Retirement Archives - Talk Poverty https://talkpoverty.org/tag/retirement/ Real People. Real Stories. Real Solutions. Wed, 26 Jun 2019 15:44:30 +0000 en-US hourly 1 https://cdn.talkpoverty.org/content/uploads/2016/02/29205224/tp-logo.png Retirement Archives - Talk Poverty https://talkpoverty.org/tag/retirement/ 32 32 There’s a Retirement Crisis. The New $15 Minimum Wage Bill Could Help. https://talkpoverty.org/2019/06/26/retirement-crisis-15-minimum-wage-can-help/ Wed, 26 Jun 2019 14:00:20 +0000 https://talkpoverty.org/?p=27167 Congress hasn’t raised the U.S. federal minimum wage in more than a decade, the longest stretch between increases in history. To remedy that failing, House and Senate Democratic leadership have introduced the Raise the Wage Act, which would gradually increase the federal minimum wage to $15 per hour by 2024. It would also link the minimum wage to median wage growth thereafter, and phase out sub-minimum wages for tipped workers, which has been stuck at $2.13 per hour for 28 years, and workers with disabilities, which allows employers to pay disabled workers as little as pennies per hour.

If passed, the new federal bill would also have far-reaching consequences that aren’t widely touted — including helping address America’s growing retirement crisis.

As of 2013, nearly one in five Americans age 55 to 64 had zero retirement savings or pension. The crisis is much more acute for lower-income Americans: While nearly nine in 10 families in the top fifth of the income distribution have retirement account savings, fewer than one in 10 families in the bottom fifth do.

It’s not surprising, then, that seniors increasingly rely on Social Security’s very modest benefits, which make up 90 percent or more of the income of nearly one in four seniors — a share that rises to more than six in 10 for those in the bottom fifth of the income scale.

The yawning gap between the high pay of the rich and the stagnant or declining pay of the working and middle class is a key driver of the crisis: According to the Urban Institute, rising wage inequality means that today’s 45-year-olds in the bottom fifth of the lifetime earnings distribution will have 3 percent less retirement income than today’s seniors, 25-year-olds will have 6 percent less, and 5-year-olds will have 13 percent less. Meanwhile, for the richest fifth, annual retirement income will rise over time.

The amount a worker can afford to save for retirement is tied to her earnings, and the Urban Institute researchers find that raising the federal minimum wage from $7.25 to just $12 — below the $15 Congressional Democrats have proposed — would offset nearly 60 percent of the retirement income lost by the bottom fifth of today’s 25-year-olds, and nearly 40 percent lost by today’s 5-year-olds.

The minimum-wage bill’s impact would be especially profound on workers of color — particularly black workers, a full 40 percent of whom would get a raise. Black workers are paid much lower wages than their white counterparts, with the typical full-time, year-round black male worker earning just 70 percent of what a white male worker earns, while black women make just 61 percent. They also face a much more severe retirement crisis, exacerbated by systematic inequalities that hamper saving, prevent wealth-building, and inhibit upward mobility. Black Americans who are nearing retirement age have only about 10 percent as much wealth as whites in the same age group. Social Security benefits made up at least 90 percent of income for 46 percent of black seniors, compared to 35 percent of whites.

The low-wage, low-quality jobs disproportionately held by workers of color don’t pay enough to make ends meet — much less save — nor do many offer the tax-preferenced retirement accounts such as 401(k) plans and individual retirement accounts (IRAs) that help build wealth. As a consequence of shorter life expectancy and lack of resources, many black men will die before they are able to retire.

This raise is a decade overdue: In 2019, a worker earning $7.25 per hour will lose nearly $2,600 compared to 2009 — when the federal minimum wage last went up — because inflation has eroded the wage’s purchasing power. A $15 minimum wage would also lift millions of Americans out of poverty, dramatically reduce spending on public assistance programs, and improve infant health. In just the last five years, 22 states and Washington, DC, have increased their minimum wages, at little or no cost to government and without the job losses conservative pundits claim will result.

Americans get it: In every single state, voters say want their state’s minimum wage to be higher than it currently is. By passing the Raise the Wage Act, Congress would rightly give voters what they’re demanding, and help address the retirement crisis at the same time.

Editor’s note: This piece was originally published on Jan. 17, 2019. It has since been updated.

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I Helped Low-Income Americans Save for Retirement—Until Trump Ended the Program https://talkpoverty.org/2017/08/24/helped-low-income-americans-save-retirement-trump-ended-program/ Thu, 24 Aug 2017 13:29:29 +0000 https://talkpoverty.org/?p=23503 Last month, the Treasury Department announced plans to wind down the myRA program, an Obama-era initiative designed to help low- and middle-income earners start a retirement account. According to the July 28 press release, the Treasury could not justify the expense the three-year-old program represented to taxpayers, given the slow uptake of the program among its target demographic: the 55 million Americans who lack access to a workplace retirement plan.

The argument against myRA’s expense is hard to swallow, since the next item on President Donald Trump’s agenda is a tax reform plan that could cost as much as $7 trillion over the next decade. The myRA program would be 0.001 percent of the cost. The claim that enrollment has been unenthusiastic isn’t much easier to stomach, since the program was so new. Publicity efforts, such as partnerships with Volunteer Income Tax Assistance programs and promotions through government websites and TurboTax, have not yet been executed.

In reality, it was a deeply practical, badly needed program. I spent this past tax season working with United Way of King County to expand the savings options available to low-income taxpayers in Seattle. Tax time is one of the only times a year that saving is a real possibility for low-income earners—their tax refunds are often the largest lump-sum payment they receive all year. Asking clients a question as simple as, “Are you considering saving a portion of your refund today?” was enough to spark a meaningful conversation about budgeting, savings, and overall financial stability. Tax clients had the option of splitting their refund into a savings account, savings bond, or myRA, which was piloted at United Way’s tax sites for the first time this season.

For middle- and upper-income earners, retirement programs are an assumed benefit.

myRA was a great fit for clients who were new to saving. The accounts had no minimum balance required, no fees, and no risk of losing money. Account holders could withdraw contributions in case of an emergency, and had the option to automatically contribute from their paycheck. And since almost 1 in 6 King County households are underbanked or unbanked, myRA’s accessibility without a formal relationship with a bank or other financial institution is a major asset. Of course, myRA was not perfect: It was hard to access without a Social Security number, and it counted against people enrolled in other safety net programs like Medicaid and food stamps (SNAP) in states with public assistance asset limits.

Imperfections aside, myRA provided a straightforward and flexible savings platform unlike any other. For middle- and upper-income earners, primarily white collar workers, retirement programs are an assumed benefit. There is no comparable alternative for workers whose employers don’t offer such benefits. And with the increasing necessity of “side hustles” in the gig economy, many workers don’t even have an employer to fill that role. Five states are moving forward with state-sponsored retirement plans called “Secure Choice,” which provides some hope, despite congressional efforts to block them.

After I left Seattle, I worked with a think tank in Washington, D.C. I passed by the Treasury building on my way to the office every morning, which gave me plenty of time to reflect on the thousands of taxpayers all the way across the country in the “other” Washington.

The label “taxpayer” is one Americans on both sides of the country (and the states in between) wear with honor, regardless of their political ideology. The structure of our tax code, the loopholes and deductions we permit, and whether or not we feel our tax burden is fair should be reflective of our values. If we value financial stability, for ourselves and our neighbors, we need to support programs like myRA. Without it, there aren’t many safe and accessible retirement savings options for lower-income workers. Innovative programs that could level the playing field deserve a chance to prove that they work, instead of being shut down.

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Why Millennials Have the Greatest Stake in Social Security Expansion https://talkpoverty.org/2016/05/10/millennials-greatest-stake-social-security-expansion/ https://talkpoverty.org/2016/05/10/millennials-greatest-stake-social-security-expansion/#comments Tue, 10 May 2016 12:46:20 +0000 https://talkpoverty.org/?p=16262 Discussions about Social Security in politics and the media often focus on its role as a retirement program that provides vital protections to seniors. But the fact is that Social Security provides vital retirement, disability, and survivors’ insurance for all generations of Americans. In addition to significantly reducing senior poverty, Social Security is the nation’s largest children’s program and lifted 6.9 million Americans under age 65 out of poverty in 2014. And no generation has a greater stake in the fight to protect and expand Social Security benefits than today’s young workers, the millennial generation.

After coming of age in the wake of the Great Recession, millennials have inherited decades of wage stagnation and growing inequality. While median annual wages have grown just $1,422 in real dollars from 1986 to 2013, the average cost of attending a four-year college has more than doubled. Unless these trends reverse, many millennials will have to defer saving for retirement in order to pay off their educational debts, leaving them with fewer resources in retirement beyond Social Security. Indeed, millennials have accumulated less wealth than their parents’ generation had at the same age 25 years ago. These factors, combined with the disappearance of employer-sponsored traditional pension plans, mean that 3 in 5 younger households are at risk of being unable to maintain their standard of living in retirement.

The problem is particularly acute among millennials of color. Black and Latino households typically have lower incomes and significantly fewer assets than white, non-Hispanic households. And although Social Security benefits replace a larger percentage of lower earners’ incomes, their benefits are still smaller than those received by higher earners—leaving households of color less able to contend with the high healthcare costs experienced by seniors and people with disabilities.

The program was created in response to economic circumstances similar to those that have shaped the formative years of today’s young workers.

Social Security is also critical to millennials during their working years. Before reaching their full retirement age, an estimated 1 in 4 of today’s 20-year-olds will become disabled, and 1 in 8 will die. Such events can be devastating at any age, but they are especially harmful to young workers and their families, who will have had fewer years to pay off educational debts and accumulate wealth. Many of these young workers and their families—especially those with low incomes—are also unlikely to be covered by private insurance, particularly in the case of disability.

Fortunately, virtually all working Americans are covered by Social Security’s disability and survivors’ protections, and can expect to receive benefits for themselves and their families. These benefits are significant—a 30-year-old worker who earns $30,000 a year with a spouse and two children has earned the equivalent of roughly $1.1 million in disability and life insurance protections through Social Security. Although no one anticipates dying young or experiencing a permanent disability, Social Security’s modest but vital benefits are often the only way families can continue to afford basic necessities and avoid falling into poverty.

But instead of increasing benefits, opponents of Social Security suggest that spending on the old is stealing from the young, and that the nation must choose between supporting one generation or the other. They call for “generational equity”—the idea that unless we cut benefits soon, we will run out of resources to protect younger workers in retirement. But this is false. Even after 2034, when the program’s shortfall is projected to occur, Social Security will still be able to pay around 75 percent of promised benefits. And it’s worth noting that the same individuals who call for changes to protect the young also promise to protect current beneficiaries by forcing benefit reductions entirely on new beneficiaries—that is, by cutting the benefits of the same younger generations they claim to be protecting. These are unnecessary choices that other nations aren’t making—countries that spend more on seniors also spend more on children.

Social Security should be expanded now; not just for today’s seniors, but for millennials as well. The program was created in response to economic circumstances similar to those that have shaped the formative years of today’s young workers: the Great Depression. Social Security was a cornerstone of the New Deal, a range of policies which created jobs, invested in national infrastructure, regulated big banks, and protected workers’ rights. Similarly, expanding Social Security should be a cornerstone of an agenda for young workers, accompanying policies such as raising the minimum wage, closing the gender pay gap, and adopting paid family leave. Not only would these policies improve the economic security of today’s young workers; many of them would help to improve Social Security’s long-range solvency as well.

Most importantly, millennials recognize that Social Security is a symbol of intergenerational solidarity, in which workers make contributions to fund current benefits while earning vital insurance protections for themselves and their families. Nearly 7 in 10 millennials agree that “we should consider increasing Social Security benefits.” It’s time for policymakers to listen to them, and expand Social Security for all generations of Americans.

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When Bad Financial Advice Pushes Seniors into Poverty https://talkpoverty.org/2016/04/20/bad-financial-advice-senior-poverty-fiduciary-rule/ Wed, 20 Apr 2016 12:50:00 +0000 http://talkpoverty.org/?p=15681 When you meet with a financial adviser, the advice you get may not be what’s best for you—it may be what’s best for them and their bottom line.

Fortunately, earlier this month at the Center for American Progress, the U.S. Department of Labor announced its final fiduciary rule that would require financial professionals who advise on how to invest retirement savings to act in their clients’ best interest. The fiduciary rule is much more than an obscure legal concept—it’s a commonsense action that closes 40-year-old loopholes in retirement security laws that were left open by Congress. It also returns at least $17 billion a year to American families.

Granted, struggling families are not likely to have access to retirement funds and financial advisers, so some may wonder how this helps low-income Americans. The fact is that faulty advice can leave individuals in poverty when they retire, even if they were able to save for retirement during their working years.

For example, Ruby H. of Philadelphia scrimped for 17 years to put aside $5,000 for retirement, and an adviser helped her grow that amount to $17,000. But when her adviser switched firms, he changed her investments into the ones most advantageous to him, and she lost everything. And Phil Ashburn lost the bulk of his savings after he spent 30 years working for utility companies: first Western Electric in 1972, and finally Pacific Bell. Offered a buyout in 2002, he was recommended to a financial adviser who put the value of his savings—about $355,000—in an expensive variable annuity. However, he ended up with only about 20 percent of those savings following the Great Recession. Meanwhile, the adviser received a commission of roughly 7 percent and ended up making $900,000 that year.

More than half of all working-age households are considered inadequately prepared for retirement.

These stories are a painful reminder of why workers face such bleak prospects for retirement. Forty years ago, when the rules on retirement advice were first written, most workers didn’t have to worry about whether they were getting good advice because they weren’t expected to plan for their own retirement. The vast majority of workers with a retirement plan had traditional pensions, which rewarded a lifetime of work with monthly payments for life. There was no need to wade through different investment options and savings strategies. But today, with the erosion of pensions and advent of options that are far less secure, more than half of all working-age households are considered inadequately prepared for retirement, up from 31 percent in 1983.

The rule also reminds us why Social Security is so crucial, particularly in this era of financial uncertainty. Social Security brings the incomes of more than nearly 15 million elderly above the poverty line, cutting senior poverty by three-quarters. And for roughly two-thirds of the elderly, Social Security provides the majority of their retirement income. Future retirees need the assurance that Social Security will be there even if their savings, or their financial adviser, aren’t up to par. Thankfully, as Senator Brian Schatz (D-HI) noted during the Department of Labor’s announcement, cutting Social Security is no longer mainstream: “How much should we cut Social Security is such a preposterous proposition except on K Street, except among pundits.”

But while Social Security is safe for now, this fiduciary rule is under attack by some financial firms and their conservative allies. This disagreement isn’t unexpected. As Senator Elizabeth Warren (D-MA) has pointed out, there are “17 billion reasons” why special interests oppose the rule—that is, the $17 billion returned to the American people. In fact, from the beginning of discussions around the rule, some industry players have called it unworkable, argued that their voices were not heard, or threatened to sue. House Speaker Paul Ryan has also derided the rule, calling it “Obamacare for financial planning” and seeking to undo it. Given that his stated concern for the poor has often been accompanied by policy proposals to make drastic cuts to the safety net, perhaps this is not surprising. But, as the Department of Labor has stepped in to close loopholes of Congress’ own making after decades of improper financial advice, rolling back the fiduciary rule now will only increase retirees’ vulnerability in the coming years.

Some opponents have even gone so far as to claim that the reform will diminish working families’ access to financial advice because some advisers may stop working with less profitable savers if they cannot charge as much. But the fact is that most working families with small amounts of savings are not served by advisers today to begin with, and may have less trust in the advice that’s given in the first place. This same argument about access is a common defense for other predatory products—whether payday loans or for-profit colleges—in which the real question about access is whether companies can keep their access to the vulnerable consumers whom they grift. Meanwhile, new firms are offering independent, nonconflicted advice at a fraction of the cost, proving that it can indeed be done without ripping off current or future retirees.

This rule is a stark reminder for members of Congress to decide which side they are on: that of savers or of special interests. If they stand with Secretary Tom Perez and those who came out in favor of the rule, they have the opportunity to prevent bad financial advice from cheating more families out of their retirement dollars.

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A Bill to Let Workers Save Like Members of Congress https://talkpoverty.org/2016/03/24/a-bill-to-let-workers-save-for-retirement-like-members-of-congress/ https://talkpoverty.org/2016/03/24/a-bill-to-let-workers-save-for-retirement-like-members-of-congress/#comments Thu, 24 Mar 2016 12:34:44 +0000 http://talkpoverty.org/?p=14781 America is facing a looming retirement crisis. With wages stagnant and the costs of basic needs like housing, education and child care rising rapidly, it’s already difficult for low- and middle-income Americans to save. And to make matters worse, 68 million Americans currently do not have access to a retirement savings plan through their employer.

Contrast that with Congress, where every Member and millions of federal employees are able to take advantage of what is known as the Thrift Savings Plan (TSP). The TSP helps ensure a secure retirement through automatic enrollment; simple, easy-to-understand, investment options; and low fees—all of which are proven to increase retirement savings.

If federal workers can have this plan, then why can’t American workers? Giving every worker who lacks an employer-provided retirement savings plan access to a plan like the TSP is a no-brainer.

That’s exactly why one of us, Senator Merkley, recently unveiled the American Savings Act, a major new piece of legislation that is based on the effective TSP model and mirrors many policy recommendations from the Center for American Progress Action Fund. It would ensure that if an employer doesn’t already offer a retirement plan, each of its workers automatically would be given his or her own American Savings Account (ASA). Initially, the employer would put 3 percent of a worker’s earnings into the account with each paycheck, but individuals could choose to adjust the contribution or to opt out entirely. Employers would simply send employees’ ASA savings to the federal government alongside employee tax withholdings. Americans who are self-employed would have the option to open an ASA at any time.

If federal workers can have this plan, then why can’t American workers?

These accounts would also benefit workers by featuring the same sensible investment options that are offered to federal employees. Workers would control their own accounts directly through a website, and an independent board of directors would manage the investment of the funds.

This legislation would make a big difference in the lives of millions of Americans who are currently struggling to save for retirement, which is why it is endorsed by groups representing seniors, workers and small businesses—including AARP, UNITE HERE, and the Main Street Alliance. The Center for American Progress Action Fund found that a worker saving under a similar plan would be more than twice as likely to have a secure retirement than a worker contributing the same amount to a typical 401(k) plan—to say nothing of the difference between a worker with this kind of plan and one with no retirement savings at all.

That’s not to say that expanding access to retirement plans is a silver bullet solution to the retirement crisis. We also need to strengthen Social Security. But Social Security was never intended to be the sole source of income for retirees, which is why we need to also make it easier for Americans to set aside and build savings that can supplement their Social Security income.

When workers do not have access to a retirement plan at their workplace—either because their employer doesn’t offer one or because of the nature of their work—they are unlikely to save for retirement. Expanding access in the manner called for under the American Savings Act would help shore up our retirement system—which, ever since the decline of private-sector pensions, has increasingly failed to meet the needs of a significant part of our workforce.

It shouldn’t matter whether you’re a Member of Congress, or you work part-time or full-time for a huge corporation or a small business: every American worker deserves access to a financially secure retirement.

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How the Department of Labor Could Help Fix the Retirement Crisis https://talkpoverty.org/2016/01/20/department-of-labor-could-fix-retirement-crisis/ Wed, 20 Jan 2016 15:13:35 +0000 http://talkpoverty.org/?p=10766 Continued]]> Half of working-age Americans aren’t confident that they will have enough money to retire—and they have reason to worry, given that the typical American has only $3,000 in savings. Unsurprisingly, low-income workers are even less likely to have money set aside for retirement.

The picture is even more sobering for seniors and people of color. People of color account for 41 percent of the 55 million people without retirement accounts. On top of that, they are more likely to live in poverty as both working-age adults and seniors. Without money to draw on from their retirement (African-American and Latino  families have, on average, zero in liquid retirement savings), they are far more susceptible to the ills of senior poverty, which can include everything from multiple chronic conditions to heightened mortality rates and food insecurity.

Fortunately, there is some good news on the retirement security front. The Department of Labor recently released a set of proposed rules that, if adopted, would make it possible to help millions of low-wage workers build up a retirement nest egg. These rules pave the way for states to adopt retirement programs that automatically enroll all workers into individual retirement accounts (IRAs).

People of color account for 41 percent of the 55 million people without retirement accounts.

How will automatic retirement savings help? Well, one big reason low-wage workers have lower savings is that their employers are less likely to offer any sort of retirement plan. Indeed, workplace access to retirement plans has declined by almost 20 percent since the turn of the century as employers have sought new ways to cut costs. At the same time, evidence routinely shows that when plans are offered, many workers take advantage of them—particularly when employers automatically enroll their workers. Studies indicate that participation rates can reach 90 percent with automatic programs, creating a huge vehicle for protecting and growing workers’ savings.

Inspired by these trends, California, Oregon, and Illinois have developed state-sponsored proposals over the past few years that would establish automatic savings plans for workers in their states. However, these programs will only be effective if they pass federal muster by incorporating certain protection mechanisms—and the proposed rules allow just that.

The recent DOL action allows states to implement these important programs. As David Mitchell and Jeremy Smith of the Aspen Institute recently wrote, the new rule proposed by DOL would “give states new options for expanding coverage while at the same time reducing the burden on employers.”

This important development for retirement security deserves high praise, which is why members of the Tax Alliance for Economic Mobility submitted a letter to the DOL yesterday that strongly supports the proposed rules. The Tax Alliance, co-chaired by the Corporation for Enterprise Development (CFED) and PolicyLink, is a national coalition of advocates, researchers, and experts focused on reforming tax programs that do not work for low-income households and communities of color.

These state auto-IRA programs won’t completely fix the retirement crisis, but they will allow more low-income workers to access benefits normally reserved for the rich. Currently, the bottom 60 percent of earners are lucky to receive $200 in federal retirement tax benefits, while the top one percent receive approximately $13,000 from these same programs. But as the signers of the Tax Alliance letter wrote, the proposed rules are a “major step toward expanded retirement security options for low- and moderate-income workers.”

While low-wage workers in California, Oregon, and Illinois have reason to be optimistic, excitement should spread far beyond the handful of states that have already developed these auto-IRA programs. This action by DOL will encourage more and more states to design retirement programs that work for their citizens. And while masses of savings won’t accrue overnight, these state programs can begin to chip away at the racial wealth divide and retirement crisis facing over 100 million people living in or near poverty.

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‘Barely Enough to Survive’: Exposing (and Closing) the Race and Gender Gaps in Elder Poverty https://talkpoverty.org/2015/02/19/barely-enough-survive-exposing-closing-race-gender-gaps-elder-poverty/ Thu, 19 Feb 2015 13:38:21 +0000 http://talkpoverty.org/?p=6297 Continued]]> The year 2015 marks the 50th anniversary of Medicare’s establishment and the signing of the first Older Americans Act. In 1966, President Johnson called for substantial increases in Social Security benefits, which were approved by Congress in 1967. In large part due to these measures poverty among the elderly is much lower today than it was then. In 1966, nearly 29 percent of elderly Americans had incomes below the poverty line, compared to about one in ten (9.5 percent) today.

Still, one in ten is far too high. Moreover, despite the passage of landmark civil rights and equal pay legislation in the 1960s, substantial gender, racial and ethnic gaps remain among older Americans living below the poverty line. As the accompanying graphic shows, older adult women are generally at a considerably greater risk of living in poverty than elderly men. Elder white, non-Latino women are nearly twice as likely to live in poverty as white men.

Click on the chart to see an expanded version

Click on the chart to see an expanded version

Similarly, older adult blacks, Latinos, Asians, and Native Americans all have much higher poverty rates than white, non-Hispanic elders. The gap is greatest for older Latinos, who are nearly three times as likely to live in poverty as older white, non-Latinos.

There are also significant gaps by race and ethnicity in retirement savings and wealth. Gaps in wealthy by race and ethnicity are much larger than the income gaps. Researchers at the Urban Institute have documented that among today’s seniors, the average family wealthy wealth for white, non-Hispanics is roughly ten times that of blacks and Latinos.

Why do these gaps exist? To a large extent, they reflect policy-driven disparities in the labor market experiences and living standards of elders during their working lives. Compared to white workers, Hispanic and black workers are much more likely to earn poverty-level wages and lack health insurance, retirement and other employer benefits. Even today, women working full-time make only 78 cents for every dollar men earn working full-time earn. While this gender wage narrowed considerably in the 1980s and 1990s, it has improved little over the past decade. By and large, gender and racial gaps in wages are not explained by differences in education, for both African Americans and women, the gaps exist among those with similar levels of education

The case of Evelyn Coke, who sued to reverse a loophole in federal labor regulations that exempted home-care agencies from having to pay overtime, provides a stark example of policy-driven disparities can have a disproportionate effect on women and people of color. Coke, a mother of five who died recently at age 74, worked as a home health care aide for decades after immigrating to the United States from Jamaica. Despite regularly working more than 40 hours per week, Coke’s wages remained very low, about $7 an hour, and she received neither overtime pay nor health benefits.

Like Coke, home care workers—and many other workers in care-related jobs that pay low wages and provided limited or no benefits—are disproportionately women and people of color. Last year the Department of Labor extended minimum wage and overtime protections to home care workers who had previously been excluded, but the home care industry has mounted a federal court challenge to the fair pay requirement.

Beyond modest steps like this, broader disparities in pay and benefits mostly remain unaddressed. These disparities mean women and people of color have less money, if any, socked away at retirement. And, because retirees’ initial Social Security benefit levels are set based on their average earnings, there are disparities in the benefits they receive. For example, both women and people of color are overrepresented among the 1 in 5 Social Security beneficiaries—who receive sub-poverty benefits when they retire.

In addition to wage gaps, time spent caring for children or other family members contribute to these gaps. Caregivers don’t receive any credit from Social Security for the unpaid caregiving they provide, making them more likely to not be eligible at all or have lower benefits. As Sara Moore, an 80-year Chicagoan provided years of care to a disabled father and other family members put it, “I put my family first, but all my years of caregiving amounted to zero wages and zero contributions toward Social Security. [Now] I receive less than $1,000 a month in Social Security benefits which is barely enough for me to survive.”

Greater longevity also increases women’s poverty risk because health-related expenses increase over time, and the likelihood of losing one’s partner increases. As a consequence, in 2013, there were more women age 75 and up living in poverty (nearly 1.5 million) than there were elderly men of any age below the poverty line.

So what can we do to close these gaps? First, we need to boost wages and benefits for poorly compensated workers, including by increasing the minimum wage and equal pay for women. Higher, fairer wages would mean a better retirement for today’s poorly compensated workers. Second, Social Security should be strengthened in ways that improve coverage and benefit adequacy for workers who are poorly compensated, including by increasing the minimum benefit and providing at least some credit for unpaid care work

Finally, we need to modernize and improve means-tested programs that supplement Social Security (or provide the only income) for elderly people living in poverty, including Supplemental Security Income, the Supplemental Nutritional Assistance Program and housing assistance.

In particular, federal policymakers need to reform Supplemental Security’s woefully outdated rules that strictly limit the amount of income and assets that seniors receiving benefits can have. For example, in SSI, a very low-income senior living alone is ineligible for help if they have more than $2,000 in assets, an amount that has barely budged since the SSI was created in the early 1970s.

In short, addressing the gender and racial gaps in elderly poverty requires concerted action on multiple fronts. This may seem like a lot, but when you consider the consequences—millions of elderly Americans who have little to show for years of hard work—it’s the least we can do.

Originally published in Aging Today, January –February 2015. Copyright © 2015 American Society on Aging; all rights reserved. This article may not be duplicated, reprinted or distributed in any form without written permission from the publisher: American Society on Aging, 575 Market St., Suite 2100, San Francisco, CA 94105-2869; e-mail: info@asaging.org. For information about ASA’s publications visit www.asaging.org/publications. For information about ASA membership visit www.asaging.org/join.

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A Solution to America’s Devastating Retirement Shortfall https://talkpoverty.org/2015/01/29/solution-americas-devastating-retirement-shortfall/ Thu, 29 Jan 2015 14:53:09 +0000 http://talkpoverty.org/?p=6158 Continued]]> You probably don’t know about it, but you should: there is a huge “retirement savings gap” in America. The gap is the difference between the assets available to families and the assets that they need to retire at age 67 without incurring a significant lifestyle change. A 2013 study by the National Institute on Retirement Security found that among working households ages 25-64 the collective gap is between $6.8 trillion and $14 trillion.

Really more like a gorge than a gap.

This shortfall is distributed among a very broad swath of workers. In fact, the median retirement account balance for working-age households is $3,000. In other words, the typical working family is on a path to severe retirement insecurity.

Some of the causes of this crisis have to do with economic transformations we’ve undergone in recent decades. For one thing, stagnating—and in many sectors, declining—wages make it hard for workers to devote adequate resources to retirement. Additionally, the much-noted transition in the private sector from defined benefit pensions to defined contribution retirement schemes like 401(k) plans has shifted massive amounts of risk to workers, and, in many cases, decreased the value of retirement benefits — especially for workers who don’t begin putting money in their accounts early in their working life.

The typical working family is on a path to severe retirement insecurity.

On the other hand, one cause of the crisis has been around for decades. Throughout the many changes in the American economy, labor market, and retirement system, the share of workers lacking access to employer-based plans has been alarmingly high, usually hovering between 40 and 50 percent. Though workers whose employers offer no plan could theoretically open an Individual Retirement Account (IRA) on their own, the data are overwhelmingly clear that far too few of them do.  A number of reasons fuel this phenomenon. First, sitting down and making one’s own financial plans for a retirement that might be many decades away is difficult and counter-intuitive. Second, the array of investment products available in today’s marketplace is complex and bewildering. Finally, low- and middle-wage workers often wind up paying very high fees.

Fortunately, the Illinois Secure Choice Retirement Savings Program, signed into law on January 4th, addresses several of these problems. Through this legislation, many workers will now be automatically enrolled in a Roth IRA with a 3% payroll deduction. All workers qualify who have worked for a company with at least 25 employees that has been in business for at least 2 years, and offers no retirement plan. Workers may opt out, or select a contribution level other than 3%.

In many ways, this is a modest idea: it doesn’t require employers to fund these accounts, and it doesn’t involve any government subsidy. On the other hand, it tackles some major issues. First and foremost, it directly takes on the problem of access to employer plans. Secondly, by enrolling people by default unless they want to opt out, it will increase participation. Finally, by pooling a huge number of participants into a single program, workers—especially those who have low wages and work for comparatively small firms—will benefit from fees that are far lower than many would have otherwise paid.

The idea of the automatic enrollment IRA for workers without access to employer plans has been around for nearly a decade. It was invented by Mark Iwry, then of the Brookings Institute (now at the U.S. Treasury Department), and David John, then of the Heritage Foundation (now at AARP). It was supported in 2008 by the presidential campaigns of both Barack Obama and John McCain, and has been introduced in dozens of state capitols. However, due to opposition from the financial industry, no state was able to enact a law implementing such a program—until we passed Secure Choice in Illinois.

Interestingly, after years of battling with special interest groups over this legislation, most of the concerns recently expressed are focused on the question of why the law doesn’t go further. Some have asked why the employee contribution level is only 3%, or why it doesn’t escalate incrementally every year. Others point out that by exempting businesses with fewer than 25 employees, we’ll leave too many workers without coverage. These points are all sound. Indeed, the Illinois Secure Choice Program, while a major step, will not entirely solve the problem of retirement security for workers in the state who currently lack access to workplace plans. What’s more, it makes no progress on wage stagnation or most of the challenges associated with the shift to defined contribution retirement plans.

So we still have much more work to do if we are to create truly adequate retirement security for all workers. But after many years of changes in retirement policy that have usually meant bad news for American workers, I’m proud to have played a role in moving our society in a new direction, and I’m energized to build on this momentum and strive for progress in the years to come.

 

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