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 (GRA) to provide stable pensions to the 63 million workers who currently have none.
Bloomberg View's Christopher Flavelle reports in "A Great (and Impossible) Plan to Fix Retirement" that Americans are woefully unprepared for retirement and that SCEPA Director Teresa Ghilarducci's proposed policy fix is, despite political hurdles, the only potential solution.
The problem is simple: almost half of Americans aged 55-64 have no retirement savings whatsoever, and those who have some savings do not have enough to sustain them in retirement. Ghilarducci's solution: supplement Social Security with Guaranteed Retirement Accounts (GRAs), into which workers and their employers deposit 5% of their salary annually.
According to Flavelle, "The idea deserves attention, and not just because Ghilarducci's role with the campaign suggests Clinton could push something along the same lines if she becomes president. Just as important, what she's advocating illustrates the depressing difficulty of fixing retirement policy: For all the obstacles her plan presents, it's hard to think of anything better."
The U.S. Department of Labor today announced a slight increase for the unemployment rate for older workers (aged 55 and over) from 3.7% to 3.8% in August. While this number represents 1.3 million older Americans who cannot find a job, this national number hides the fact that some cities are less friendly to older workers than others.
In August, the national unemployment rate for all workers was 5.1%. In contrast, the local data (ASEC September 2014) shows four metropolitan areas have an unemployment rate of over 12% for older workers, including San Jose, California (13.7%), El Paso, Texas (13.6%), New Haven, Connecticut (13.1%), and Austin, Texas (12.2%).
These cities' high unemployment rates for older workers are not necessarily related to the unemployment rate for those under 54. While San Jose and El Paso have high unemployment rates for younger workers (8.4% and 7.3%), Austin has one of the country's lowest unemployment rates (3.6%) for younger workers.
Industry clusters could be to blame. San Jose and Austin are home to hot new tech corridors and New Haven's economy is closely tied to Yale University and its status as a college town. Both would favor employing the young over the old.
There are also regional pockets where older workers struggle to find a job, such as Ohio's Rust Belt cities. Cleveland has an unemployment rate of 9.6% for 55 and over versus 5.2% for workers 54 and under. Cincinnati's older unemployment rate is 7.7% versus 6.6% for younger workers.
Economists have long understood the domino effects of lower wages and decreased bargaining power resulting from high unemployment. Add to this a downward trend in access to retirement savings plans at work and older workers nearing retirement age are increasingly at the mercy of a labor market that cannot meet their needs. Ironically, the less work they can find and the less wages they can save, the longer older workers will need to work.
Only a national solution will ensure that all workers, regardless of where they live, will be able to retire rather than resign themselves to unemployment or low-wage work. Guaranteed Retirement Accounts (GRAs) would ensure a path to retirement by providing a safe, effective vehicle for all workers to save over their working lives.
Presidential candidate Chris Christie used the GOP presidential debate to repeat his call to cut Social Security benefits by increasing the retirement age. A benefit cut would require individuals nearing retirement to save more - 28% of whom do not have a retirement savings account. Older workers without a bachelor's degree, about 72% of workers aged 62 and older, are especially disadvantaged in the labor market because their wages have been stuck for the last 30 years. If Social Security benefits are cut, older workers would have less bargaining power in the labor market.
The Department of Labor announced today that the unemployment rate for older workers (aged 55 and up) was 3.7% in July, which remains the same as last month and represents 1.3 million older people who wanted to work but couldn't find a job.
Aside from struggling to find a job, the search for a quality job with good pay is harder for older workers. Workers 62 and over with high school degrees earned $24.16 per hour on average in 2012, just 3.8% more than they earned in real terms in 1982.1 The growing prevalence of low-paying jobs, particularly in the retail sector which employs about 15% of older workers, is a primary reason for wage stagnation and low retirement plan coverage rates in the last 30 years. Fewer than 40% of older workers without a college degree participate in a pension or 401(k)-type plan at work.
In contrast, wages for workers with at least a bachelors' degree (28% of workers aged 62 and older) increased by almost 33% between 1982 and 2012, to $37.55 per hour.2 And the older workers with pay increases have substantially more pension coverage – 47%.
Raising the retirement age is not a job creation policy, but a cut in Social Security benefits, a cut that increases retirement insecurity for everyone. Instead of raising the retirement age, presidential hopefuls should consider expanding access to pensions and savings through vehicles such as Guaranteed Retirement Accounts (GRAs). A secure pension, like the GRA, gives older job seekers a cushion and added bargaining power.
1 Current Population Survey, March Supplement 2013. Years provided are end points of three-year intervals (1982 refers to data from 1981-1984, and 2012 refers to data from 2010-2013).
Chris Christie and his proposal to raise the retirement age are officially part of the 2016 presidential campaign. While policies like this are debated on the campaign trail, the labor market for older workers needs to be considered.
Today's job report shows the unemployment rate for black older workers is nearly double that of Whites (3.3% for Whites and 5.8% for Blacks). This shows the perseverance of racial disparities in the labor market for older workers despite lower overall unemployment levels over the last year.
Not only is finding work more difficult for non-White older workers, so is saving for retirement if and when employed. For people of color nearing retirement who are in the bottom 50% of the income distribution – those families earning less than $60,000 a year – only 47% of Blacks have retirement coverage at work, 30% of Hispanics/Latinos and 37% for other racial and ethnic groups, including Asians.1
SCEPA has documented how this one-two punch of joblessness coupled with age decreases older workers' bargaining power, further diminishing their ability to save for retirement even if they do find work.
For workers over 55, the labor market – and therefore raising the retirement age - is not a solution. Instead, older workers need access to a strengthened Social Security program and supplemental policy innovations like Guaranteed Retirement Accounts (GRAs).
1For the middle 40% ($60,000 - $187,000), non-coverage by race are: 9% for Whites, 10% for Blacks, 22% for Hispanics, and 18% for other. For the top 10%: 3% for Whites, 0% for Blacks, 45% for Hispanics, and 24% for other.
This week another GOP presidential hopeful, Jeb Bush, announced his support for raising the retirement age, a policy that would force older workers with inadequate retirement savings to depend on the labor market for needed income and savings. Yet, today's federal jobs report announced a May unemployment rate of 3.7% for older workers over 55 and nearing retirement. This is a decrease of 0.3 percentage points since last month, but it still means that 1.5 million older workers want to work but can't find a job.
This situation is particularly dire for older women. Given women's longer life expectancy, they will need to sock away retirement savings for five more years than men. According to the Census Bureau's Survey of Income Program and Participation (SIPP), over half of older women ages 50-64 have nothing saved for retirement. For women of the same ages who do have retirement savings, their median retirement account balance is $40,000.
As we've seen, the labor market is no panacea for the retirement crisis. Older women have an unemployment rate of 3.6% in May, which means 715,000 women over 55 cannot find a job. Meanwhile, more older women are in the labor market. Since the 1980's, older women workers have increased by 171%, from 15 million to 40.5 million. The gender wage gap is also persistent, following women from college graduation through the pre-retirement years. In 2013, older women made between $0.73 and $0.80 for every dollar made by men of their own age.
For an older woman facing her last years to save, trying to work and save in this labor market means it will take her longer and she will get less.
Raising the retirement age is not a solution, for women or for men. Rather, we need to reform the failing pension institutions that got us here by creating Guaranteed Retirement Accounts (GRAs) on top of Social Security to provide guaranteed income to seniors for life. By allowing people a viable path to saving, we can allow all workers the choice to continue working or to leave the labor market when it doesn't treat them well.
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.
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.
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
- 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.
- 55% of retirees will be forced to rely solely on their Social Security income.
- 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
- Almost half of Americans who were working in 2011 were not offered a retirement account at work.
- 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.
- 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.
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.