On June 7, 2015, The Guardian writes:
Many Americans either simply have no retirement savings at all, or lack the time or expertise to know if their employer’s plan is a good one
Are we all in denial or is it simply impossible to save enough for retirement? Is it some kind of toxic combination of the two? Whatever the reason, yet another study – this one from no less an authority than the non-partisan US government accountability office (GAO) – is here to remind us that we’re woefully unprepared, financially speaking, for retirement. While we may all have dreams about how we’d like to spend our retirement years – fishing, golfing, writing that great American novel – the truth is that as many as half of all households with Americans 55 and older have no retirement savings at all . Nothing. Zip. Nada. Not a dime.
And the news gets worse, the GAO reports. Because households headed by older Americans that don’t have retirement savings like 401(k) plans or IRA accounts also are less likely to have other sources of income that they can rely on when they retire, such as pensions or even plain old savings accounts. About 29% have absolutely nothing : no pension plan, no savings, no 401(k), nothing.
The figures are worse the lower down the socio-economic ladder you go, says Diane Oakley, executive director of the National Institute on Retirement Security. “The results are tilted in favor of the wealthiest Americans, so the bottom half of the baby boomers, by wealth level, had only 4% of the retirement assets,” she says. “The wealthiest 10% had 56% of the retirement assets.” The same is true when you look at minority groups, she adds: only 20% of Latinos have retirement accounts containing more than $10,000; 75% of African-Americans are in the bottom quartile when it comes to retirement assets.
If you think you’ve heard this news before, you’re probably correct. Survey after survey has shown how Americans fail miserably at retirement planning. The average 401(k) plan balance hit an all-time record of $91,800 in the first quarter of this year and some long-time savers had balances of as much as $251,600, according to calculations by Fidelity, which manages the single largest chunk of the country’s retirement plan assets.
That sounds impressive, right? Until you realize that many financial advisors recommend that you have as much as 12 times your income in your final years of employment socked away in your retirement nest egg at the time you retire, if you want to maintain your lifestyle. By that calculation, someone with the average 401(k) balance would have been earning an annual income of only $7,500 in their final year; someone with that super-saver balance would have had a final income of only $21,000. By extension, those are the kinds of post-retirement incomes those nest eggs can support. The math just doesn’t work.
Then there’s the fact that many Americans simply don’t have retirement accounts at all, whether because their employer doesn’t offer them (many small businesses don’t) or because they are self-employed or contract workers. When they do have a 401(k) available, employees may lack the time or expertise to figure out whether it’s a good plan or lobby for changes that would make it better – or even the kinds of wage increases to make saving possible. “We’ve turned over responsibility for retirement security to employees, but haven’t given them the ability to accomplish that objective,” Oakley says.
Some tips: One big warning sign is a plan that is heavily weighted to high-cost mutual funds – or worse still, the company’s own stock . It’s rarely a good idea to borrow against your 401(k) balance unless you’re desperate; it’s always a good strategy to take advantage of an employer’s offer to match your contributions – even though Americans leave an estimated $24bn a year on the table at present.
But if you think it looks grim right now, just wait.
“We are going to see worse numbers in the future,” says Bailey Childers, executive director of the National Public Pension Coalition in Washington DCThe problem, she argues, is that even for those who have them, “401(k) plans have not worked.”
These defined contribution plans definitely are better for the bottom lines of private sector employers. Companies don’t have to worry about managing big pension obligations, and have been able to make their employees responsible for saving for their own retirement, offering them the vehicles in which to do so.
“But pension fund assets are pooled together and tend to generate much higher returns than 401(k) funds, with lower fees,” says Childers. That big question of costs and benefits is the reason that the state of West Virginia ended up returning to a classic pension (aka “defined benefit”) model for its public sector employees, after a long and rather disastrous experiment trying out the 401(k) (aka “defined contribution”) approach from 1991 until the financial crisis of 2008.
Only about 20% of private sector employers still pay out pensions – a fixed sum every month or year – to their retired workers, and most of those plans are restricted to older workers hired before a certain date; if you join one of those companies today, you’ll be offered the chance to participate in a 401(k) plan. Even then, many of them are eliminating their defined benefit plans, with Bank of New York Mellon announcing it would do soeffective at the end of this month. In exchange, bank employees hired before 2010 who would otherwise still participate in this plan will get an extra 2% of their pay that they can direct to their 401(k) plan.
But these employers are being short-sighted, argues Oakley. It may be logical that they don’t want to pay out more than they need to in order to pay for employees’ retirement costs. On the other hand, she wonders, what happens if baby boomers find themselves unable to spend when they reach retirement? “We know that spending by beneficiaries of pensions today generates $1tn of income for the economy and supports six million jobs, in both recessions and recoveries,” she adds.
Employers are blind to other aspects of the looming retirement crisis, Oakley notes. Someone who realizes that they are financially unprepared for retirement isn’t going to retire, and will cling to their job as long as possible. That will block the upward movement of younger workers, and present management with big challenges : how to keep the latter from bolting by offering them promotions and raises, and how to graciously ease out older workers without triggering age discrimination lawsuits. “It’s perilous territory,” Oakley says.
Under-prepared baby boomers on the verge of retirement, too, are blind to certain uncomfortable truths. A report on the economic wellbeing of US households by the Board of Governors of the Federal Reserve System, published last month, revealed that 26% of those surveyed declared their retirement “plan” was to simply keep working; 12% didn’t plan to ever stop working; another 45% who did plan to retire intended to work to some extent to fill the financial gaps between their savings and their financial needs. In other words, only 17% didn’t plan to work after retiring. Unsurprisingly, the lower their savings totals, the more likely they were to say that they intended to keep working – clearly assuming that they’ll stay in good health into their 90s, and that the jobs will remain available.
“The bottom line, however, is that we can’t all be Walmart greeters,” says Oakley.
There are no good, or easy, answers to this flood of data. To start with, however, we can at least avoid the blame game – telling Americans that it’s all our own fault. It’s true that we’re not great at embracing short-term pain for long-term gain – but the current retirement savings system is so patchy and complicated that navigating it, and ensuring your plan (if you’re lucky enough to have one) is good and offers a reasonable mix of investment options requires a level of sophistication and a time commitment that many of us simply don’t have.
Then, too, it’s simply too easy to make a misstep. For instance, if you’re 30 and haven’t already started saving, you’re already behind. “With compound interest , the money you set aside the first ten years that you save ends up being worth more than what you save during the next 35 years,” assuming you save the same amount each year, says Oakley. “Trying to catch up toward the end of your career just doesn’t work for you.”
We can start by lobbying for some kind of reform to Social Security that will address the reality that for millions of Americans, retirement savings simply won’t be adequate for them to live on by the time they reach their 70s and 80s. By the time that’s done, we’ll need to have begun thinking about ways to tweak the retirement savings system itself. Many proposals have been tossed into the mix, from President Obama’s new myRA accounts to the proposals by former US Senator Tom Harkin for some kind of Australian-style forced savings mechanism , however Orwellian that sounds to Americans.
As the Chinese curse says: “May you live in interesting times.”
http://www.bluedotdaily.com/republicans-have-now-stripped-away-retirement-from-millions-of-americans-obama-repeal/
I’ve said it before and I’ll say it again: It’s great to be unemployed and retired if you can afford it!
So far the attempts to address the fact that Americans are not saving enough for retirement do not address the REAL cause. And the proposals put forth fall far shot by “trillions” of dollars.
The plain truth is that more than four in five older Americans expect to keep working during their latter years, a sign that traditional retirement is out of reach for vast swaths of society. According to a new survey poll conducted by the Associated Press-NORC Center for Public Affairs Research, among Americans ages 50 and older who currently have jobs, 82 percent expect to work in some form during retirement.
In other words, “retirement” is increasingly becoming a misnomer.
For those who have been dependent on employment and/or welfare, the problem is that financially sustainable retirement is and will no longer be a reality. Even with Social Security, which is funded through payroll taxes called the Federal Insurance Contributions Act tax (FICA) and/or Self Employed Contributions Act Tax, (SECA), one must have had a job to be eligible for the entitlement––and the amount of Social Security is based on the income level generated from one’s employment record of payroll tax contributions.
Employer-provided pensions continue to decrease and personal savings is not the norm among the vast majority of American households who must spend virtually every earned dollar on living expenses, and incur consumer debt to secure automobiles and housing, as well as other consumption. While increasingly individuals are finding it necessary to continue working in retirement to supplement their income, most older Americans discontinue full-time career work and struggle to meet obligations with minimum-pay part- and full-time jobs. A proportion of retirees also receive income from welfare programs, such as Supplemental Security Income and other life-support services funded through tax extraction and government debt.
This perspective should serve as the “reality” from which to explore prospects for effectively dealing with eroding retirement security.
Proposals that have received national media attention offer lifetime income security funded out of current savings, meaning further reductions in consumption out of already inadequate incomes. They also aggregates everything into a “private sector” institution that is custom designed to be “too big too fail.”
Such proposals will not succeed in providing any real, substantial retirement security for the majority of Americans whose jobs do not earn more than substance week-to-week and month-to-month wages. The proposals are designed to encourage Americans to save for retirement and require personal savings and denial of consumption. This is unrealistic given that the Americans with the least opportunity must reduce what is inadequate consumption income in order to accumulate savings for retirement, which for most Americans will be inadequate.
Does anyone really believe that the interest rate to be paid under the proposed programs advocated will be sufficient and able to avert the decline in the value of the money as the government continues to flood the economy with increasingly non-asset-based debt?
The proposals rely on the requirement to reduce consumption in the economy at a time when what is needed is expansion of the economy supported by increased consumption.
As my colleague Michael Greaney at the Center for Economic and Social Justice (www.cesj.org) states, “under the prevailing Keynesian paradigm, of course, ‘saving’ is always defined as the excess of income over consumption. If you want to save, then, the iron assumption of Keynesian economics is that you must consume less.”
The American consumer is being put into an impossible situation of being asked to consume more to drive the economy and reduce saving, and at the same time are being told they must reduce consumption dramatically in order to accumulate sufficient savings for retirement.
Of course, the whole problem would go away if we financed both retirement and wealth-creating, income-producing physical productive capital needs out of “future savings,” thereby increasing the capacity to consume and support the economy while simultaneously building financial security for every American citizen.
A far better and productive approach would be to create a new way for working and non-working Americans to start their own retirement savings: MyCHA. CHA stands for Capital Homestead Account. It would be a super-IRA or asset tax shelter for citizens. The Treasury should start creating an asset-backed currency that will enable every child, woman and man to establish a CHA at their local bank to acquire a growing dividend-bearing stock portfolio comprised of newly-issued stock representative of viable American growth corporations to supplement their incomes from work and all other sources of income.
We can create new asset-backed money for investment through the existing but dormant Section 13(2) rediscount mechanism of each of the 12 regional Federal Reserve banks that would be backed by “future savings” (that is, future profits from higher levels of marketable goods, products, and services).
The CHA would function as a savings and income account that effectively would build a nest egg over time, using interest-free, insured capital credit loans. A CHA would be offered to EVERY American, whether employed or not. Of course, those employed may also have additional opportunities to acquire personal ownership in their companies using an Employee Stock Ownership Plan (ESOP) trust financial mechanism.
The CHA would process an equal allocation of productive credit to EVERY citizen exclusively for purchasing full-dividend payout shares in companies needing funds for growing the economy and private sector jobs for local, national and global markets. The shares would be purchased on credit wholly backed by projected “future savings” in the form of new productive capital assets as well as the future marketable products and services produced by the newly added technology, renewable energy systems, plant, rentable space and infrastructure added to the economy. Risk of default on each stock acquisition interest-free loan would be covered by private sector capital credit risk insurance and reinsurance, but would not require citizens to reduce their funds for consumption to purchase shares. There would be no prerequisite requirement to qualify for an annual set capital credit loan other than American citizenship.
This idea to stimulate economic growth and provide retirement security for EVERY American is based on the premise that what is needed is for the system to facilitate spreading the ownership of productive capital more broadly as the economy grows with full payout of dividend earnings, without taking anything away from the 1 to 10 percent who now own 50 to 90 percent of the corporate productive capital wealth assets. In doing so, the ownership pie would desirably get much bigger and their percentage of the total ownership would decrease, as ownership gets broader and broader.
This would benefit the traditionally disenfranchised poor and working and middle class, who are propertyless in terms of owning productive capital assets. It would also result is tremendous economic growth, which would benefit everyone including the already wealthy ownership class, and create opportunities for real jobs, not make-work as an expanded economy is built that can support general affluence for EVERY American citizen. Thus, as productive capital income is distributed more broadly and the demand for products and services is distributed more broadly from the earnings of capital, the result would be the sustentation of consumer demand, which will promote economic growth. That also means that over time, EVERY child, woman and man could accumulate a diversified portfolio of wealth-creating, income-producing productive capital assets to provide economic security in retirement and not be dependent on having to work during retirement or rely on government-assisted welfare.
One might ask how we failed to grasp the significance of productive capital’s input and the necessity for broad private sector individual ownership? Unfortunately, ever since the 1946 passage of the Full Employment Act, economists and politicians formulating national economic policy have beguiled us into believing that economic power is democratically distributed if we have full employment––thus the political focus on job creation and redistribution of wealth rather than on full production and broader productive capital ownership accumulation. This is manifested in the belief that labor work is the ONLY way to participate in production and earn income. Yet, the wealthy ownership class knows that this notion is idiotic.
In real productive terms, productivity gains are the result of tectonic shifts in the technologies of production, which consequently eliminates the need for human labor, destroys jobs, and devalues the worth of labor.
One should ask what form would the structural reforms take. Employment in this new enlightened age would start at the time one enters the economic world as a labor worker, to become increasingly a productive capital owner, and at some point to retire as a labor worker and continue to participate in production and to earn income as a productive capital asset owner until the day you die. As a substitute for inheritance and gift taxes, a transfer tax would be imposed on the recipients whose asset holdings exceeded $1 million. This would encourage those owning concentrations of productive capital assets (effectively the 1 to 10 percent) to spread out their monopoly-sized estates to all members of their family, friends, servants and workers who helped create their fortunes, teachers, health workers, police, other public servants, military veterans, artists, the poor and the disabled.
Other stipulations for the structural reform would entail tax policy reform to incentivize corporations to pay out all profits to their owners as taxable personal incomes to avoid paying stiff corporate income taxes and to finance their growth by issuing new full-dividend payout shares for broad-based individualized employee and citizen ownership with full-voting rights.
We need to encourage the insurance industry to expand their product lines to market Capital Credit Insurance to cover the risk of default for banks making loans to Capital Homesteaders under the proposed Capital Homestead Act. Under the provisions of the Act, risk of default on each stock acquisition loan would be covered by private sector capital credit risk insurance and reinsurance issued by a new government agency (ala the Federal Housing Administration concept), but would not require citizens to reduce their funds for consumption to purchase shares.
The end result is that ALL American citizens would become empowered as owners to meet their own consumption needs and government would become more dependent on economically independent citizens, thus reversing our country’s trend where all citizens are becoming more dependent for their economic well-being on the “state,” our only legitimate social monopoly.
Implementing the Capital Homestead Act would significantly empower ALL Americans to accumulate over time a viable, diversified ownership portfolio in our nation’s growth companies and create a truly unique, global-leading just and environmentally responsible Ownership Society that fosters personalism, creativity and innovation. Embarking on a new path to prosperity, opportunity and economic justice will expand growth of our market economy in ways that democratize future ownership opportunities, while building a future economy that can support general affluence for EVERY American.
In conclusion, the conventional savings required––denial-of-consumption––programs would be completely unnecessary if we had Capital Homesteading. President Obama and other elected representatives should instead advocate for the passage of the Capital Homestead Act.
See two references to the proposed Capital Homestead Act at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm.
For more on how to accomplish such structural reform, see “Financing Economic Growth With ‘FUTURE SAVINGS’: Solutions To Protect America From Economic Decline” at NationOfChange.org http://www.nationofchange.org/financing-future-economic-growth-future-savings-solutions-protect-america-economic-decline-137450624 and “The Income Solution To Slow Private Sector Job Growth” at http://www.nationofchange.org/income-solution-slow-private-sector-job-growth-1378041490
