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. 

GOP-Controlled House Votes on Resolution to Undo Federal Regulations Supporting State Efforts to Provide Retirement Savings Accounts to Uncovered Workers

Today’s vote in the U.S. House of Representatives to overturn regulations supporting state efforts to provide retirement savings accounts to private sector workers risks denying retirement savings plans to 63 million workers without access to employer-based plans. This includes 23 million people who will lose coverage in the seven states that have enacted plans, including California, Connecticut, Illinois, Maryland, New Jersey, Oregon and Washington, and 40 million people who will lose coverage in the 28 states that are considering similar legislation.

“If Republicans succeed in rolling back DOL regulations, they will destroy the best chance 63 million American workers have of getting access to a retirement plan,” said Teresa Ghilarducci, director of the Retirement Equity Lab (ReLab) at The New School. “These states took the responsible first step to save their residents from a retirement crisis defined by low coverage and inadequate savings and protect their taxpayers from the fiscal crisis resulting from millions of indigent elderly. This would be a painful step backwards for the millions who are shut out from the dwindling number of employer-sponsored plans.”

State by State Uncovered Workers

According to ReLab’s calculations using the U.S. Census Bureau’s Community Population Survey, of the 161 million workers in the United States, over half - 54.2% or 87 million workers - do not have access to a retirement plan at work.

The U.S. House of Representatives is set to vote today on a Republican-sponsored Congressional Review Act resolution to overturn the Department of Labor’s final rule, “Savings Arrangements Established by States for Non-Governmental Employees,” that provides legal support to city and states who have either enacted or are considering plans to provide retirement accounts to private sector employees who are not offered a plan through their employer. The regulations clarify and define the ability of states and certain cities to enact plans in coordination with the federal law known as ERISA (the Employee Retirement Income Security Act of 1974). ERISA provides federal protections for workers participating in most retirement and pension plans sponsored by private employers. Without this support, state plans will be left with legal uncertainties that could prevent implementation or enactment of state-administered IRA accounts for uncovered private workers.

“Evidence has shown again and again that access to employer-sponsored plans is the linchpin of retirement security. Without workplace plans, people simply don’t save enough to support themselves in retirement,” said Ghilarducci. “The breathtaking pace of state efforts to increase coverage reflects the political will to address a need that is not being met in the private market. Few workers without access to an employer-sponsored plan invest in an IRA, many of which come with high fees. In contrast, state plans will default uncovered workers into low-cost, state-administered IRAs.”

Since 2011, 35 states have proposed or enacted retirement reform to provide private sector workers access to retirement savings accounts. State plans, also known as Secure Choice Plans or SCPs, are state-level retirement plans designed to provide retirement savings accounts to private sector workers who do not have access to such a plan at work. Under SCPs, designated private-sector employers are required to automatically deduct a percentage of their workers’ pay and forward it to state-sponsored individual retirement accounts (IRAs). Accounts are individually owned and professionally managed administered by independent boards headed by state-appointed trustees. Under these plans, employees would have the right to change their contribution rates or opt out of making contributions.

On October 16, 2016, Richard Wolff of the University of Massachusetts Amherst hosted SCEPA Director Teresa Ghilarducci for “The Pension Crisis” (minute 30-58) segment of Wolff’s Economic Update. According to Ghilarducci, the guiding principle in any retirement system should be that “we all deserve time at the end of our working lives for our own lives, to control the pace and content of our time.” Wolff and Ghilarducci go on to discuss, what are pensions?, how have they changed?, and what is “the pension crisis”?

Ghilarducci highlights that the Social Security Act of 1935 (SSA) created the Social Security system and made old age benefits universal. Victories for labor unions continued into the 1950s and 60s, as negotiations held firms accountable to the standards set by the SSA. Pensions were originally defined-benefit plans, or a secure amount of compensation one would receive upon completion of their working life.

A well-functioning retirement system stabilizes the economy. A secure retirement allows people to make other long-term investments throughout their life, such as a home, real estate and education. It can be a path to upward mobility or at least a safeguard against downward mobility for future generations.

Our current pension crisis is characterized by the erosion of retirement security. Defined-benefit plans gave way to the current 401(k) defined-contribution system. In the defined-contribution system, benefits are voluntary, and more than half of workers do not have access to an employer-sponsored retirement plan. Lower earners are less likely to have access to a retirement plan, and higher earners can save more throughout their working life. This is the basis for a twin crisis of inequality and retirement insecurity. Without secure employer-sponsored plans, lower- and middle-income workers are working later in life, squeezing the years of retirement time that ought to be enjoyed. Even those who do have plans pay high fees on their IRA and have confusing and sub-par investment options, leaving many IRAs with negative returns.

“We need to revive that ambition we had to ensure quality of time in end of life,” says Ghilarducci.

Referring to the ideal of universal support set by the SSA, Ghilarducci calls for mandatory retirement savings. The pension system should benefit employees and the real economy rather than financiers of retirement accounts. She proposes Guaranteed Retirement Accounts as a well-managed public-private system to ensure retirement income for all workers. Twenty-nine states are currently in the process of pension reform toward public-private systems. Finally, there are steps individuals can take to support the need for retirement reform, including voting for representatives that would expand Social Security and Medicare.

January Unemployment Report for Workers Over 55  

The Bureau of Labor Statistics (BLS) today reported a 3.5% unemployment rate for workers ages 55 and older in January, a decrease of 0.1 percentage points from December.

The low headline unemployment rate hides a racial gap in the physical job demands faced by older workers. At all income levels, older black workers are more likely to experience physical demands at work than older white workers, Tweet: #JobsReport : At all wage levels, older black workers face more physically demanding work.  bit.ly/2ky5Knj pic.twitter.com/DPmCcwbRpA including requirements to lift heavy loads, stoop, kneel or crouch during most of the workday.

The racial gap, which exists at all wage levels, is largest among older low wage workers. The gap among those earning less than $22 an hour is 22 percentage points, with 62% of Blacks in physically demanding jobs compared to 40% of Whites. For workers earning between $22 and $40 an hour, the gap is 11 percentage points, with 43% of Blacks are in physically demanding jobs compared to 32% of Whites. The racial gap persists even for higher earners. For those in the top 20% of the earnings distribution making more than $40 an hour, the gap is 8 percentage points, with 24% of older Blacks are in physically demanding jobs, compared to 16% of older Whites.

This persistent racial gap means that proposals to increase Social Security’s Early Retirement Age would require black workers to continue to do physically demanding work at older ages. To enable all workers to retire - whether due to physical necessity or choice - policymakers should both expand Social Security and create Guaranteed Retirement Accounts (GRAs). GRAs are are individual accounts requiring contributions from both employees and employers throughout a worker’s career. They provide a safe, effective vehicle for individuals to accumulate personal retirement savings and receive lifelong income as a supplement to Social Security.


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December Unemployment Report for Workers Over 55 Tweet:#JobsReport Over half of low-wage older workers are in physically demanding jobs bit.ly/2j93OwV

The Bureau of Labor Statistics (BLS) today reported a 3.6% unemployment rate for workers age 55 and older in December, an increase of 0.1 percentage points from November.

Older Workers with Low-Wages have Physically Demanding Jobs Low headline unemployment rates imply a healthy labor market for older workers. However, the official rate hides an unequal distribution of healthy jobs for older workers. Older workers with lower earnings are twice as likely as high earners to be in physically demanding jobs.

For older workers in the bottom half of hourly earnings – wages below $22 per hour – 52% report their job requires either lots of physical effort, lifting heavy loads, or stooping, kneeling, or crouching all or most of the time. For older workers earning between $22 and $40 an hour, the number reporting physically demanding jobs drops to 36%. For those in the top 20%- who earn over $40 an hour- only 27% report having physically demanding jobs.

Physically demanding work debilitates and breaks down human bodies. For older, low-earning workers, cutting Social Security benefits by raising the retirement age would impede their ability to leave the labor market when no longer able to handle physically demanding work. To ensure all workers can retire when they are no longer able to work, policy makers should expand Social Security and provide a universal second income tier through Guaranteed Retirement Accounts (GRAs). GRAs are a retirement savings vehicle with low fees and guaranteed growth, allowing even low-wage workers a path to secure retirement.

 


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November Unemployment Report for Workers Over 55 Tweet:

The Bureau of Labor Statistics (BLS) today reported a 3.5% unemployment rate for workers age 55 and older in November, a decrease of 0.2 percentage points from October.

Older Workers in Rust-Belt States Flip

While “Older Workers at a Glance” shows steady growth in real earnings for older workers, national averages mask long-run stagnation and decline in the four rust-belt states - Michigan, Ohio, Pennsylvania, and Wisconsin - that unexpectedly voted for Donald Trump after voting for President Obama in 2012. 

Before Reagan, older workers in these four states received higher wages than older workers in the rest of the country. Now they are doing worse. In 1979, rust-belt older workers were making $3,600 more than their counterparts elsewhere. In 2015, they were earning $4,000 less. Between 1979 and 2015, the median real wage for older workers in the four rust-belt states that flipped to Trump increased only 1% compared to 17% in the rest of the U.S.

Stagnant and declining real wages erode workers’ ability to save for retirement and increase their reliance on Social Security. To address the economic insecurities of working families, the Trump administration needs to create a path to a secure retirement by expanding Social Security and providing universal access to secure retirement plans through Guaranteed Retirement Accounts.

 

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Older Workers are Increasingly Concentrated in Low-Wage Jobs Tweet:

The Bureau of Labor Statistics today reported an unemployment rate of 3.7% for workers aged 55 and older in October. However, the unemployment rate fails to reflect the increasing concentration of older workers in low-wage service jobs.

Women are in the majority of low paying jobs for older workersFirst, older workers are more likely than younger workers to be in low-wage jobs. A low-wage job pays less than two-thirds the median wage, or $539 per week. In September, 27.1% of full-time workers aged 55 and older were in low-wage jobs compared to 19.0% of younger workers.

Second, the share of older workers in low-wage jobs has increased over time, while the share for younger workers has stayed the same. The September share of older workers in low-wage jobs, 27.1%, is 1.4 percentage points higher than the share ten years ago (25.7%).

Third, women are the majority of workers in seven of the top 10 low-wage jobs for older workers, primarily service occupations. They make up more than 75% of older workers in four of the top ten jobs, despite being a minority of older workers.

Older workers in low-paying service jobs face extra difficulty saving for retirement. This may be a particular problem for older women workers who are unlikely to have access to a retirement plan. Living paycheck to paycheck, even those with coverage have little room to cut consumption to increase retirement savings.

To enjoy a secure retirement, low-wage workers need a retirement plan, not a low wage job. The need is becoming ever more pressing as the Social Security Full Retirement Age is increased, equivalent to a cut in benefits for those who do not delay retirement. Guaranteed Retirement Accounts (GRAs) supplement Social Security in combating old-age poverty by providing all workers a retirement savings vehicle with low fees and guaranteed growth, allowing even low-wage workers a path to secure retirement.

 

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