Nebraska State Senate

Ghilarducci presented the following testimony before the Nebraska State Senate on December 10, 2013. Read her entire testimony here.

I would like to discuss the current status of retirement security in the United States briefly. I know you've heard a lot of statistics, but as the daughter of a teacher, I know the more times you hear it the more it sticks. So we'll go through a few of those. I will also explain the options that other state legislatures have explored and touch on some common opposition concerns. And just so you know, I'm actually a senior legislative representative from AARP's national office and I cover pensions and budgets and taxes for all 50 states.

Our nation and its working families face an unprecedented crisis--a vast retirement savings deficit, estimated to be as much as $6.6 trillion. And that works out to be about $57,000 per household. To give you an idea of how dire the situation is, there are some startling statistics out there.

• Currently, one in ten Nebraskans age 65 or older lives in poverty, and that's actually a little better than the national average which is one in six.

• Half of those 65 and older had an annual income of less than $18,500.

• And for nearly 20 percent of Nebraskan seniors, Social Security makes up 90 percent or more of their family income.

• And over 50 percent of Nebraskan seniors rely on Social Security for 50 percent or more of their family income.

It's clear that workers are not prepared for retirement, and as baby boomers continue to retire we'll see this crisis grow unless we act now. Social Security provides an essential baseline for income for retirees; however, Social Security alone will not provide enough to pay the bills during our retirement years.

The average monthly Social Security benefit is only about $1,200. As things stand today, Social Security will likely be the main source of retirement income for most future middle-class retirees. As this committee knows, Social Security was never supposed to be the sole source of income for retirees. It was intended to be one leg of a three-legged approach to retirement savings.

Employer-sponsored retirement plans and individual savings were envisioned as the other critical components. Retirement shows that our nation's current plan for retirement security is inadequate. Boston College's National Retirement Risk Index estimates that 53 percent of households are at risk of having an insecure retirement. That means that they run the risk of not being able to afford everyday items like food, medicine, or utilities.

Following the Great Recession, retirement savings rates remain inadequate. According to the National Institute on Retirement Security, the typical working-age household has only $3,000 in retirement assets, while near retirement households have only $12,000. That's less than we previously estimated. What is even more alarming is that these are the people who are ahead of the game because they are actually planning ahead and saving.

Three out of five families headed by a person 65 or older has no money in a retirement savings account, three out of five people. Lest you think this isn't a problem locally, in Nebraska 458,000 workers, or roughly 43 percent, do not even have access to retirement plans let alone savings.

Planning for retirement is an even greater burden for economically disadvantaged groups, people of color, young people, and part-time employees because they have the lowest access rates to employer-sponsored savings plans. If nothing is done now, the state budget will be saddled with a growing burden in the future, as older adults are forced to rely more and more on public safety net programs.

There are some simple steps that we can take to avert this crisis, however. For instance, we know that when offered the opportunity to save for retirement at work, seven out of ten people choose to participate. The current political climate in Washington makes a federal solution to the problem seem a long way off. Thus, AARP has begun to take a state-centered approach to filling the retirement savings gap. We have worked with nearly a dozen state legislatures in consideration of a wide array of approaches to this crisis, including Auto IRA, Secure Choice, and other savings models. I have attached to this testimony a synopsis of recently enacted and considered legislation, as well as a comparison chart of the main components of these plans. It's Appendices A and B, if you'd like to see, and they cover some very basic questions that I think the committee would be wise to look at as you're studying this as you go forward, such as are employer contributions required, are employee contributions required, is there a liability to the state, those kinds of essential questions that the committee should look at. I would be happy to speak with you about any of the specifics that any of the states have looked at, specifically California, Oregon, Washington, any of those states you may have heard of.

So you may have some concerns about taking on retirement security. It's a big question and it will require a big solution. And common questions that we've encountered include: Won't this cost the state a lot of money? The answer to that is that most plans that have been considered by states are self-sustaining. They're paid for through participant fees. Furthermore, AARP believes that Nebraska can't afford not to take action. If older adults do not have enough money for a secure retirement, they will more heavily rely on Medicaid, which, as you know, the state spent nearly $373 million for Medicaid services to Nebraskans over the age of 65 last year alone. These are dollars that Nebraska can spend on other essential services, like education and public safety.

By helping people plan for self-sufficiency in retirement, the state will ultimately save money. Another question that we hear is: Won't the state incur new, unfunded liabilities by creating a state-run retirement savings plan? And emphatically, the answer to this question is no. We're looking, and most states have looked at, to find contribution plans which don't create liabilities to the state. These trusts are run separately from the pension funds. They are completely separate entities. Start-up costs can even be borne by the participants of the plan.

So the final question we hear often is, why don't people just invest on their own? Can't they just go out and get an IRA or is this really a product that we need? And with a majority of workers relying on Social Security for their retirement income, like I said earlier, we really know that there's a segment of the population that is underserved right now; that the system we have is not working for a large percentage of the people in our state. These folks are not courted by the industry, potentially due to small bank accounts, small balances, or even just a lack of access. Many are under banked.

We need to remove the barriers to retirement planning and make it easy and cost-effective for every Nebraskan to save for retirement. So rebuilding the promise of financial security in retirement must include modern, expanded options. We need to explore new models for private sector retirement plans that will allow workers to set aside wages through an easily accessible, safe, and cost-efficient retirement savings vehicle. AARP believes that we all have a right to live with self-reliance and dignity in retirement. And if you have any questions about how that might be possible, feel free.