“If you have a pension, you’re one of the lucky ones,” said a Duke economist acknowledging that over the past few decades, most employers have shifted away from maintaining a pension fund for their workers and former employees. Increasingly, it’s up to people to save on their own, usually through a 401K from their employer or from opening an Individual Retirement Account. Yet, many workers are finding themselves near retirement, without the retirement income or savings they need to stay out of poverty and off public assistance programs.
A 2014 Employee Benefit Research Institute study found that about 62 percent of employees with access to a retirement plan had more than $25,000 in total savings and investments, and 22 percent had $100,000 or more. However, only 6 percent of those without access to such a plan had over $25,000 saved, and only 3 percent had $100,000 or more.
Thank goodness for Social Security, right? Unfortunately, Social Security was never intended to be the sole income for retirees. Yet for nearly one-third of North Carolinians age 65-plus, it is their only income. Today, Social Security’s average retirement benefit is less than $1,300 a month. And unless Congress and the next President decide to make it sound and sufficient for current and future generations, Social Security will be forced to cut its benefits by 25 percent starting in 2034.
Not having enough savings in retirement is creating serious anxiety according to an August AARP survey when 51% of likely voters in NC confessed to being uneasy about their financial outlook.
While any worker could open up an IRA, buy an annuity, make investments, or stuff a mattress, surprisingly few low and middle-income workers actually save for their retirement unless the money can be saved into an account immediately from their paycheck. For workers earning between $30,000 and $50,000, about 72 percent participated in an employer-provided retirement savings plan when one was available, compared with less than 5 percent without an employer plan who contributed to an Individual Retirement Account.
States recognize that partisan battles in Congress are unlikely to address the growing risk that large segments of our population are aging into poverty. And as states worry about the impact on state-funded programs like controlling Medicaid spending, they are finding their own solutions. Since 2014, seven states have created mechanisms for more workers to save for retirement, and 35 states including North Carolina have legislators pushing forward proposals to do the same.
What would a Carolina version look like? There are some basic principles:
- Most of the companies that do not offer a retirement plan are smaller businesses and it’s essential that they aren’t forced to take on significant financial, administrative or regulatory burdens.
- Workers should have access to an automatic payroll deduction, proven to be the easiest way to save.
- Workers should have simple, low-cost retirement savings plan options that make enrollment automatic. The plans must not require complex investment and savings decisions and should provide low-cost, automatic (default) options that enable savers to grow their saving rate over time through auto-escalation.
- Workers should be able to keep their retirement savings plan when they change jobs, or have multiple jobs.
- Workers should be able to change the amount that they save, change their investments, move to another plan, or stop saving entirely.
- Employers should be able to use their current payroll processes to quickly and easily forward employee contributions to a savings plan without assuming significant added legal or fiduciary responsibilities or taking on significant additional cost.
- Employer contributions should not be required, but should be permitted if allowed by federal law.
- Investments should be low cost, provide good value, & be professionally managed.
- Any program should be self-sustaining. North Carolina should enable workers to save for retirement without risking the State’s credit.
The best way to provide that access is to make sure that employers offer such plans – in ways that small businesses can afford, by using their current payroll systems and without extensive financial commitments or burdensome regulatory requirements. To be effective, NC Work and Save should be easy for everyone involved.
When the NC General Assembly convenes in January, looks at the rising costs of assistance programs, and realizes that much of the state’s population is on track to age into poverty, here’s hoping they choose to take action and enable workers to save for their future.
Learn more about NC Work and Save and other legislative developments related to the health and welfare of older adults by signing up for AARP Action alerts.