Retirement Equity Lab

SCEPA's Retirement Equity Lab, led by economist and retirement expert Teresa Ghilarducci, researches the causes and consequences of the retirement crisis that exposes millions of American workers to experiencing downward mobility in retirement. As a result, SCEPA has developed a policy proposal known as Guaranteed Retirement Accounts Guaranteed Retirement Accounts (GRA) to provide stable pensions to the 63 million workers who currently have none.

 

The April employment report issued by the Department of Labor today reports an increase in the unemployment rate for workers over the age of 55. An estimated 21,000 more older workers joined the ranks of the unemployed, bringing the unemployment rate of older workers up to 4.0% from 3.9% in March.

This stands in contrast to the employment situation for workers 16 years and over. Both the unemployment rate (5.4%) and the number of unemployed persons (8.5 million) edged down in April.

While today's report shows a rise in the share of workers age 55+ with a job - the employment-to-population ratio increased from 38.3% to 38.5%, as an additional 266,000 older workers were counted as employed - this is explained by the fact that 286,000 more older workers entered the labor force in April hoping to find a job. This increased the labor force participation rate for this group from 39.9% to 40.1%. Unfortunately, many of these workers ended up among the 1.37 million older jobseekers who could not find a job.

Older workers continue to make up the second-largest group among the long-term unemployed, those actively seeing employment for 27 weeks or more. In fact, the share of older workers long-term unemployed rose in April - more than 39% of unemployed older workers have been searching for employment for 6 months. As of last month, job seekers between the ages of 55 to 64 spent an average of 46.4 weeks actively looking for work and those 65 years and older spent 47.1 weeks.

Presidential hopefuls calling for an increase in the retirement age should heed the signs of a job market struggling to accommodate older workers. Calling for an increase in the retirement age as a solution to a lack of retirement savings overlooks nearly half a century of economic literature on earnings. Economists have long known that age/earnings profiles have a parabolic shape, demonstrating a visible decline after the ages 55-59 as older workers are overlooked for promotions and on-the-job training.

As can be seen in Figure 1, workers experience a decline in earnings after ages 55-59 regardless of education levels.

unemployment image 5.8.15

Today's job numbers and what we know about the age/earnings profiles of full-time workers in the U.S. reminds us that work in old age is not the solution to the retirement crisis. To restore the position of older workers in today's job market, we must create new retirement savings vehicles, such as GRAs. Safe pensions and adequate retirement assets allow older workers to explore new jobs that help them transition into retirement, experiment with self-employment, and even quit jobs that don't pay enough to live with dignity and save for retirement.

On April 3, the U.S. Department of Labor reported the unemployment rate for older workers fell from 4.3% in February to 3.9% in March.  As a sign of labor market strength, 200,000 older people joined the ranks of the employed and job seekers, which increased labor force engagement from 39.7% to 39.9%. Employment for workers aged 55 and over increased by more than 300,000, increasing the employment-to-population ratio for older workers from 38.0% to 38.3%.

The rise in employment among older workers is good news, decreasing the number of older workers queuing for job vacancies. But what types of jobs are older workers landing? Instead of extending middle-class careers, larger shares of older workers are working in low-wage industries.

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The data shows that all American workers with bachelor's degrees have moved increasingly into service and retail jobs. However, the portion of educated older male workers moving into low-wage jobs is even higher. The proportion of men ages 55-62 working in service increased by 45.7% from 1980 to 2010. In 1980, over a fourth - 27.2% - of men with BAs worked in service jobs and in 2010 almost 4 out of 10 (39.6%) worked in service jobs. The results are similar for educated men in the older groups: the share of educated men ages 63-69 working in service soared by 61.2%, and the oldest workers (ages 70+) increased their share in the service sector by 44.7% since the early '80s.

SCEPA’s Retirement Equity Lab (ReLab) just released a report that is the first to quantify the real effect of the retirement crisis - poverty. The report, “Are U.S. Workers Ready for Retirement?” identifies the share of people whose projected income in retirement will be below poverty across states. This message of downward mobility is important both to individuals whose retirement institutions are failing them and policy makers who will inherit the impact of increasing poverty on both social welfare and municipal budgets.

Poverty As a Result of Little to No Retirement Savings

  1. 33% of current workers aged 55 to 64 are likely to be poor or near-poor (less than 200% FPL) in retirement based on their current levels of retirement savings and total assets.
  2. 55% of retirees will be forced to rely solely on their Social Security income. 
  3. Some states are worse off than others. 41% of near-retirement workers in Florida may experience poverty or near-poverty in retirement, followed by North Carolina and Texas.

The Failure of Retirement Savings Vehicles 

  1. Almost half of Americans who were working in 2011 were not offered a retirement account at work.
  2. 68% of the U.S. working age population (25-64) did not participate in an employer-sponsored retirement plan because their employer did not offer one, they elected not to participate or were not working. 
  3. The amounts saved through employer-sponsored defined contribution (DC) retirement plans are only slightly better off than those without a retirement plan.

In The News:
Forbes: The Retirement Crisis: Why 68% Of Americans Aren't Saving In An Employer-Sponsored Plan
Time: 1 in 3 Older Workers Likely to Be Poor or Near Poor in Retirement
Financial Buzz: Retirement Savings Paucity in U.S. Workers 
Employee Benefit News: U.S. Workers Falling Short in Healthy Retirement Savings 
Plan Sponsor: Three-Legged Retirement Income Stool More Wobbly
Columbia Journalism Review: How to Bring Clarity and Urgency to Social Security Reporting

The February 2015 employment report issued by the U.S. Department of Labor today reports an increase in the unemployment rate for workers over the age of 55. An estimated 62,000 more older workers joined the ranks of the unemployed in the month of February, bringing the unemployment rate of older workers to 4.3% from 4.1% last month.

These changes stand in contrast to the employment situation for all workers (16 years and over). Both the unemployment rate (5.5%) and the number of unemployed persons (8.7 million) edged down in the month of February.

As a sign of more trouble for older workers, the month of February marked a decline for the share of older workers with a job; the employment-to-population ratio declined from 38.3% to 38.0%.

The prolonged sluggishness of the labor market also forced an estimated 125,000 older workers to leave the labor force in the month of February. Older workers are becoming increasingly aware that as they are asked to work further into old age, the workplace grows no friendlier to their needs.

At SCEPA, our research finds that older workers have seen their job quality erode by more physically and demanding jobs. From 1992 to 2008, the proportion of jobs that always require "good eyesight" increased by 26.0%, 31.0% and 78.6% for workers aged 50-55, 56-61 and 62-65, respectively. We find that workers ages 56-61 report a much higher rate of jobs that always require "stooping, kneeling or crouching." In fact, we estimate that the rate of 'all the time' "stooping, kneeling or crouching" has increased by a remarkable 21.9% (for workers ages 50- 55) and 35.9% (for workers ages 56-61).

Teresa Ghilarducci and Adam Hayes published a SCEPA policy note titled, "401(k) Tax Policy Creates Inequality." Though well-intentioned, the current system of tax deferral for retirement contributions undermines public policy aimed at strengthening retirement security for all Americans. In fact, it has become a regressive policy that contributes to wealth inequality.

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This policy notes illustrates how two employees who are identical savers and investors in every way except for income receive different rates of return due only to the effects of the tax code. Converting the current system of tax deductions for defined contribution retirement plans to a refundable tax credit would solve this problem and treat all retirement savers the same.

Scott StringerSCEPA Director Teresa Ghilarducci was named to a group organized by New York City Comptroller Scott Stringer to study how to provide retirement security to New York City residents who lack retirement plans at work. The Comptroller announced his intentions to create the panel at SCEPA's 2014 conference, "Confronting New York City's Retirement Crisis," co-sponsored by the New York City Central Labor Council, AFL-CIO. 

SCEPA's report, "Retirement Readiness in New York City," identified that employer sponsorship of retirement plans is falling. Between 2001 and 2011, the percentage of workers in the New York region with any type of retirement plan – either a traditional pension plan or a more widespread 401(k) plan – decreased from 49% to a mere 41%.

On PointSCEPA Director Teresa Ghilarducci joined NPR's On Point with Tom Ashbrook on February 25, 2015, to discuss President Obama's recent announcement at AARP that the Department of Labor would move forward with a fiduciary rule requiring brokers to put their clients' retirement savings before their own profits.

The rule is expected to protect future retirees from high fees charged by brokers investing individual's retirement savings. In May 2012, Demos, a nonprofit advocacy group and SCEPA partner on retirement security, published the report "The Retirement Savings Drain: Hidden and Excessive Costs of 401(k)s." Written by Policy Analyst and New School PhD student Robbie Hiltonsmith, it finds that the average two-member household will lose over $150,000 over their lifetime from their retirement savings to pay these fees - without their knowledge.

Institutional Investor "States Move to Implement Retirement Accounts," a February 4, 2015, article by Joel Kranc of Institutional Investor, summarizes the movement of retirement reform from the federal level to the state level. "But whereas the federal level is talking, the states are taking action on their own plans," says Kranc. He cites Illinois and California as the early leaders in the effort, both having passed legislation. He summarizes, "Some of the states taking a look at these types of plans are Connecticut, Vermont and Minnesota, which have passed legislation that creates frameworks for a plan. Maryland and Oregon have started taskforces, and 15 others are considering their options as well."

Kranc takes it one step further, interviewing experts to assess the quality and content of plans under consideration. 'Illinois is the first and boldest among 37 states that have something in the works,' notes Teresa Ghilarducci, a labor economist at the New School for Social Research in New York. 'But Illinois has passed the most simple, least regulated and therefore least helpful plan. Other states are looking at ways to create exchanges or a public option that creates a low-cost option. This is certainly a state-by-state movement for add-on plans,' she says." 

In 1950, the United States could claim racial equity in one important respect - both black and white American men who reached age 65 could expect to live twelve more years to age 77.

By 2010, white men at age 65 were projected to live almost 2 years longer than black men, while white women could expect to live one year longer than black women.

racial disparities PN graph 3

Given that gaps in life expectancy at age 65 exist between black and white Americans, the fact that the “average” American is living longer cannot be used to justify proposals to raise the retirement age. In fact, the data reveal that such a proposal will disproportionately impact Blacks. 

Read SCEPA's full report investigating the racial disparities behind proposals to raise the retirement age.

The January 2015 employment report issued today by the U.S. Department of Labor reports that 1.41 million workers over age 55 were ready to work and actively seeking a job - but could not find one.

Unfortunately, this represents an increase in unemployment for older workers - the opposite of declining rates of unemployment in the overall labor market. January's unemployment rate for older workers is 4.1%, up from 3.9% in December. This increase represents an additional 60,000 older, unemployed workers.

Increased competition among older workers in the job market fuels the decline in older workers' bargaining power and a subsequent decrease in retirement benefits available in the workplace, such as employer-sponsored retirement plans.

Today's employment report is a warning for policy makers calling for a rise in Social Security's retirement age. Rising unemployment rates for workers over 55 shows the labor market is unlikely to be able to absorb an increase in older workers who cannot afford to retire when they choose.