Fixing Retirement

by Phil Anderson

  "The reason they call it the American Dream is because you have to be asleep to believe it." George Carlin, comedian  

Being able to retire with dignity and financial independence was once an anticipated and expected reward for a lifetime of work. But for many people this dream is not going to come true. Many people will not have enough to retire comfortably. Some people will not be able to retire at all. This decline in secure, adequate income for older persons will affect us all. It will have a negative impact on states, like Wisconsin and Minnesota, which have significant retiree populations.  

In Wisconsin Governor Tony Evers proposed a study group on retirement security in the state budget. His proposal was cut by the Republican controlled legislature. Now State Treasurer Sarah Godlewski is using the independent authority of her office to work with Governor Evers on this issue. Wisconsin Public Radio reports she will head up a retirement security task force to explore ways to educate people about retirement programs and create new investment options for people in the state. The task force will look at what other states are doing and make recommendations for increasing retirement savings in Wisconsin.  

The retirement task force is similar to prior efforts to study the retirement crisis in Wisconsin. In the past Senator Dave Hansen (D., Green Bay) proposed studying the feasibility of creating a private sector retirement program modeled after the highly successful public employee retirement program (Wisconsin Retirement System or WRS). Republicans never allowed that proposal to be considered by the legislature. Given the likely Republican opposition to any recommendations from the new task force, Treasurer Godlewski is limiting the scope of the task force's work. The task force will probably look at existing individual savings programs (Individual Retirement Accounts or IRA's) and employer sponsored retirement savings programs (401K's). Creating a retirement pension program similar to WRS is probably not going to be considered. The task force is a good step in the right direction, but limiting consideration of all the options is counterproductive.    

Basic problem solving techniques involve identifying problems, gathering information, looking at all possible solutions and then choosing the best option. Limiting the scope of the process merely leads to incomplete analysis and poor decisions. This is especially true when options are limited for ideological or political reasons. The task force should be allowed to examine the full range potential solutions.  

Retirement security is sometimes described as a three-legged stool. For most people this means having Social Security, personal savings, and an employer provided pension. Most of us are not independently wealthy or do not have an inherited trust fund. We need to have diverse sources of income in retirement. In the past many major employers, union employers, and government jobs provided a company sponsored pension. Retired people who achieved financial security had savings, equity in a house, and were fortunate to have had a decent employer paid pension. In other words, successful people had more than one leg to stand on.  

Why is there a retirement crisis? Why do people lack the resources they need in retirement? There are many contributing factors to the retirement crisis. Declining real wages (adjusted for inflation), exporting of middle class jobs, increasing healthcare costs, inadequate individual savings, low interest rates on savings, and poor individual financial decisions are all factors. But a major reason is that, since 1980, there has been a profound shift in the way retirement programs work. Guaranteed, defined benefit company pensions have largely been replaced by employers with individual, voluntary, defined contribution retirement savings plans (commonly called 401k's). Basically the responsibility for adequate retirement savings shifted from employers to employees. This is good for employers because they have lower, predictable costs and no risk. But it has not been good for most workers.  

Although making people more responsible for their own retirement sounds reasonable (and is ideologically more acceptable to free market conservatives), it doesn’t work well for a number of reasons. Most people simply don’t save enough in voluntary retirement plans. Many people do not earn enough money to accumulate adequate retirement savings. When people do save they don’t manage their accounts well. Too often they take lump sum withdrawals (with 10% tax penalties) when they change jobs or take emergency withdrawals that never get paid back. In addition market volatility and administrative fees eat up investment gains. The bottom line is people depending on individual retirement savings end up with too little at retirement time.  

The good news is there are solutions. Retirement issues have been studied, documented, and discussed for decades. Much has been written about the retirement crisis (including in the Reader – see links below). There are successful models for what can work. There are proposals for expanding Social Security, creating guaranteed retirement accounts, and improving individual retirement savings options. Some states are moving forward to address these problems. They are creating innovative programs to help people save more and helping employers afford retirement benefits. Other states are looking at ways to mitigate the weaknesses of 401k programs.   This is the purpose of the Wisconsin retirement security task force. Next week we will look at possible solutions that need to be considered by the task force.    

Like all the problems we face as a nation, there are solutions that could work. The question is, do we have the political will, foresight, and sense of community to do what is good for everyone?  

Other Duluth Reader Retirement Articles Retirement for Everyone (June 14, 2018)

http://duluthreader.com/articles/2018/06/14/13645_retirement_for_everyone   The Retirement Crisis (December 7, 2016)

http://duluthreader.com/articles/2016/12/07/8430_the_retirement_crisis   Wisconsin Governor's Race and Retirement Security (June 6, 2018)

http://duluthreader.com/articles/2018/06/06/13565_wisconsin_governors_race_and_retirement_security