Obstacles to Saving for Retirement

1. Obstacles to Saving for Retirement Presentation by Wilhelmina A. Leigh Joint Center for Political and Economic Studies Program on Retirement Issues National Press Foundation Washington, DC 14 June 2011

2. Organization Of Presentation Why Does Saving for Retirement Matter? How Do We Know There Are Obstacles to Saving for Retirement? Who Encounters Obstacles to Saving for Retirement? What Are The Obstacles? How to Address The Obstacles? Joint Center for Political and Economic Studies

3. Retirement Income Stool • The three legs of the metaphorical retirement income stool are: • Social Security • Employer-sponsored pensions or retirement plans • Private savings and investment Joint Center for Political and Economic Studies

4. Expected Sources of Retirement Income (Percent) African Americans All Races 2009 Joint Center Poll Joint Center for Political and Economic Studies

5. Why Does Saving for Retirement Matter? Two legs of the retirement income stool—employer-sponsored pensions or retirement plans, and Social Security—are not as sturdy as in the past. Joint Center for Political and Economic Studies

6. Challenges to Social Security Leg of Retirement Income Stool • Its “pay-as-you-go” financing system will be challenged in the future by: • Retirement of the Baby Boom cohort • Increased life expectancy, especially beyond age 65 • Decreasing birth rates Joint Center for Political and Economic Studies

7. Challenges to Social Security Leg of Retirement Income Stool (cont’d) SSA, Annual Statistical Supplement, 2010 Even without future challenges, Social Security benefits alone are not enough to support a comfortable retirement. Joint Center for Political and Economic Studies

8. Social Security Retirement Benefits by Race and Gender SSA, Annual Statistical Supplement, 2010 * Includes Asians and Pacific Islanders, American Indians and Alaska Natives, and a subset of the total number of beneficiaries of Hispanic origin. Social Security benefits constitute a floor for financial needs during retirement. Joint Center for Political and Economic Studies

9. Challenges to Employer Retirement Plans or Pensions Current Population Survey (2009) in Butrica and Johnson (2010) Joint Center for Political and Economic Studies

10. Challenges to Employer Retirement Plans or Pensions (cont’d) Survey of Income and Program Participation (2009) in Butrica and Johnson (2010) • In 2009, among all wage and salary workers ages 25-59, • 30.5 % were offered DB pensions • 54.8 % were offered DC plans Joint Center for Political and Economic Studies

11. Challenges to Employer Retirement Plans or Pensions (cont’d) • In summary, • … not all employees today have employer retirement plans, and • … many retirement plans offered today will not provide a lifetime income stream that can support a comfortable retirement. Joint Center for Political and Economic Studies

12. Why Does Saving for Retirement Matter? EBRI Retirement Confidence Survey 2011 • More than one of every four workers (27%) is not at all confident they will have enough money for a comfortable retirement. • Worker confidence about their ability to have a comfortable retirement is directly correlated with the amount saved for retirement. • In other words, as saving and preparedness for retirement increase, so does confidence about having a comfortable one. Joint Center for Political and Economic Studies

13. How Do We Know There Are Obstacles to Saving for Retirement? EBRI Retirement Confidence Surveys 2007 and 2011 Joint Center for Political and Economic Studies

14. Who Encounters Obstacles to Saving for Retirement? People of Color (especially African Americans and Latinos) Women Immigrants Persons ages 50 and over Unemployed Individuals Joint Center for Political and Economic Studies

15. Who Encounters Obstacles to Saving for Retirement? (cont’d) 2007 EBRI Minority Retirement Confidence Survey Ariel/Hewitt Study 2009 All workers (60%) are more likely than either African American workers (45%) or Hispanic workers (34%) to “currently save for retirement.” Among employees in selected Fortune 500 companies, African Americans (66%) and Hispanics (65%) were less likely than Asians (76%) and whites (77%) to participate in the available 401(k) plans. Joint Center for Political and Economic Studies

16. Amount Saved by Workers for Retirement, by Race/Ethnicity, 2007 Joint Center for Political and Economic Studies * Percents do not sum to 100 due to rounding. 2007 EBRI Minority Retirement Confidence Survey

17. What Are Obstacles to Saving for Retirement? • Lack of sustained employment and the lack of access to retirement saving vehicles thereby • People of color: chronic unemployment • Women: intermittent work histories • Immigrants: employability challenges • Persons ages 50 and over: unique challenges, if unemployed Joint Center for Political and Economic Studies

18. Longstanding Obstacles to Saving for Retirement BLS 2009 data Current Population Survey 2008 • Labor market segmentation • Low-income labor force is disproportionately African American (19.9%) and Latino (28.4%). • Workers in the lowest earnings quartile are less likely to work for employers who offer retirement plans (38%) than are workers in the highest earnings quartile (73%). • Thus, African American workers and Latino workers are less likely than white workers to have access to retirement plans through their employers. Joint Center for Political and Economic Studies

19. Longstanding Obstacles to Saving for Retirement (cont’d) 2009 Joint Center Poll • Low earnings: Many say they want to save every month but don’t have enough money to do so. Joint Center for Political and Economic Studies

20. Longstanding Obstacles to Saving for Retirement (cont’d) • Lack of familiarity and comfort with saving and investing • African Americans and Latinos are more likely than other groups to lack familiarity with mainstream financial products and services, and, therefore, less likely to use them. • The limited presence of mainstream financial institutions in urban and rural communities of color contributes to these lacks of familiarity. Joint Center for Political and Economic Studies

21. Longstanding Obstacles to Saving for Retirement (cont’d) EBRI Retirement Confidence Survey 2011 • Lack of knowledge about the size of the nest egg needed for retirement • Less than half of workers (42%) report that they and/or their spouse have tried to calculate the amount of savings they would need for a comfortable retirement. Joint Center for Political and Economic Studies

22. The Great Recession As An Obstacle to Saving for Retirement • The Great Recession has severed access to employment and retirement saving for many. • Some eligible individuals who experience long-term unemployment retire early with reduced Social Security (or other retirement) benefits. • Others who currently are or have recently been unemployed meet daily living expenses by taken money out of 401(k) and 403(b) plan holdings they may have (often at a penalty), leaving less for the retirement years. Joint Center for Political and Economic Studies

23. The Great Recession As An Obstacle to Saving for Retirement (cont’d) Prudential’s Group Insurance 2011 • Employers confronting business survival challenges devote fewer resources to providing benefits information and education to their employees. • This may translate into employees not enrolling for benefits (such as retirement plans) for which they are eligible. Joint Center for Political and Economic Studies

24. How to Address Obstacles to Saving for Retirement? 2010 AARP PPI Survey • Workers are responding to obstacles to retirement saving by • … deciding not to retire from full-time work • … increasing their expected retirement age (33.4% of persons over age 50) • … planning to work part-time during retirement (44.1% of persons over age 50) Joint Center for Political and Economic Studies

25. How to Address Obstacles to Saving for Retirement? (cont’d) • Implement policies to help low-wage workers save for retirement • Mandate provision of employer-based retirement savings plans (to all workers) • Mandate automatic employee enrollment (with opt-out) in employer-sponsored retirement plans • Modify the Saver’s Credit (e.g., make refundable, increase AGI limits, provide as government matching funds) • Establish viable menu of non-employer-based retirement savings vehicles Joint Center for Political and Economic Studies

26. How to Address Obstacles to Saving for Retirement? (cont’d) • Enhance knowledge about ways to save, in general, and ways to save for retirement, in particular— • Mandate financial education nationwide for grades K-12 • Offer incentives for adults to enroll in and complete financial education classes. Joint Center for Political and Economic Studies

27. Contact Information Wilhelmina A. Leigh Senior Research Associate Joint Center for Political and Economic Studies 202-789-3529 (phone) 202-789-6369 (FAX) wleigh@jointcenter.org Joint Center for Political and Economic Studies