Is retirement saving reaching a crisis? Doomsayers would have you believe so. So let’s look at the facts closely and thoroughly.
We are not facing a retirement crisis right now.
The recent study claims that “painting an image of a catastrophe is false and leads to unwarranted government action.”
According to the survey, less than 6 percent of Americans had earnings below the financial hardship line five years before retirement. However, that rate had fallen to 3.6 percent by the fifth year following retirement—a one-third drop. The three-legged retirement system of Social Security, public and private pension systems, and individual savings, according to the research, is substantially responsible for poverty reduction.
Retirement and You
These institutions work together to ensure that Americans, particularly low-income Americans, may maintain or even enhance their level of life in retirement.
To back up its claim that pensioners are doing well. The recent study claims that retiree earnings have increased faster than working-age families’ incomes since 1979: 109 percent above inflation for seniors vs. 69 percent for working-age households.
The rise in retiree income has resulted in a decline in the poverty rate among the elderly, which has dropped by more than two-thirds in the last five decades.
Legislation in the report purports to expand retirement plan access—but we’ll see if that happens. Some government plans are to grow lifetime income options, Codify the Department of Labor’s new auto-portability rules, and strengthen and expand Health Savings Accounts.
Supposedly the government intends to simplify confusing Social Security laws, protect the gig economy, and assist seniors who become entrepreneurs to help those who are struggling to achieve retirement security.
According to this study, employees of small enterprises, who have lower aid rates in employer-assisted retirement funds, also require support.
Also, according to the report—“just 34 percent of employees at firms with fewer than 49 employees engage in an employer-provided retirement plan, compared to 77 percent of employees in businesses with 500 or more employees.”
You and Retirement
The SECURE Act, approved in 2019, enables groupings of businesses to form Pooled Employer Plans to decrease the expense, administrative, and liability concerns many small firms cite as reasons for not having retirement plans (PEPs).
According to a prominent director, a poll of small company executives revealed that 85 percent of employers would find a PEP-like option “very or extremely useful” for giving economies of scale, and cheaper costs.
Even though PEPs include numerous firms, it was said that they are organized similarly to regular plans, with employers able to make matching payments. PEPs, together with state retirement pools and other innovations, can help increase the number of small firms having retirement plans, according to Shai Akabas, Director of Economic Policy at the Bipartisan Policy Center.
The Fourth Estate
The Fourth Estate is fond of claiming that Americans cannot save their money. They like to hold us up to the Japanese or French who, they argue, hoard their wealth like misers. But relatively speaking, Americans have always been savers, and they still are.
The trouble with retirement savings in America is that Americans have so many more expenses than other nations. For example, owning and operating a car in America is very expensive. Our gas is not subsidized.
Neither is car insurance. Or maintenance. And public transportation service in most of the United States is woefully inadequate. If you live more than 10 minutes away from your work, nine times out of 10, you will need a car to get to work because the bus or train will not get you there.
Another instance would be health care. Most nations now subsidize health care to an enormous extent. But here in America, millions of people have no coverage or inadequate coverage. So millions of Americans must spend their money on health care rather than putting it in the bank.
All things being equal, Americans have always been happy and determined to save for a rainy day, especially for their own retirement. But, unfortunately, it’s nearly impossible for Americans who are not millionaires to save an adequate amount for their own later comfort.
The Biden administration has been doing wonders in subsidizing many sectors of the country. For example, expanded Medicaid coverage should help lower-income people who are approaching retirement age. In addition, there are needed helps for those approaching the so-called golden years.
But one aspect of the subsidies gushing out of Washington is that Americans seem less inclined to save for a rainy day. Instead, they often feel it is their patriotic duty to shop till they drop or eat out rather than cooking a home-cooked meal.
Meaning, home-cooked meals (outside of ramen) noodles are getting to be as rare as snow in Tahiti.
By Max Palmer