Political and financial pundits alike have talked about a retirement gap or even crisis for years. But as the demographic skews older the crisis is becoming more real.
Case in point: A new study by Professor Teresa Ghilarducci, an economic policy analysis expert at the New School for Social Research shows that 33% of current workers aged 55 to 64 are likely to be poor or near-poor in retirement based on their current levels of retirement savings and total assets.
Also, 55% of retirees will be forced to rely solely on their Social Security income.
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Ghilarducci, an economic policy analysis expert, released her findings, entitled Are U.S. Workers Ready for Retirement?
People have not caught up from The Great Recession, she notes, explaining that people often consider both housing and spousal income as part of their retirement income. She also notes that the middle class, which lost a lot during the recession, and will rely on Social Security in their retirement years, will not have as much income replaced say, as a lower income person. In all the ways they would prepare for retirement, the middle class were hit really hard, explains Ghilarducci.
One of the issues compounding this problem is that of demographics. Not only will the rate of poverty or near poverty increase but also the actual numbers of people will increase just by the aging of the population.
All the programs that help the elderly will be stressed, she adds. Whether its nursing homes that take Medicaid, whether it be housing programs for elderly or home healthcare all those safety net programs will face a lot of pressure. That is why, says Ghilarducci, the liability of dealing with the elderly will continuously grow.
To further exacerbate the problem, the report shows nearly half of Americans who were working in 2011 were not offered a retirement account at work and about 68% of U.S. working age (25-64) did not participate in an employer- sponsored retirement plan because either their employer did not offer one, they chose not to participate or were simply not working.
One of the problems facing employers, she says, is the ability to encourage retirement. In prior years, retirement plans were created to attract and retain employees but also to help ease out the older workers and allow new ones to come in.
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With insufficient savings and the need to work longer, employers will have a harder time encouraging retirement, she adds.
Employers should shore up their 401(k) plans, consider auto-enrollment, consider paying more for pensions because workers may appreciate retirement funds more than wages and perhaps they could shift compensation towards retirement, suggests Ghilarducci.
Plan sponsors should also consider to close up the features that allow workers to take loans or rollover their 401(k) and encourage workers when they leave to keep their money with their company plan. Ideally, she suggests, employers should be doing everything they can to provide as much money to the retirement plans of their employees and do as much as they can to encourage keeping it there.
Employers should be a trusted partner with employees to make sure fees are low. They should untether their allegiance to the brokers and financial managers and work with employees to be their advocate and get the best platform of investment choices and best fees.
Besides plan re-designs, employers, even with a defined contribution plan, should think more like a defined benefit plan. Ghilarducci also advocates a guaranteed retirement account that would sit on top of Social Security that either mandates companies to offer a retirement plan or at least deduct a certain amount on behalf of the employee to be invested a state-run or federal plan administered within the private sector.
