Yesterday, I was on the radio show The Last Call hosted by Rob Lorei. We discussed Florida Speaker of the House Will Weatherford's proposal to end defined pension benefits for new state employees and replace them with 401(k)s.
Thoughtful economist Gene Steuerle, institute fellow at the Urban Institute and a former deputy assistant secretary of the Treasury, reveals a basic truth in his recent article, "Getting the Facts Straight on Retirement Age." Namely, that the rich who live longer win, win, and win some more. But raising the retirement age needs to be viewed more broadly. Cutting benefits hurts ALL workers. In just one example, they are left having to beg for jobs at older ages, rather than having a livable social security benefit in their back pocket when negotiating.
It's funny, but it's also true. In the post, A Small, Deluded Minority Still Believes in Successful Retirement, the popular blog Gawker satirized the fact that the overwhelming majority of Americans are all too aware of their insecure retirement prospects.Hamilton Nolan, editor at Gawker, picks up on the National Institute on Retirement Security (NIRS) poll, publicized by the Washington Post, that the vast majority of Americans are anxious about not having enough money to retire. According to Gawker, the 15 percent of Americans who are not worried about retirement should "wise up" because they are being "completely unrealistic" about their financial future. I am sympathetic to their antics, as I have continued to advocate that retirement insecurity is no laughing matter.
Fox Business weighs in on the retirement debate in 401(k): Pass or Fail? In the article, I discuss the effects of linking investing and retirement in 401(k) accounts, but reporter Kathryn Buschman Vasel states the problem succinctly, "many of us don’t have the skills and become too emotionally attached when investing."
In my research, we have found that retirees need to save nearly 20 times their yearly income to maintain his or her standard of living in retirement. For example, someone taking home $100,000 a year will need about $2 million (on top of Social Security). If they cannot save at this rate - or they don't fare well in the market - they will face downward mobility in their "golden years."
The history of 40l(k) plans helps to explain why they are inadequate. 401(k) plans were invented for a specific group - high-paid workers wanting to reduce their pre-tax salary. However, these accounts were then sold by consultants packaging the idea for a broad set of companies. 401(k) plans were never intended to become the main tool for retirement savings.
Two recent articles feature SCEPA research as they shed light on the unfortunate trend emerging for Americans who hope to retire: downward mobility.
On February 16, 2013, The Washington Post ran the story, Fiscal Troubles Ahead for Most Future Retirees. This is the first time that Americans are going to be relatively worse off than their parents or grandparents in old age. The article cites SCEPA's Retirement Income Security Project and its work documenting the failure of 401(k) accounts to adequately prepare Americans for retirement. It also makes note that a diversity of organizations found similar results in retirement trends, including the conservative Heritage Foundation and the Senate's Committee on Health, Education, Labor and Pensions.
On February 19, 2013, the LA Times ran, A Crucial Step Toward Retirement Security for the Working Class. Reporter Michael Hiltzik gives a succinct overview of California's new law to help low-wage workers save for retirement as well as the political challenges to enacting this common sense solution. The new plan is modeled after SCEPA's State Guaranteed Retirement proposal. Once implemented, California will expand access to retirement saving for more than six million people
In my capacity as the Director of The New School's Schwartz Center for Economic Policy Analysis (SCEPA), I have been working with a research team to document the need for reform measures to prevent a crisis of downward mobility in retirement resulting from inadequate savings, eroding pension institutions, and decreasing access to and participation in effective retirement savings vehicles at work.
As part of this project, we are investigating how the environment in the years before retirement affects people's health and wealth when they finally get to an age to retire - similar to the long-term benefits of prenatal nutrition for a newborn baby and beyond.
Our new research paper, "The Crisis of Jobs and Healthcare for Unemployed Americans Aged 55-64", documents older individuals' experiences of unemployment, intermittent health care coverage, and increasingly harsh work conditions. Using data from the U.S. Census Bureau's Survey of Income and Program Participation (SIPP), we investigate the impact of the Affordable Care Act (ACA) reform on this population and whether the unemployment faced by older Americans is cyclical or structural in nature.
Exploring solutions to this crisis, including job retraining programs and tax incentive plans, we find that workforce development and unemployment insurance policies must take into account the new reality that the unemployed are increasingly older, extremely low income, less likely to be able to retire on pensions, have little access to spousal income or health care and are often displaced from their career industries.
These results illustrate the increasing vulnerability of those approaching retirement age and suggest potentially dire results of raising the Social Security retirement age.