Send a Tweet
Most Popular Choices
Share on Facebook 1 Share on Twitter 1 Share on LinkedIn Share on Reddit Tell A Friend Printer Friendly Page Save As Favorite View Favorites
OpEdNews Op Eds

States Lead the Way on Retirement Policy

By       Message Dean Baker       (Page 1 of 1 pages)     Permalink    (# of views)   1 comment

Related Topic(s): ; ; ; , Add Tags
Add to My Group(s)

Must Read 1   Well Said 1   Valuable 1  
View Ratings | Rate It

opednews.com Headlined to H3 1/7/19

Author 2529
Become a Fan
  (41 fans)

From Truthout

From youtube.com: The State of American Retirement
From youtube.com: The State of American Retirement
(Image by YouTube, Channel: The Zero Hour with RJ Eskow)
  Permission   Details   DMCA
- Advertisement -

With the federal government largely out of the game over the last decade on issues like the minimum wage, paid family leave and paid sick days, many states and cities have taken the lead to protect their own residents. Although it has gotten much less attention, this has also been the case with retirement policy.

The basic story is that the current generation of retirees is doing OK. Most retirees have incomes that are reasonably in line with their income during their working lives. That's not great: People who were living near the poverty line still find themselves near poverty in retirement. Also, due to the inadequacies of Medicare coverage, many middle-income people and even upper middle-income people can be permanently set back by large medical expenses.

But, a snapshot of the over-65 population today would show a group of people that are not appreciably worse off than those under age 65. However, this situation is changing rapidly.

- Advertisement -

The main source of non-Social Security income for middle-class retirees is traditional defined benefit pensions. These pensions pay workers a specific monthly sum for as long as they live, with spouses typically enjoying survivor benefits. Recent research from the Census shows that these pensions were considerably more important than had previously been recognized because retirees often understated their pension income on survey questions.

While the new findings on pension income are good news, the problem is that we know that traditional defined benefit pensions are rapidly disappearing. While workers in the public sector still often have defined benefit pensions, they are becoming rare in the private sector, as employers replace them with 401(k) plans. Only 22 percent of the workers between the ages of 45 to 54 were covered by a defined benefit pension in 2016.

Unfortunately, few workers are likely to accumulate enough money in their 401(k) plans to provide a substantial supplement to Social Security. In 2016, the middle quintile of families headed by someone between the ages of 55 to 64, had just $99,000 in non-housing wealth, including all the money held in retirement accounts. For the middle quintile of families headed by someone between the ages of 45 to 54, this figure was just $63,000.

- Advertisement -

These sums will not go very far in retirement. To get a rough measure, if we divide the amount by 20, the older cohort can look to an income of roughly $5,000 a year from their savings. The younger group can count on just $3,200, although their savings will likely grow further by the time they have retired.

The big problems with 401(k)s is that workers change jobs frequently, which often prevents them from being eligible for benefits. They also often decide to cash out a 401(k) when leaving. In addition, these plans often have high annual fees, sometimes as much as 1.5 percent or even 2 percent of holdings. If workers want to convert their savings to an annuity, an annual payout that lasts through their life, they typically have to surrender 10-20 percent to the insurer making the conversion.

The ultimate retirement benefit will depend on workers' luck and skill as investors, as well as their timing. If they happen to cash out after a stock market plunge like we have just seen, they will find themselves much poorer in retirement than expected.

Seeing the inadequacies of the current retirement system, many states have stepped forward to offer low-cost portable retirement plans through a state-sponsored system. These plans will have the advantage that workers can hold on to the same plan even as they change employers. The fees will also be kept low because the state is pooling across a large number of workers. Many states, including California, New York, Illinois and Oregon, have already gone this route, with many others considering joining the list. This should offer considerably more retirement security to a large number of workers in these states.

This does not mean that the retirement income crisis is solved. It would be highly desirable for these states to offer some type of defined benefit option where workers can guarantee themselves a specific benefit based on a contribution at a given age. For example, a $5,000 contribution at age 35 may be sufficient to guarantee a lifetime benefit of $1,000 a year beginning at age 65.

It also would be good to provide a boost to Social Security benefits, especially at the lower end, which can make a big difference in living standards for low- and moderate-income retirees. Repairing the holes in Medicare will also make a huge difference.

- Advertisement -

Nonetheless, a number of progressive states have made an extremely important first step in establishing these state-run retirement plans. They deserve credit for addressing a major national problem that has been neglected by the federal government.

 

- Advertisement -

Must Read 1   Well Said 1   Valuable 1  
View Ratings | Rate It

opednews.com

Dr. Dean Baker is a macroeconomist and Co-Director of the Center for Economic and Policy Research in Washington, D.C. He previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. (more...)
 

Dean Baker Social Media Pages: Facebook page url on login Profile not filled in       Twitter page url on login Profile not filled in       Linkedin page url on login Profile not filled in       Instagram page url on login Profile not filled in

Go To Commenting
The views expressed herein are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.
Writers Guidelines
Related Topic(s): ; ; ; , Add Tags
Contact AuthorContact Author Contact EditorContact Editor Author PageView Authors' Articles
Support OpEdNews

OpEdNews depends upon can't survive without your help.

If you value this article and the work of OpEdNews, please either Donate or Purchase a premium membership.

STAY IN THE KNOW
If you've enjoyed this, sign up for our daily or weekly newsletter to get lots of great progressive content.
Daily Weekly     OpEdNews Newsletter
Name
Email
   (Opens new browser window)
 

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

The Federal Reserve Board and the Presidential Candidates

The Deficit Hawks Target Nurses and Firefighters

The Attack of the Real Black Helicopter Gang: The IMF Is Coming for Your Social Security

The profit on the TARP and Bernie Madoff

Poverty: The New Growth Industry in America

The Real Reason For The Government Shutdown

Comments Image Post Article Comment

These discussions are not moderated. We rely on users to police themselves, and flag inappropriate comments and behavior. In accordance with our Guidelines and Policies, we reserve the right to remove any post at any time for any reason, and will restrict access of registered users who repeatedly violate our terms.

  • OpEdNews welcomes lively, CIVIL discourse. Personal attacks and/or hate speech are not tolerated and may result in banning.
  • Comments should relate to the content above. Irrelevant, off-topic comments are a distraction, and will be removed.
  • By submitting this comment, you agree to all OpEdNews rules, guidelines and policies.
Connect with Facebook     Connect with Twitter            Register with Facebook     Register with Twitter

Comment:   

You can enter 2000 characters. To remove limit, please click here.

Please login or register. Afterwards, your comment will be published.
 
Username
Password

Forgot your password? Click here and we will send an email to the address you used when you registered.
First Name
Last Name

I am at least 16 years of age
(make sure username & password are filled in. Note that username must be an email address.)

1 people are discussing this page, with 1 comments  Post Comment


Elizabeth Eames Roebling

Become a Fan
Author 512855

(Member since Jan 8, 2019), 1 comments
Not paid member and Facebook page url on login Profile not filled in Not paid member and Twitter page url on login Profile not filled in Not paid member and Linkedin page url on login Profile not filled in Not paid member and Instagram page url on login Profile not filled in


Add this Page to Facebook! Submit to Twitter Share on LinkedIn Submit to Reddit


  New Content

While Dr. Baker is quite right to point out the perils for those who face retirement without sufficient personal savings, he omits the mention that 401ks can be rolled over into RothIRAs which are portable. He may be right that various fund fees are high but the advantage of having some money invested in the stock market, with the possibility of profiting from it is, is a wise addition to anyone's retirement plans. If not a portfolio, then some form of income producing property - alone or in partnership - is most certainly advisable. Anyone who thinks that Social Security along with the value of their home will provide them with a long and comfortable retirement is not well informed.

Submitted on Tuesday, Jan 8, 2019 at 11:44:12 PM

Author 0
Add New Comment
Share Comment
Reply To This   Recommend  (0+)
Help
 

 
Want to post your own comment on this Article? Post Comment