Retirement Insecurity 2019: Americans’ Views of the Retirement Crisis

National Institute on Retirement Security – March 2019 (excerpts reprinted)

by Diane Oakley and Kelly Kenneally
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Executive Summary

Changes to the U.S. retirement system during the past several decades have put retirement in peril for most working Americans. When all working individuals are considered, the typical American has zero dollars saved for retirement. Among workers who have managed to accumulate savings in a retirement account, that typical account balance is only about $40,000. And even when accounting for an individual’s entire net worth—considered a generous measure of retirement savings—more than three-fourths (77 percent ) of Americans fall short of conservative retirement savings targets for their age and income based on working until age 67.1 This massive retirement savings shortfall can be attributed to a decades-long degradation of our nation’s retirement infrastructure. Most of the workforce lacks an employer sponsored retirement plan, fewer workers have stable and secure defined benefit (DB) pensions, while 401(k)-style defined contribution (DC) individual accounts provide less savings and protections. Also, increases to the Social Security retirement age translate into income cuts for retirees. According to the U.S. Government Accountability Office (GAO), private sector employers since the 1980s have moved
away from offering traditional pensions that provide workers with a guaranteed, monthly income stream that cannot be outlived and offer professional asset management.2

Instead, private sector employers have shifted from pensions to individual accounts like 401(k) plans, if they offer employees any retirement plan at all. With 401(k) plans, the risks and the bulk of the funding burden fall squarely on individual employees, who tend to have difficulty contributing enough on their own to accumulate sufficient savings for retirement. Employees typically also lack the requisite investment expertise, while many also find it challenging once retired to calculate precisely how to spend down their retirement savings in an optimal manner so that
their nest egg lasts as long as they live.3

Meanwhile, retiring Baby Boomers are feeling the financial sting of changes to Social Security implemented in 1983 that
are gradually raising the full retirement age to 67. This means that workers turning 62 in 2019 face increasing reductions in Social Security benefits if they start receiving benefits before their normal retirement age. For example, starting benefits at age 62 results in receiving only 72.5 percent of the full benefit that would be payable at age 66 and a half. If a person born in 1957 waited until reaching age 65, he or she would receive 90 percent of the full benefit. Once fully phased in for Americans born in 1960 and later, the reduction in Social Security benefits for those choosing to draw benefits at age 62 will equal 30 percent less than the benefits at the full retirement age of 67. Despite these benefit cuts, the Social Security program remains in need of a longer-term financial fix. The program has resources to pay scheduled benefits until 2034, but after such time the program will have financing to pay only 79 percent of benefits.4

Against this troubling backdrop, the National Institute on Retirement Security (NIRS) conducted a survey of working age Americans to measure their sentiment on a range of retirement issues.

 
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VI. There is strong support for pension plans for state and local workers, and Americans see these retirement plans as a tool to recruit and retain public workers.

NIRS ASKED AMERICANS: In your own words, what does a secure retirement mean to you? A stick figure has a speech bubble that reads, "Being able to put a roof over my head, clothes on my back, and food on the table."

Most public employees continue to receive pensions as their primary retirement benefit. In addition to providing retirement
security for workers who often have lower salaries than their private sector counterparts, pensions also serve as a workforce management tool to recruit and retain workers.11 In recent years, public employee pension benefits have remained in the headlines—from articles on teachers striking for better pay and maintaining benefits to news reports about possible legislative changes. At the same time, state and local governments continue to actively enact pension reforms designed to improve funding and recover the deep investment losses that all investors experienced in the years following the 2008 global financial crisis. Since 2009, every state has passed reforms to one or more of its pension plans. The changes took different forms throughout the country—from increasing employee contributions to raising retirement ages.12

Also, ideological organizations opposed to government programs continue to attack public retirement systems at the national and state levels. Some of these organizations are working to switch public employees from pensions to DC accounts even though this wholesale change has proven to raise costs to taxpayers and dramatically worsen public pension funding levels while undermining the public sector work force.13

Against this backdrop, Americans were asked their views about public pensions. The data indicate that Americans express strong support for public employee pensions because some public employees have high-risk jobs or lower pay, the funding of the benefits is shared with employees, and pensions help recruit and retain skilled workers. Specifically, nearly three-fourths of Americas say that state and local workers deserve a pension because they help pay for these retirement plans (Figure 33).

Unlike private sector pensions, public employees make significant contributions to their pensions each pay period, and those employee contributions are rising in many jurisdictions. In fact, the data suggest that Americans do not begrudge public employees for their benefits, but instead would like to receive similar retirement benefits. Some 79 percent say all workers, not just state and local workers, should have a pension (Figure 34).

Americans also see the value of pensions beyond providing retirement security. These retirement plans serve as a tool to attract and retain public workers, which is increasingly important in the public sector especially in a tight labor market and when state and local governments continue to face steep recruitment and retention challenges.14 The polling finds that some 83 percent agree that pensions are a good way to recruit and retain state and local workers (Figure 35).

Americans also see the value of providing these retirement benefits to public workers, including teachers, police officers and fire fighters. Nearly three-fourths say teachers deserve pensions to compensate for lower pay at a time when teacher strikes over education funding and pay persist into 2019 (Figure 36). And, an overwhelming majority of those polled (82 percent) say that police officers and fire fighters deserve a pension because they have risky jobs (Figure 37).

Figure 33: Nearly 3/4 say state and local workers deserve a pension because they help pay costs.  | To what extent you agree or disagree with the following statement: State and local government employees deserve these retirement benefits because they help finance part of the cost, by contributing money out of every paycheck.  |  Strongly Agree:35%, Somewhat Agree:38%, Somewhat Disagree:11%, Strongly Disagree:5%, Don’t Know: 11%Figure 34: 79% say all workers, not just state and local workers, should have a pension. | To what extent you agree or disagree with the following statement: All workers, not just those employed by state and local governments, should have access to a pension. |  Strongly Agree:48%, Somewhat Agree:31%, Somewhat Disagree:9%, Strongly Disagree:3%, Don’t Know:9%
Figure 35: 83% say pensions are a good way to recruit state and local workers.  |  To what extent you agree or disagree with the following statement: Pensions are a good way to recruit and retain qualified teachers, police officers, and firefighters.  |  83% AGREE -- Strongly Agree:45%, Somewhat Agree:38%, Somewhat Disagree:7%, Strongly Disagree:2%, Don’t Know:8%Figure 36: Nearly 3/4 say teachers deserve pensions to compensate for lower pay.  |  To what extent you agree or disagree with the following statement: Public schoolteachers deserve pensions to compensate for lower pay.  |  74% AGREE -- Strongly Agree:43%, Somewhat Agree:31%, Somewhat Disagree:11%, Strongly Disagree:6%, Don’t Know:8%

Figure 37: 82% say police officers and firefighters deserve a pension because they have risky jobs.  |  To what extent you agree or disagree with the following statement: Police and firefighters have agreed to take jobs that involve risks and therefore deserve pensions that will afford them a secure retirement.  |  82% AGREE -- Strongly Agree:47%, Somewhat Agree:35%, Somewhat Disagree:9%, Strongly Disagree:2%, Don’t Know:7%
Figure 38: Few Americans understand that taxpayers pay only about 1/4 the cost of pensions for state and local government employees.  |  What percentage of public pensions do you think are paid for by taxpayers?  |  53% DON'T KNOW -- Less than 25%:12%, 25-49%:8%,  75-99%:7%, 100%:53%, 50-74%:10%, Don’t Know:10%
The polling also reveals that Americans do not fully understand how public pensions are funded, which is significantly different than how private pensions are funded. In state and local government pension plans, contributions typically come from three sources: employer contributions, employee contributions and earnings on investments. Between 1993 and 2016, 25
percent of public pension fund receipts came from employer contributions, 12 percent came from employee contributions and 63 percent were from investment earnings. Earnings on investments—not taxpayer contributions—have historically made up the bulk of pension fund receipts, even though this time period saw two very large market downturns within a
single decade.15

The polling finds that few Americans are aware that taxpayers pay only about one-quarter of the cost of pensions for state and local government employees (Figure 38). Pensions with lifetime retirement income remain prevalent in the public sector, which is not the trend in the private sector that continues to shift employees to individual retirement plans like 401(k) accounts. Interestingly, the results indicate that public sector retirement benefits are extremely important to a majority of public sector workers (59 percent), second only to job security (Figure 39). In contrast, retirement benefits were extremely important to only 41 percent of private sector workers. This high value placed on retirement benefits may indicate that public sector workers are willing to sacrifice salary in exchange for a secure retirement. Salaries for public sector workers lags significantly behind their private sector counterparts.16

Figure 39: Public employees attach extremely high value to their retirement benefits.  |  When making job decisions, how important are the following features to you?  |  Job Security 67% Retirement Benefits 59% Health Insurance 51% Salary 50% Work Life Balance 47% Personal Satisfaction 45% Professional Development 38% Paid Vacation 32% Career Advancement 25%

 

 


 

Endnotes

  1. J. Brown, J. Saad-Lessler and D. Oakley, 2018 (September), “Retirement in America: Out of Reach for Working Americans?,” National Institute on Retirement Security, Washington, D.C., https://www.nirsonline.org/wp-content/uploads/2018/09/SavingsCrisis_Final.pdf.
  2. C. Jeszeck, 2017 (October), “The Nation’s Retirement System: A Comprehensive Re-evaluation is Needed to Better Promote Future Retirement Security. (GAO_18-111SP), U.S. Government Accountability Office. Washington, D.C., https://www.gao.gov/assets/690/687797.pdf.
  3. C. Jeszeck, 2017, op. cit.
  4. E. Schreur and B. Veghte, 2018 ( June), “Social Security Finances: Findings of the 2018 Trustees Report,” National Academy of Social Insurance, Washington D.C. https://www.nasi.org/research/2018/social-security-finances-findings2018trusteesreport.
  5. J. Brown, J. Saad-Lessler and D. Oakley, 2018, op. cit.
  6. F. Newport and A. Dugan, 2017 (August), “Partisan Differences Growing on a Number of Issues,” Gallup, Washington, D.C., https://news.gallup.com/opinion/polling-matters/215210/partisan-differences-growing-number-issues.aspx.
  7. R. Reinhart, 2018 (August), “U.S. Congressional Approval Steady, Low in August,” Gallup, Washington, D.C., https://news.gallup.com/poll/240896/congressional-approval-steadylow-august.aspx.
  8. Georgetown University Center for Retirement Initiatives (CRI), 2019, “State Initiatives 2019: New Programs Begin Implementation While Others Consider Action,” CRI, Washington, DC, https://cri.georgetown.edu/states/.
  9. Investment Company Institute (ICI), 2018 ( June), “The US Retirement Market, First Quarter 2018,” ICI, Washington, DC, https://www.ici.org/pdf/2018_factbook.pdf at 168.
  10. Investment Company Institute, 2019 (March), “Retirement Assets Total $27.1 Trillion in the Fourth Quarter 2018,” ICI, Washington, DC, https://www.ici.org/research/stats/retirement/ret_18_q4
  11. J. Brown and M. Larabee, 2017 (August), “Decisions, Decisions: An Update on Retirement Plan Choices for Public Employees and Employers,” National Institute on Retirement Security, Washington, D.C. https://www.nirsonline.org/wpcontent/uploads/2017/11/final_decisions_2017_report.pdf.
  12. K. Brainard and A. Brown, 2018 (December), “Significant Reforms to State Retirement Systems,” National Association of State Retirement Administrators, Washington, D.C., https://www.nasra.org/files/Spotlight/Significant%20Reforms.pdf.
  13. “Case Studies of State Pension Plans that Switched to Defined Contribution Plans,” 2015 (February). National Institute on Retirement Security, Washington, D.C., https://www.nirsonline.org/wp-content/uploads/2017/11/public_pension_resource_guide_-_case_studies_of_state__pension_plans_that_switched_to_defined_contribution_plans.pdf.
  14. “State and Local Government Workforce:2018 Data and 10 Year Trends,” 2018 (May), Center for State and Local Government
    Excellence, Washington, D.C., https://www.slge.org/assets/uploads/2018/07/SLGE2018Workforce.pdf.
  15. I. Boivie, 2018 (December), “Pensionomics 2018: Measuring the Economic Impact of DB Pension Expenditure,” National Institute on Retirement Security, Washington, D.C., https://www.nirsonline.org/wp-content/uploads/2019/01/Pensionomics2018_final.pdf.
  16. E. Yoder, 2016 (November 9), “Federal salaries lag behind private sector by 35 percent on average, pay council says,” The Washington Post, and J. Keefe, 2016 ( January), “Public-sector workers are paid less than their private-sector counterparts—and the penalty is larger in right-to-work states,” Economic Policy Institute.
  17. J. Brown, J. Sadd-Lessler, and D. Oakley, 2018, op.cit., and S. Devlin-Foltz, A. Henriques, and J. Sabelhaus, 2016 (October), “Is the U.S. Retirement System Contributing to Rising Wealth Inequality?” The Russell Sage Foundation Journal of Social Sciences, Volume 2 Issue 6, New York, NY: https://www.rsfjournal.org/doi/full/10.7758/RSF.2016.2.6.04.

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