Even before the "Great Recession," the road to retirement was crumbling for the middle class. Over time, fewer private sector employers have been offering pensions & workers have been struggling to save in individual accounts. 

Meanwhile, scheduled increases in Social Security's retirement age will result in lower benefits.  And still, nearly half of the nation’s workforce lacks access to any type of employer sponsored retirement plan.

Recent data point to more deep cracks in the road.  The U.S. Census Bureau’s “Income, Poverty, and Health Insurance Coverage in the United States: 2008” finds that:

• U.S.median household income fell from $52,163 to $50,303, or 3.6 percent, between 2007 and 2008.
• The nation's poverty rate in 2008 jumped to 13.2 percent up from 12.5 percent in 2007, or some 39.8 million Americans in poverty.

The Associated Press reports that this Census data reveals the recession has "hit middle-income and poor families hardest,” with the sharpest drops in household income for these Americans who are struggling to get by.

Factor in unemployment, and the outlook is all the more bleak. ADP Employer Services reports that U.S. companies cut 254,000 jobs in September, higher than forecast.  Also in September, the Bureau of Labor Statistics reported that the unemployment rate rose to 9.7 percent -- a 26-year high. There are 466,000 more Americans out of work, for a total of 14.9 million unemployed.

It' s not hard to connect this data to more retirement potholes. Lower wages, increased poverty rates, and unemployment make it difficult for families to meet day-to-day expenses, much less save for retirement.   For employers, tough economic conditions make it harder to offer benefits that will ensure retirement readiness.

According to the Center for Disease Control, the average American's life expectancy is 77.7.  If we could all work until to end of life, perhaps the situation wouldn’t be so grim.  But the reality is that aging and health conditions eventually will preclude many of us from working well into our 70s. Moreover, as a society, do we really want or expect an octogenarian to get up every morning and go to work?

So what happens when Americans are unable to be self-sufficient in retirement?  We're already seeing more Americans facing unattractive choices: working indefinitely for those who can find a job and are physically able, living in poverty, or turning to outside assistance from family or government.

In fact, NIRS research finds that pension income plays a critical role in reducing the risk of poverty and hardship among older Americans, while also reducing public assistance expenditures.  The Pension Factor shows that rates of poverty among older households lacking pension income were about six times greater than those with such income.  Our analysis also finds that pensions reduce – and in some cases eliminate – the greater risk of poverty and public assistance dependence that women and minority populations otherwise would face.  These findings are all the more important given the growing rate of poverty.

Moreover, ensuring older Americans have access to pensions in retirement can help relieve some of the enormous pressures on future Federal, state and local budgets.  The Pension Factor calculates that pension income saved some $7.3 billion in public assistance expenditures in 2006.  That’s about a 40 percent reduction in what public spending would be in the absence of pensions.

All told, the consequences of a crumbled road to retirement system are grave – for individuals and for already-stressed government budgets and entitlement programs.  In other words, retirement insecurity for some affects us all.

In recent weeks, we’ve seen economic experts predicting that the economy may have hit the bottom and we may be on the road to recovery.   But there’s no data emerging to suggest that road to retirement is on the mend. 

Recognizing the retirement problem, the Obama Administration announced initiatives to make it easier for Americans to save for retirement.  The changes are a step in the right direction by helping workers without access to an employer plan save for retirement.  Yet, no comprehensive solution has emerged to rebuild all three lanes of the road to retirement: pensions, Social Security, and individual 401(k)-type savings.

In February, NIRS will host our inaugural retirement policy conference in Washington D.C.  By engaging leading retirement plan sponsors, policymakers, academics, experts, and the financial community, we will explore solutions for rebuilding retirement security.  Not just filling in the potholes, but repaving a sustainable, strong road to retirement.  We’re anxious to see what emerges.

Post by:  Beth Almeida, NIRS Executive Director, October, 1, 2009

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