Retirement Security

The New York Times pens an editorial today that's half-kvetching at the current state of retirement security and half-prescriptive for policymakers interested in preserving a comfortable retirement for the boomers and beyond. Are they optimistic about a market rebound that acts as a cure for shockingly low account balances (and can you tell I just got my quarterly statement)? Consider the following passages:

The last 25 years was a time of low inflation rates and low interest rates, which boosted stock prices. Going forward, inflation and interest rates have nowhere to go but up...

So far, the cumulative wipe-out of household retirement savings totals about $2 trillion, and no one believes that the downturn is anywhere near over. As a result, participants in 401(k)’s are in greater danger than ever of coming up short in retirement...

The wipeout in 401(k)’s has made it clear that it is not enough to get more people to save more...

Decidedly pessmistic. Alas, the piece is not bereft of hope or constructive talk.

In today's Washington Post (and Newsweek, I suppose), the usually sensible Robert Samuelson nominates himself leader of the under-35-voter mob that is supposed to march on the American Association of Retired Persons in protest. Before I grabbed my pitchfork, I thought it might be a nice idea to see what all the fuss was about. It turns out, Mr. Samuelson is encouraging us to "get angry" at AARP (and old people) for mortgaging my generation's future all for the sake of lining the already-stuffed pockets of America's seniors. I see several problems with this approach, not the least of which is the fact that older Americans have disproportionately been walloped by the foreclosure crisis.

My core concerns lie in Americans' retirement and financial security, so I glanced at AARP's positions on such issues in their "voters guide" that has Mr. Samuelson so troubled. First, in the commitments checkbox, AARP asks the candidates to "commit to help end gridlock by working across party lines to develop and support common-sense, bipartisan solutions on health care and financial security." Both candidates in their written response essentially agreed to do so. Innocuous as it is, this hardly strikes me as something I should be angry about.

Second, and more to the point, I found this nugget: "Half of all workers have no organized way to save for retirement such as pensions or 401(k) plans. AARP supports guaranteeing workers access to automatic payroll deductions to an IRA (Individual Retirement Account) in the workplace if their employers do not already provide them a pension or 401(k) plan."

For the record, both candidates, again, essentially agreed. My admitted obsession with automatic enrollment aside, this strikes me as not pandering to current retirees, but future ones.

 I've recently been thinking about the similarities between our national epidemics of obesity and financial illiteracy. Both are socio-cultural phenomena created through generations of misinformation, misunderstanding and perverse incentives.  Factors like (but not limited to) easy credit and encouraged consumerism without proper consumer disclosure and easy access to abundant, cheap astonishingly unhealthy foods has created a culture of overindulgence on so many levels. Both problems tend to fall disproportionately on poor, low and even some moderate-income households, which lack easy access to alternative options (like banks red-lining disadvantaged neighborhoods; public school cafeterias serving french fries most everyday yet not offering physical education classes). And both are believed to have huge social and economic costs that are now reaching epic proportions.  If similar forces are causing and/or driving these problems, then shouldn't efforts to tackle both childhood obesity and financial illiteracy also be similar?  Only recently has this become apparent to those fighting the battle of such rhetorical bulges.

The Los Angeles Times published an editorial today in support of Assemblyman Kevin de Leon's plan to provide workers who are not eligibile to participate in an employer sponsored plan access to a safe retirement savings product. 

This is obviously a major boost to New America's efforts to create a voluntary, portable, low-cost, high quality retirement account structure for all workers in California.  See this previous post for more.

Stay tuned for updates as this important (and ambitious) proposal travels through the state legislature en route (we hope!) to the Governor's desk.

A bill recently introduced in Sacramento, and supported by Governor Schwarzenegger, has the potential to cover almost every California worker. No longer will those unlucky enough to work for an employer who doesn't provide coverage be left vulnerable. No longer will those who seek to buy coverage on their own be priced out of the market. And best of all, it will cost virtually nothing. Interested? Good. But we aren't talking healthcare-we're talking retirement.

Today, more than one-third of today's seniors subsist almost entirely on income from social security - an average payment of just over $1,000. For those workers (most of us) who aren't fortunate enough to be covered by a defined benefit, employer-sponsored pension plan, i.e. checks for life, the only way to prevent retirement of destitution is to start saving now. But unfortunately, many workers lack access to the products and services necessary to begin planning for retirement