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November 14, 2018 The Skanner Portland & Seattle Page 9 Financial Literacy Why Are So Many Americans Struggling to Save for Retirement? Most Americans will be pinching pennies after they retire By Christian Weller The Conversation uring the 2016 election, economic fears such as jobs and wages took center stage on the cam- paign trail. Yet one of voters’ big- gest economic problems has thus far received short shrift from the candidates: Americans’ growing inability to save for retirement. A handful of Repub- lican and Democratic candidates have laid out proposals for Social Se- curity reform, but none have adequately ad- dressed the substantial and growing deficit in total retirement savings. The retirement crisis is real, as I’ve also been doc- umenting for the past 15 years and most recently in my new book, Retire- ment on the Rocks. More than half of us won’t have D enough savings when we retire to maintain our current standard of liv- ing and will have to make substantial spending cuts once we stop work- ing. How did we get here, what are the consequenc- es and how can we fix the problem? An inability to save The share of house- holds with working-age adults that could expect to have to make sub- stantial and potentially harmful cuts to their spending in retirement has spiked in recent de- cades, rising from 31 percent in 1983 to 52 per- cent in 2013, according to the National Retirement Risk Index at the Center for Retirement Research. Some groups are par- ticularly likely to have insufficient retirement savings. Communities of color, single women and those with less educa- tion, for example, tend to be less prepared for retirement than white households, single men and those with more ed- ucation. For example, 60 per- cent of African Amer- icans and Latinos near retirement in 2010 were deemed likely to struggle economically when they stopped working, com- pared with only 45 per- cent of Whites. Why aren’t we saving enough? This crisis is a result of the extended period of economic uncertainty we’ve lived through for the past 30 years. Wages have become more volatile, while the duration of unemploy- ment and underemploy- ment has also gone up. As a result, people have less discretionary cash, requiring them to set aside more for emergen- cies — and less for retire- ment. But that’s only part of the economic uncertain- ty story. Even when people do manage to sock away money for their later years, these savings have become less stable. The stock and housing mar- kets have been going through cycles of boom and bust with increasing frequency in recent de- cades, destroying wealth and adding a layer of con- fusion and uncertain- ty to people’s decisions about their futures. Record-low interest rates since the financial crisis are making mat- ters worse. Five policy shortcom- ings At a time of such grow- ing volatility in the labor, financial and housing markets, logic suggests “ people can receive full benefits has increased. At the same time, the de- cline of defined benefit (DB) pension plans has further eroded people’s retirement security. In their stead, people have saved more and more with retirement savings accounts, such as 401(k) plans and Individ- ual Retirement Accounts (IRAs). These individual- ized accounts offer fewer protections against labor and financial market Since the 1980s, companies have reduced contributions to their employees’ retire- ment savings accounts and increasingly ended such benefits entirely that people should re- duce their exposure to risky assets. Yet when it comes to retirement savings, ex- actly the opposite has happened. This is due to five clear- ly identifiable policy shortcomings, which have led to greater eco- nomic risk exposure at a time of ever-rising risks. Social Security ben- efits have decreased in value as the age at which swings than is the case for Social Security and DB pensions. Congress has increas- ingly made private em- ployers the primary gatekeepers controlling access to good retire- ment plans, giving them additional tax benefits for doing so. However, since the 1980s, companies have reduced contributions to their employees’ retire- ment savings accounts and increasingly ended such benefits entirely. In 2012, the last year for which data are available, employers contributed an average of US$1,765 (in 2013 dollars) to work- ers’ 401(k) plans, down from $1,947 in 1988. Existing savings incen- tives such as tax breaks are fairly inefficient. The largest incentives are offered to high-income employees working for an employer that offers retirement benefits — the people who arguably least need the help in sav- ing more. At the same time, the smallest incentives go to lower-income employ- ees, especially those who work for an employer that doesn’t offer retire- ment benefits. A high-income earner who expects to pay lower taxes in retirement than during working years will reap about twice as much as a low-income earner for the same con- tribution to an IRA or 401(k) plan. Savings incentives in the U.S. tax code are un- necessarily complex. A dozen savings incentives exist, in addition to spe- cific incentives for hous- ing, health care and edu- cation.
