Almost half of working-aged Americans are at risk of having a lower standard of living in retirement than they now enjoy, according to a new study by the National Institute on Retirement Security.
“This retirement security crisis is very real,” said U.S. Sen. Claire McCaskill, D-Mo., the ranking member on the Senate’s Special Committee on Aging. “In Missouri, only 45 percent of private sector workers are participating in an employer-sponsored retirement plan, and that is not an anomaly.”
That's why McCaskill is backing legislation to give more individuals access to work-based retirement plans.
Collectively, the gap between what Americans need to maintain their current standard of living in retirement and what they have on hand is estimated at $7.7 trillion, according to the Center for Retirement Research at Boston College.
The crisis is the worst for lower-income workers who face what McCaskill calls “structural barriers” to saving. Many families, she says, have put nothing away for retirement.
“They work seasonal jobs or are in and out of the workforce before they can vest or they work for employers who have neither the time nor the resources or the desire to offer a retirement plan,” said McCaskill. “Most economists will tell you that it is far easier to get people to save money for retirement through payroll deduction at work, instead of requiring them to open up an IRA, especially when they face a dizzying number of choices that are on the market place.”
The bill would allow businesses with fewer than 100 employees to pool resources with other small businesses and offer retirement savings plans to their workers. It would also allow those plans to be administered by a third party, helping small business owners who just don’t have the “time or expertise” to oversee retirement plans on their own, McCaskill added.
The Government Accountability Office says that of the one-third of American workers employed by a business with fewer than 100 employees, roughly 75 percent do not have access to work-based retirement plans.
How Americans can save more
Workers at all income levels not only want to save, but they can and do save for retirement when given the right institutional support, testified Michal Grinstein-Weiss of the George Warren Brown School of Social Work at Washington University in St. Louis before the committee.
But the problem, she said, is that “most programs intended to help Americans build savings are targeted for, and are more likely to benefit, upper-income households.” They include 401(k) plans, 529 college savings accounts and mortgage interest rate tax deductions.
Because small-dollar and short-term savings accounts don’t produce big profits for banks, Grinstein-Weiss said many banks impose fees and require minimum balances, making those accounts less attractive to low-income households.
Grinstein-Weiss offered four approaches to help Americans save more for retirement.
- Boost participation in retirement savings by making the default choice an opt-out instead of an opt-in.
- Take advantage of the “golden moments” in life, such as tax time, to build savings. Roughly 75 percent of Americans receive a refund, and they should be encouraged to save, not spend, that money.
- Support emergency savings. “Although marketed as a retirement product, Treasury’s myRA program is an example of a flexible savings product that may provide historically underserved groups with a vehicle for dealing with unexpected expenses,” she said.
- Start saving early in life. Young adults who grow up with a savings account in their name “are two times more likely to own checking accounts, two times more likely to own credit cards, three times more likely to own certificates of deposit, and four times more likely to own stocks,” she said.