Retirement for All
Submitted by Philip Anderson, Retiree
Being able to retire with some dignity and financial independence was once part of the American Dream. But for many people a secure retirement is slipping out of reach. Many experts claim we are facing a retirement crisis. The Internet is full of grim statistics.
- Only 42% of private sector workers age 25 to 64 have any pension coverage in their current job.
- Only half of American workers have access to a 401(k) plan, and only about 30% take advantage of that plan
- 75% of 401(k)s have an average balance of $60,000. The median account balance is less than $20,000.
- One-third of households end up entirely dependent on Social Security and for low earners that portion is 75%.
- Only 21% of private employers offer a defined benefit, guaranteed retirement income pension.
Why is this happening? Since the 1980’s traditional company defined benefit pensions (DB) have largely been replaced by defined contribution (DC), or 401(k), retirement savings plans. This has shifted the responsibility for adequate retirement income from employers to employees. This is good for employers because they have lower, predictable costs and no responsibility or risk. But for many employees, this change is not working out well. Too many people are getting to retirement age without adequate financial resources to retire.
Although making people more responsible for their own sounds reasonable (and is ideologically more acceptable to free market conservatives) it doesn’t work well for a number of reasons. Workers simply don’t save enough in voluntary retirement plans. They don’t manage their accounts well. Market volatility, investment risk, and administrative fees eat up savings. Individual 401(k) accounts do not share risk, take advantage of economies of scale, or provide guaranteed incomes.
A solution to this problem is “Guaranteed Retirement Accounts”. Professor Teresa Ghilarducci in her book “When I'm Sixty-Four: The Plot Against Pensions and the Plan to Save Them”, proposes a defined benefit pension program for all workers. Workers would contribute 5% of their income. These contributions would be invested in the “markets” and the workers would receive a guaranteed rate of return. The Social Security Administration (which operates at a 2% overhead) would manage the program. Professor Ghilarducci estimates that this program would provide workers with a guaranteed, inflation adjusted, retirement income that, combined with Social Security, would replace 70% of pre-retirement income. And, she says the program is affordable and would not stress the economy.
The Wisconsin Retirement System (WRS) could be a model for a Wisconsin “Guaranteed Retirement Account” program. The WRS is the highly successful public employee pension program operated by the Department of Employee Trust Funds and the State of Wisconsin Investment Board. The WRS was recently rated as one of the best public pension systems in the country and the ONLY one to be “fully funded”. The WRS has a long history of providing stable, secure pensions at a very low cost to the public employers and taxpayers.
Many people believe WRS could do the same for the private sector. We could have secure retirements for everyone in Wisconsin. By using the strength and management expertise of the WRS a private sector trust fund could be built, over time, that would provide good pensions for all workers.
The question is, do we have the political will, foresight, and sense of community to do what is good for everyone? Can we rise to the challenge of the retirement crisis? In the past Wisconsin led the nation with progressive, innovative ideas. We can again but the people will have to push the agenda. We can’t wait for our “leaders” to lead. People need to demand retirement security for all.