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 retire.

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.

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 .

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.

The less workers earn, the higher the poverty risk in old age.  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. 

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.”

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.