Tags: Vernon | inequality | income | retire

Stanford's Vernon: America Needs Some Soul-Searching on Its Retirement System

By    |   Tuesday, 31 March 2015 08:20 AM EDT

Economic inequality is harming retirement savings, not just income, according to a Stanford University longevity research scholar who studied government data on the topic.

Steve Vernon, who also delivers retirement planning workshops, said Federal Reserve data show that while Americans' accumulated wealth nearly doubled between 1989 and 1999, by 2013 it was only barely above 1999 levels.

"Since the Great Recession began in 2008, both retirement plan coverage and the wealth levels of the bottom half of America's workforce have declined," he wrote in a column for CBS Moneywatch.

He used research from the Fed's triennial Survey of Consumer Finances, and predicted the study is bound to "add fuel to ongoing debates about the viability of our retirement system and income inequality in the U.S."

"This is disturbing because the population as a whole has aged and is closer to retirement in 2013 compared to 1999, so ideally the ratio of wealth to income should have climbed. In addition, looking solely at aggregate wealth levels hides the fact that certain population groups experienced major setbacks in the Great Recession."

Vernon said that in 1995, 54 percent of the bottom half of the U.S. workforce by income was covered by some type of retirement plan. But by 2013, that figure had slumped to 44 percent, with the decline most pronounced for younger workers.

In addition, he noted that defined benefit plans such as pensions have declined for workers at all income levels, which has hurt low-income workers the most since they are less likely to accumulate savings in voluntary programs such as 401(k)s and IRAs.

"We can debate endlessly whether they could do a better job managing their income so they could find some money to save for retirement, but the bottom line is, most of these workers are strapped by high living expenses and are bombarded by persuasive media and advertising messages to spend all their money."

Vernon said policy options to improve retirement savings for the bottom half of U.S. workers include mandating a minimum level of retirement contributions for all workers at the federal or state level, improving Social Security benefits for lower-income workers with higher taxes, or removing more barriers for employers to voluntarily sponsor retirement plans.

"As a society, we face some tough choices regarding the retirement security of the most vulnerable members of the working population," wrote Vernon.

"But that shouldn't be justification for doing nothing. America needs to address the reality of large numbers of people living longer with modest financial resources."

Scott Cooley, director of policy research at Morningstar, reported that the U.S. has a "stunningly large" retirement savings gap that totals $4.13 trillion, according to the Employee Benefits Research Institute (EBRI).

"But that may not even be the worst news," Cooley wrote on the company blog. "Like much of American society, retirement preparedness is separated into the have and the have-nots, with the latter facing long odds to achieve anything resembling a decent retirement."

Cooley said the nearly half of the U.S. workforce that is not on an adequate financial pace for retirement faces a tough future. He noted that EBRI data show that among those early baby boomers who are not on track for retirement, the average married couple is short $142,598; the typical single male, $93,576; and the typical single woman, $104,821.

In Cooley's view, the U.S. should take a critical look at its retirement policy.

"Otherwise, we face the likelihood of growing numbers of the elderly living in poverty — clearly not a good outcome for them — and growing strains on means-tested social-support programs that will tax the resources of even those who thought they had saved adequately for their own post-work years."

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Economic inequality is harming retirement savings, not just income, according to a Stanford University longevity research scholar who studied government data on the topic.
Vernon, inequality, income, retire
Tuesday, 31 March 2015 08:20 AM
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