In the last two posts of this blog series about the National Institute on Retirement Security’s new report “The Retirement Savings Crisis: Is It Worse Than We Think?”, we outlined just how bleak the future looks for many retirees. The country faces an aggregate savings gap of between $6.8 and $14 trillion, the average savings balance for households is a mere $3,000, and more than 45 percent of working age households do not have any retirement account assets.
But while the prospects certainly aren’t good, all hope is not lost. As Dr. Nari Rhee, the report’s author, writes, “public policy can play a critical role in putting all Americans on a path toward a secure retirement.” Rhee focuses on three policy foci: strengthening Social Security, expanding access to retirement plans, and specifically targeting low-income workers to improve their ability to save.
On the point of Social Security, Rhee extols the importance of ensuring the continued existence – if not expansion – of the system. Rather than cutting benefits, she argues, Social Security should be strengthened and modernized to prevent seniors from falling into poverty. She suggests policy options such as eliminating the payroll tax cap; increasing benefits for low-wage workers, survivors and caregivers; and adjusting the benefit formula to help seniors.
Rhee also stresses public policy options to expand worker access to retirement plans through their work. The current system – both for those who are self-employed and who work for employers – tend to benefit those on the higher end of the income scale. At the federal level, Rhee suggests that “Congress could enact policies to make it easier for private employers to sponsor DB pensions,” and also notes that U.S. Representative Richard Neal’s Auto IRA concept could increase access to retirement plans for those of all income levels.
States can take a lead in expanding retirement saving and could do even more with federal guidance. Rhee references California’s recent Secure Choice Retirement Savings Trust, which will cover all workers in private industry and provide a modest rate of return for workers. She also discusses how more clarity and flexibility of regulations from the federal government would help states.
Over the past several years, EOI has proposed several options both at the state and local level to improve savings by bringing more workers into retirement plans. Retirement Security Accounts, either at the state or local level, could offer participating businesses an easy, low-cost option for providing retirement benefits to their workers through a SIMPLE IRA, Simplified Employee Pension (SEP) or payroll-deduction IRA. Because so many low-income and nontraditional workers lack access to retirement plans, it is imperative that governments at all levels find solutions to get more people saving sooner rather than later.
Finally, Rhee suggests expanding the Saver’s Credit, which allows low-income households to reduce their tax liability for their first contributions into a qualified retirement account. She writes that “expanding the Saver’s Credit by increasing income limits and credit rates and making the credit refundable would increase incentives for lower-income families to save for retirement.”
While these options vary in both effectiveness and political feasibility, one thing is clear: not enough people are saving, and public policy is likely the only thing that can bring major change to the existing (failing) retirement structure.
By EOI intern Bill Dow