Thank you for inviting me to speak at the New England Women’s Policy Conference on economic security. I’m Karen Friedman, the executive vice president of the Pension Rights Center, the country’s oldest and foremost consumer group working to promote and protect the retirement security of workers, retirees and their families.
You know, Halloween was a week ago, and it’s a holiday of ghosts and goblins and vampires and other scary things.
But, really, vampires aren’t half as scary as retiring as an older woman today.
Because for millions of women over the age of 65, especially as they get older, their retirement years are likely to be a pretty frightening experience. That’s why we need to work together to find solutions to ensure that women can live out their retirement in dignity and security.
Consider these facts: According to the Center for Retirement Research at Boston College, there is a Retirement Income Deficit of $6.6 trillion. That’s the gap between what people have currently saved and what they needed to have saved by now to maintain a basic standard of living in retirement. Put another way, about 53% of households are not prepared for retirement.
Of course, while both men and women face this crisis, it disproportionately affects women. The truth is, despite decades of social and economic gains, older American women are still twice as likely as elderly men to be living near or below the federal poverty line. They are also less likely to have access to retirement income they can count on to supplement Social Security.
Despite more time in the workforce than previous generations, older women today are still more economically vulnerable than men. According to the National Women’s Law Center, women still earn lower wages than men. They are more likely to work part-time and take time off to care for children and elderly or disabled relatives, which can further lower their earnings. In addition, women make up the majority of low-wage workers, and low-wage jobs (such as those in retail, hospitality, or food service) are less likely to offer an employer-sponsored retirement plan.
It’s no surprise then that, even after a lifetime of work, women have less in retirement savings than men, but yet have to make that money last longer since they live longer.
Earlier this year, the Government Accountability Office released a report on marital status and retirement income. Among its conclusions: the shift from good old-fashioned pension (defined benefit) plans to 401(k)s increases retirement risks for women, because, unlike traditional pensions, 401(k) plans don’t automatically provide retirement benefits for spouses.
Also, even if women have 401(k)s themselves, they typically aren’t saving enough in them. According to the 2013 Survey of Consumer Finances, half of all households with 401(k) plans have less than $59,000 saved; and for those closest to retirement, the median account balance is only about $103,000. Certainly not enough to retire on.
Statistics also show that women who have 401(k) accounts generally contribute as frequently as men. So why are they likely to have less money in their accounts than their male counterparts? For the same reasons that I listed before: because women typically make less than men, they contribute less, and they are in the workforce for a shorter amount of time because they take off time for caregiving responsibilities.
It’s no wonder that Americans, especially women, are anxious about retirement. According to a recent Gallup poll, not having enough money for retirement was the number one financial concern of Americans, taking precedence over worries about paying for their medical bills, paying for the kids’ college education, and being able to pay for the rent or mortgage.
What are the answers? The most important one is to increase Social Security, not cut it. Consider these facts:
With more than 10 percent of women over the age of 65 living in poverty in 2012, cuts to Social Security would make this rate even worse.
But Social Security is only one part of the retirement solution. People also need pensions. We need to keep pension plans that currently exist – in both the private and the public sector. These pensions provide guaranteed income for life and benefits to spouses, which help keep women and families out of poverty. There should be spousal protections in 401(k)s, and options to turn 401(k) account balances into lifetime income that cannot be outlived.
Lastly, we need new solutions that will provide low-cost, efficient ways for everyone, including women, to save for retirement.
The Pension Rights Center currently supports two approaches. On the federal level we support a bill called USA Retirement Funds introduced by Senator Tom Harkin. The bill would create a new system of privately-run retirement funds that take some of the best parts of traditional pension plans: they are pooled and professionally invested, they lock the money in until retirement, and they pay out a stream of monthly payments that cannot be outlived.
Since federal legislation is not passing any time soon, we also support a range of creative approaches that have been introduced in a number of states, which use the efficiencies of public plan systems to expand coverage for low- and moderate-wage earners in the private sector who are not covered by any employer-sponsored retirement plan.
Seventeen states have either passed or are considering these types of plans.
As many of you know, Massachusetts was one of the first states to enact such a plan. Two years ago, Massachusetts enacted a new law using its retirement system to administer a new retirement plan for employees of small non-profit organizations in the Commonwealth. The retirement plan would make various investment options available to employees. Contributions could be made by workers, their employers, or both. Our understanding is that the plan is waiting to be approved by the appropriate government agencies.
Then California enacted a bill called the California Secure Choice Retirement Savings Trust Act, which is being looked at as a model for other states. Where Massachusetts would cover only a slice of the private workforce, the Secure Choice plan lays the groundwork for a state-administered retirement savings plan into which all employers without plans would be required to direct a portion of their employees’ wages. Employees would be able to opt out of the arrangement. What makes the plan better than an IRA bought in the open market is that the money, rather than being individually invested, would be pooled and professionally invested; the money could be annuitized; and there is a modest guarantee. The California law requires that a feasibility study be done before the plan is implemented, and my understanding is that they are making good progress toward that goal.
Earlier this year, Connecticut passed a similar law as part of its budget bill and is also studying the feasibility of establishing a state-administered plan.
And, according to what I’ve been hearing, Illinois may be next in line to pass a bill – one that will use the state retirement system’s infrastructure to administer a plan for uncovered private-sector workers. It is likely that the Illinois House of Representatives will clear a bill in a special session after the November elections – and the Senate already passed the same bill last spring.
Should that happen, Illinois will become the first state in the nation to require private businesses that have more than 25 employees and that have been in operation for at least two years to offer a retirement savings arrangement for their employees. It won’t just be a study – it will be in operation.
Similar efforts are being explored in Oregon, Minnesota, Maryland, Washington, Colorado, and others, as states start to realize they can use their significant negotiating power and economies of scale to lower the costs of retirement savings for their residents. Because these plans would operate separately from the state’s own retirement system that covers state employees, they can be structured not to add to state budget deficits or add to liabilities of state pension systems.
These types of plans, while modest, could help ensure that millions of people have a secure vehicle for retirement which is a boon for families and the economy. When older people have money for retirement they can help struggling children and grandchildren. Also, they continue to buy goods and services in the state – which helps keep the economy moving. They also are less likely to need federal and state supportive services, which ultimately saves the government money.
There is some grumbling about these plans from members of the financial industry who argue that state arrangements would unfairly compete with the private sector. But TIAA-CREF and others are coming aboard because they recognize they may be able to partner with the states to offer these services.
We would love all of you to get involved in these issues. Get in touch with us and look at our website, www.pensionrights.org. Also, AARP has field operations in every state. Get in touch with the AARP or write to me.
Retirement for women shouldn’t be scary like Halloween. If we work together on better solutions, maybe one day we can instead think of it as Thanksgiving.