Hey, OTE’ers, ready for another round of “where’s JB?” I took the photo below on a bit of a jog yesterday from somewhere within these here United States (somewhere very beautiful). As usual, the winner gets to pick the music for a Friday interlude.
I’m here in ____ talking about the precarious state of financial security here in the US, where maybe half of those heading toward retirement are undersaved in terms of their ability to make ends meet once they stop working. One study shows that about a quarter of those between 50 and 64 have no savings to speak of at all.
The traditional way to think about this is the three-legged retirement stool: Social Security, pensions, and savings. Problem one is that the only healthy leg of that stool is Soc Sec.
Broadly speaking, the long trend in real wage stagnation for many workers began in the mid-1970s, so we’re now at a point where savings–what’s left over after you spend what you need (and want)–ain’t what it used to be for those on the wrong side of the inequality divide.
Defined benefit pensions that paid a guaranteed income in retirement have largely evaporated, to be partially replaced by defined contribution plans, which shifts the locus of risk from the firm to the worker. And many workers, especially those less connected to the job market (or in the “gig”/freelance economy) don’t even have these types of plans.
The good news is that both the government–more at the state than at the Fed level, though the Feds are in the game too–and the private sector are cooking up useful saving vehicles, often with low bars to entry and cheap fees, that enable anyone to start a retirement account, often tax-favored (like IRAs), even if your employer doesn’t offer one.
The bad news is that too many people, even if they have a strong impulse to participate in such a plan, lack the income stream to peel off a significant enough amount to save.
That, in tandem with demographic shifts toward those less likely to have much in the way of these sorts of savings, means we’re very likely headed for a lot more, not less, retirement insecurity.
And that, in turn, suggests the smart policy move would be to strengthen and expand Social Security, a portable, guaranteed pension plan that efficiently covers all workers with very low administrative fees.
A second policy implication is that this is another good reason to “make work pay” as in the Reconnection Agenda’s policy thrust. It’s great that financial service providers, along with states and the federal government, are thinking and acting in this space, but cart, meet horse: we can’t assume ample income and then start getting excited about clever new savings vehicles. We’ve got to simultaneously move the policy agenda that can promote income growth for the undersaved.
Where did I take this lovely photo?