By Jane Smith
A joint study from The New School’s Schwartz Center for Economic Policy Analysis (SCEPA) and the Economic Policy Institute (EPI) provides insight into the systemic inequities and retirement challenges faced by lower income workers, particularly Black and Hispanic people and women. As a result, many people must overcome substantial hurdles to achieve a financially secure retirement.
“The Older Workers and Retirement Chartbook,” authored by Monique Morrissey at EPI and Siavash Radpour and Barbara Schuster at SCEPA, examines a wide-range of studies and sources in finding that lower-income workers aren’t benefiting to the extent higher-wage workers are from the U.S. retirement system.
By presenting the information in easy-to-read charts, as well as text, the Chartbook is a valuable reference for those studying the U.S. retirement system and working to improve it.
According to the Chartbook, low-wage workers are more likely to work for an employer that doesn’t offer a retirement plan. Without access to a plan, these workers are prevented from accumulating or earning retirement benefits. “High earners are much more likely than low earners to have access to and participate in retirement plans.” For those approaching retirement (age 55–64), the highest 20 percent of earners are three times more likely to have access to a retirement plan and more than four times as likely to participate in a plan than the lowest 20 percent of earners. (Chart 2F)
Since many Black and Hispanic workers are in low-wage jobs without retirement plans, they lack the opportunity to accumulate retirement savings and credits that are often available to other workers. “Older Black and Hispanic households are far less likely than older white households to have savings in a 401(k)-type account or an IRA.” Only 15 percent of Hispanic households and 20 percent of Black households age 65 and older have retirement account savings, while almost half of white households have those savings. Even among households age 65 and older that have savings, the median (50th percentile) account balance for Black ($38,600) and Hispanic households ($41,000) is only slightly more than one-quarter of the median balance for white households ($150,000). (Chart 2L)
Although working women participate in retirement plans at the same rate as working men, single older women have less accumulated savings than older men or couples. (Chart 2K) Women generally have “lower pay, longer life spans, and more years spent out of the paid workforce or working part-time while caring for family members.”
The authors point out that retirement plan participation doesn’t guarantee a secure retirement. However, workers with a traditional pension plan are generally better prepared for retirement than workers with a 401(k)-type plan. In a traditional plan, the employer is responsible for funding the benefits that are paid monthly to retirees. “Older Black workers are more likely than older white or Hispanic workers to participate in these more secure plans because they are more likely to work in the public sector, where defined benefit pensions are more common.” (Chart 2G)
The modest benefits provided by Social Security are not enough for a secure retirement. Without additional retirement savings or income many older Americans will experience financial hardships in their retirement years.
To improve retirement security, the authors suggest expanding Social Security and requiring employers to either sponsor a retirement plan or contribute to a retirement fund, such as the Guaranteed Retirement Account plan proposed by Schwartz Center Director Teresa Ghilarducci. That plan would, through universal, affordable and portable accounts, provide workers with a monthly paycheck in retirement that lasts the rest of their lives.
The authors mention other more incremental ideas for achieving retirement security, including automatic IRA plans set up by state and local governments for those not covered by a retirement plan at work, as well as the use of refundable tax credits to supplement workers’ savings. They also say that it’s important to continue to defend traditional pensions, “which work for those workers lucky enough to have them.”
In separate sections, the Chartbook examines the challenges encountered by older workers and the economic risks Americans must deal with as they age.
As the Chartbook shows, the U.S. retirement system is leaving many older Americans facing an insecure retirement. More work is needed so that the retirement system is truly benefiting everyone.
The RRF Foundation for Aging (RRF) provided generous support for the Chartbook. RRF is an independent, national foundation that awards grants to non-profit organizations to enhance and improve the quality of life for older people.