The Bipartisan Policy Center's (BPC) Commission on Retirement Security and Personal Savings, of which I am a member, today released its comprehensive report on retirement security.

Today's recommendations are both a recognition of an awaiting crisis and a sign of hope for a better future.

Without changes to our failed system, a growing number of Americans will ride a wave of insufficient savings to deprivation in their old age. More than half of American households who are near retirement have less than $12,000 saved. The number of 65-year-olds per year who are poor or near poor between 2013 and 2022 will increase by 146%.

This report takes the first steps toward reform by recognizing the principles necessary to create effective retirement savings vehicles. The Commission's call for Retirement Security Plans to pool resources and decrease administrative burdens supports the need for economies of scale and universal access. The call to expand myRA and create a nationwide minimum-coverage standard supports the need for mandated participation and a shared responsibility between employers and employees. The call for a lifelong income plan supports the need for annuities to ensure seniors don't outlive their savings.

Growing inequality has made retirement increasingly available to only a few. We need a federal plan that serves everyone. With 27 states actively pursuing retirement reform, these leaders have made it clear that the political will for change exists. Historically, we have relied on state innovation to spur federal action. As with Social Security and healthcare (see image), this report recognizes that federal legislation is necessary to provide employers and employees consistency and portability across states.

The Commission recognizes the failure of our current system and sets us on the right path to reform. However, it does not claim these recommendations, even if fully implemented, will solve the retirement crisis. I look forward to taking the next steps toward comprehensive reform through supporting Guaranteed Retirement Accounts (GRAs). A joint policy proposal issued with Hamilton "Tony" James of Blackstone (from the diverse backgrounds of academia and investment banking), GRAs would provide savings accounts that advance the same principles in the Commission's report. By creating individual accounts on top of Social Security with mandated contributions from both employers and employees, these accounts would pool investments, guarantee a return, and provide lifelong annuity payments.

The report also put forward reform measures for Social Security. I made a joint statement with my fellow commissioner Alan Reuther on Huffington Post, "A Better Way to Fix to Social Security," to discuss our disagreement with some of the recommended policies. 

I thank the Bipartisan Policy Center for their hard work supporting the commissioners throughout the two-year effort that created today's report by the Commission on Retirement Security and Personal Savings. I also express my gratitude and appreciation to my fellow commissioners for their tireless efforts on behalf of American's retirees, present and future.

Without the Choice to Retire, Unemployment Exacts High Psychological Costs on Older Workers 

The Department of Labor’s monthly unemployment report released today shows an unemployment rate of 3.4% for workers over the age of 55. The unemployment rate has decreased from 3.6% last month to 3.4%, a decrease of 0.2 percentage points.

In addition to imposing a financial cost on older workers, unemployment can also impose a psychological cost. The unemployed are not unemployed by choice. And being deprived of choice creates a feeling of helplessness.

According to the Health and Retirement Study (HRS), a nationally representative study of older Americans, unemployed respondents were more likely than both workers and retirees their same age to report a general feeling of helplessness. Among 55 to 64-year-olds, 40% of the unemployed agreed with the statement, “I often feel helpless in dealing with the problems of life,” compared to 8% of retirees and 16% of older workers.

Proposals to cut Social Security benefits by raising the retirement age will condemn some older Americans to unemployment, and will force others to continue to work out of economic necessity. Policymakers should prioritize preserving and strengthening the institutions that give people the choice to retire, rather than chipping away at their foundations. This means expanding Social Security and implementing Guaranteed Retirement Accounts (GRAs) to provide workers with effective savings vehicles over their working lives and lifelong income in retirement.

Self-Employment Is No Solution for the Older Unemployed 

A smaller share of older workers are officially looking for work. The unemployment rate for workers aged 55 to 64 was 3.6% in April, down 0.3 percentage points from March. Older men’s unemployment decreased from 4.0% to 3.8%, and older women’s unemployment decreased from 3.8% to 3.6%.

Older workers have lower official unemployment rates than the national average, but face stagnating wages, growing long-term unemployment, physically demanding jobs, and age discrimination. One widely-advocated solution is for the unemployed to create their own jobs by becoming self-employed.

But this is wishful thinking. The existing self-employed are workers who have, to a greater or lesser extent, chosen self-employment rather than entered it as a last resort. It does not follow that if the older unemployed attempt to become self-employed, they will succeed. Analysis of Health and Retirement Study (HRS) data, a nationally representative survey of older Americans shows:

1. Few unemployed workers over 55 enter self-employment – only 5.7% during the period 2010-2012.
2. The low rate of entry to self-employment likely reflects a lack of resources, rather than insufficient entrepreneurial zeal among older unemployed workers.

Median household-level financial assets of unemployed workers over 55 are only $2,000. In contrast, newly self-employed older workers have average financial assets of $25,000, and older employees $10,000. Unemployed workers are also less likely to have housing wealth to draw on. Only 71% of older unemployed workers are homeowners, compared with 87% of the newly self-employed and 83% of employees, and unemployed homeowners have less housing equity than the newly self-employed and employees. With only $2,000 to start a business and little collateral, the older unemployed are unlikely to be able to finance viable businesses. Instead, self-employment likely means taking insecure, low-paid work in the gig economy.

America’s older workers should be able to choose to leave the labor force after a lifetime of work. Policy proposals that call for cutting Social Security benefits by raising the retirement age leave people at the mercy of a labor market unfriendly to older workers. Guaranteed Retirement Accounts (GRAs) open a path to retirement security by providing all workers retirement savings plans with guaranteed growth.

Slower Recovery for Older Workers 

The reported unemployment rate for older workers often looks better than that for younger workers. Today’s March employment report shows an unemployment rate for workers aged 55 to 64 of 3.9%, an increase of 0.1 percentage points from the February rate of 3.8%. While older men’s unemployment stayed the same at 4.0%, older women’s unemployment increased from 3.5% to 3.8%.

However, older workers don’t always have an easy time finding jobs. Since the economic recovery starting in 2009, the labor market for older workers has recovered less robustly than for younger workers.

The headline unemployment rate (referred to as U-3) understates the true level of unemployment by only including those actively looking for work in the past four weeks. A broader measure of unemployment - called U-6 - includes both part-time workers who would prefer a full-time job and workers who would look for work if they thought they could get a job (including discouraged workers who have recently given up looking for work). Economists consider U-6 a good measure of slack, or excess supply, in labor markets.

March 2016 Unemployment Report: Slower Recovery for Older WorkersThe more inclusive U-6 unemployment rate for workers aged 55 to 64 shows a weaker recovery after the Great Recession. The February 2016 rate of 6.5% (the most recent data available) remains 48% higher than its pre-crisis low of 4.4%, reached in December 2006. In contrast, U-6 for all workers is only 21% higher than its pre-crisis low reached in March 2007.

Two important factors contribute to older workers facing particular difficulties in a recovering labor market. First, older workers are less likely to switch industries relative to prime-age workers. Second, older workers experience longer average spells of unemployment than prime-age workers.

Advocates for cutting Social Security benefits by increasing the retirement age point to headline unemployment rates, which have nearly returned to pre-crisis levels, as evidence that older workers can delay retirement. But the U-6 unemployment rate for older workers suggests otherwise - that delaying retirement is not a one-size-fits all solution for those nearing retirement age without enough retirement savings.

Rather than forcing older workers to fend for themselves in an unfriendly labor market, we need Guaranteed Retirement Accounts (GRAs) to allow workers a safe, effective vehicle to accumulate savings over their working lives so that those with limited labor market options can retire in dignity.

“A Comprehensive Plan to Confront the Retirement Savings Crisis” is a proposal for a new approach to national retirement savings by SCEPA Director Teresa Ghilarducci and Blackstone President Tony James.

The plan proposes a simple, immediately effective solution to address the fundamental flaws in today’s broken retirement system. If we stay on our current path, America will face rates of poverty among senior citizens not seen since the Great Depression. The strain of this population will have resounding effects across the economy, the government and future generations.downward mobility

In response to this challenge, Ghilarducci and James have researched and developed a national plan that ensures every worker a more secure retirement. The plan details a single, sustainable framework that allows Americans to save consistently, generate the returns necessary and retire with guaranteed lifelong income. And by repurposing lopsided subsidies and strategically using existing government infrastructure, this plan can be implemented with no new taxes, bureaucracy or increase of the federal deficit.

This plan was developed by an unlikely partnership between Ghilarducci and James. Together, they’ve developed a simple, actionable solution to this impeding crisis.

Learn more:

• “A Comprehensive Plan to Confront the Retirement Savings Crisis” Report
• “A Comprehensive Plan to Confront the Retirement Savings Crisis” Summary
• “A Smarter Plan to Make Retirement Savings Last” in the New York Times
• “Pushing Aside 401(k)’s for Mandatory Savings Plans” in the New York Times
• “One Fix for the American Nest Egg: Make People Save” in the Wall Street Journal
• “Workers and Employers Would Be Forced to Save 3% of Pay Under New Retirement Proposal” in Investment News
• “The Plan That Could Render Your 401(k) Obsolete” in CBS News
• “National Retirement Savings Plan Proposed” in Benefits Pro
• “Is A Mandatory U.S. Retirement Saving Plan In Your Future?” in Reuters

Anyone on track to make a million dollars got a lot more than chocolates and roses for Valentine’s Day this year. On February 14th - less than a month and a half into the year - they paid their last dime of Social Security taxes for 2016.

That’s the conclusion of a tool created by Kevin Cashman at the Center for Economic and Policy Research (CEPR). It’s based on the little known fact that Americans only pay Social Security taxes on their first $118,500 of income. For most of us, this doesn’t make much difference. But for the 6% of wage earners who earn above the cap, it can be huge. For the solvency of Social Security, it’s more important than ever.

I’ve written about this before. As Cashman’s calculator shows, those who make slightly above the cap don’t benefit much from it. But the nature of inequality in America today means that a lot of people make a lot more, and for them the savings add up quick.

Take, for instance, the top 565 wage earners, who make an average of $28 million per year. They finished paying into Social Security by the end of their first day at work. The top 110 wage earners were done within their first two hours.

As Cashman’s calculator makes clear, someone who earns $50 million per year pays a little more than twice what someone earning the median household income of $50,000 pays, despite having an income 100,000% greater. This has implications for the system’s solvency. If the cap on Social Security taxes adjusted to the reality of income inequality, the richest Americans wouldn’t notice the difference. But for the millions of Americans who rely on it, Social Security will be fully funded for generations to come.

Lifting the cap isn’t completely outside the realm of political possibility. The medicare tax had an income cap until 1994, when a bipartisan group of lawmakers came together to guarantee its solvency with a tax of 2.45% on every dollar earned. This might seem unlikely in our era of political paralysis, but large majorities of all age groups consistently oppose cutting Social Security. I’m optimistic that such a compromise can happen again.