In a report on our retirement crisis, the National Institute on Retirement Security puts forward a series of proposals to address the heavy retirement savings burden most Americans face and promote retirement security. With 40 million working age households (45 percent) lacking a retirement account altogether, retirement policy needs to change. Experts recommend that people’s savings should be between 8 and 11 times income if they want their standard of living to remain unchanged in retirement. The three big policy proposals are 1. Strengthen Social Security, 2. Increase people’s ability to get good retirement plans; and 3. Help people save for retirement.
- Strengthen Social Security: Most people rely on Social Security and Supplemental Security Income (SSI) for a big share of their income in retirement. The bottom 25 percent of earners rely on them for more than 90 percent of income, And people with incomes in the 25th-75th percentile rely on Social Security for about 70 percent of their retirement income. Not surprisingly, about 15 percent of older adults are living in poverty, up significantly. Proposals to remove the payroll tax cap, increase minimum benefits for low-wage workers and help women who often receive lower Social Security benefits because they often give up their income to work as caregivers have been advanced by Senator Tom Harkin, in collaboration with many organizations, including Social Security Works. Benefits in the United States are stingy relative to most other wealthy countries.
- Increasing access to good retirement plans: After Social Security, people rely on employer plans to help them in retirement. But that system is voluntary and eroding. Most low and middle wage workers do not enjoy these benefits. Some companies automatically enroll workers in savings plans as a way to help them ensure retirement savings, Retail IRAs, however, are often the only option for lower-wage workers; and they bring with them high fees and low returns generally. Congress could make funding requirements for defined benefits plans more predictable and make it easier for companies to sponsor them. Or, Congress could offer universal retirement plan coverage. And, it could ensure availability of a lower-risk lower-cost IRA for workers who don’t have a savings plan through their jobs as well as an automatic savings system. In a public opinion survey, the NIRS found that 71 percent of people support a retirement savings solution through their state that they can move around and that generates a monthly income they can rely on.
- Help people save: The federal government currently incentivizes people to save through the tax system, offering a deduction for retirement savings. That is of far less benefit to low and middle-income workers than to high-income workers. Not surprisingly, 70 percent of the tax benefits go to the top 20 percent of income earners. In 2001, the federal government passed the Saver’s Credit for people with low incomes. But, it hasn’t been effective with an average credit of $172 in 2006. Congress needs to increase income limits and credit rates for this Saver’s Credit to be helpful for people with low-incomes to save for retirement.