sector workers are under attack by the GOP-controlled Congress. Last week, the Senate voted to jeopardize initiatives by New York City, Philadelphia, and Seattle that would extend retirement plan coverage to 3.7 million workers, over half a million of whom are near retirees Tweet: #Jobs Report: Senate jeopardizes retirement coverage for over 1/2 million older workers pic.twitter.com/fqiwULOZwK http://bit.ly/2p6KzqW</a>/a>;.

These cities were relying on legal guidelines issued by the Department of Labor that the Senate voted to roll back. While city legislators have declared their intention to continue, in the absence of these protective regulations, the initiatives will likely end up in court.

City and state initiatives are an indication of the political will for reform and are a first step to reform at the federal level, such as Guaranteed Retirement Accounts. This proposal would give all workers access to safe, effective retirement accounts by requiring both employee and employer to contribute 1.5% of pay over a lifetime.

 

 

February Unemployment Report for Workers Over 55

The Bureau of Labor Statistics (BLS) today reported a 3.4% unemployment rate for workers age 55 and older in February, a decrease of 0.1 percentage points from January.

While the headline unemployment rate for older workers is low, women still face sex discrimination in the labor market. Older women earn less than men. The gender pay gap for full-time workers aged 55 to 64 is $13,000, with men earning an average of $50,000 a year compared to women’s $37,000. The earnings gap for minority women is even larger. Black women average $35,000, or $15,000 less than men, while Hispanic women average $27,000, or $23,000 less than men.

Elderly Poverty RatesThe less workers earn, the higher the poverty risk in old age. Tweet: Women’s History Month #JobsReport: gender #paygap contributes to elderly poverty gap  pic.twitter.com/3eTJwvxP6S  bit.ly/2mPhXFa</a>; Women are at even higher risk because they live on average 2.5 years years longer than men, and thus need to save more.

Thirty-six percent of elderly women are poor (income below $11,880) or near-poor (income below $23,760) compared to 28% of men, a gender poverty gap of 8 percentage points. Reflecting their earnings gap, the poverty gap between all men and black and Hispanic women is larger. Forty-three percent of elderly Hispanic women are poor or near poor, 15 percentage points more than men. And more than half (51%) of black women are poor or near poor, 23 percentage points more than men.

Social Security alone is insufficient to lift women and minorities out of poverty in retirement. To ensure adequate retirement income, we need to both strengthen Social Security and ensure all workers have access to a retirement plan. Guaranteed Retirement Accounts (GRAs) are individual accounts requiring contributions from both employees and employers throughout a worker’s career. They provide a safe, effective vehicle for workers to accumulate personal retirement savings.

Article originally published in Psychology Today.

I like to tell people what to do. But only when they say they want to retire. Everyone wants to know "their number." So I wrote a book, appropriately and straightforwardly titled, How to Retire With Enough Money And How To Know What Enough Is. Though I am a prepared advisor on matters related to numbers, savings and investment strategies, I am often unprepared for my advisees’ emotional responses. When I tell people their target savings amount and how much they need to save out of each paycheck, I find myself on shaky ground. I need different skills—therapeutic skills.

This is how you figure out how much money you need to retire. Let's say you are about average and have adopted a lifestyle pretty close to your take home pay. Suppose you earn about $80,000 a year and spend about $50,000 a year. I calculate how much you need through adjusting for inflation, assuming a reasonable rate of interest, and calculating your Social Security benefits. If you want to ensure you have enough retirement income to support a $50,000 a year lifestyle in retirement, a good target is to save $550,000. Generally, people can hit this target by saving 10% of every paycheck for 40 years. That’s until you are 85; you will need more to ensure you have enough to get you to 95.

From here, the news gets a little bit worse. If you believe investment earnings will be lower than 6%, you’ll both need more savings and you’ll need to save more. For example, if you expect to earn 6% at the high end, then you only have to save 5.2% of your pay. But on the low end, if you expect close to zero returns, then you have to save 35% of your pay for the rest of your life.

That’s the math. But when I tell folks how much they will need, I know only a small percentage of people (who aren’t high earners) are on track. Half of people near retirement age do not have a 401(k) or IRA. For the fortunate who do have retirement savings accounts, the average balance is about $120,000. Unfortunately, that balance will not provide enough retirement income for even low-income workers—and those who have retirement savings are generally not low-income people.

Here’s where I get shaky. When I tell people their target number, I get a couple of reactions. One man leaned away in his chair, pushing himself away from the table. At the end of our conversation, he was two feet away. Another person clenched his fist, stood straight up and told me it was impossible to save with his expenses. One woman hunched over in her seat and let her hair fall in front of her eyes. She blamed herself, almost whispering, “I guess I spend too much.”

How do I handle telling people they need $1 million in retirement savings when they have $10? My options are limited. Mostly, I ask, “Do you think you could work a little bit longer or reduce your expenses?” The other option—suggesting they may live only 20 years in retirement rather than 30—is cold comfort.

While people don’t punch me out or roll into a catatonic ball when I give them retirement advice, I worry I am not helping. I have an impulse to lie and say everything will be all right. But in reality, the nation is facing a retirement crisis, and that crisis boils down to a worried, panicked person, one at a time.