By Buzz Davis – America has a major crisis in Wisconsin and the Nation – the looming lack of financial security in retirement.
Today we have the best-off seniors America has ever seen. But still many live in poverty or near poverty. Seventy million Baby Boomers now headed into retirement will not do as well as today’s seniors. In coming years nearly half of middle class families will retire into poverty or near poverty. For seniors poverty today is living on less than $11,000 annually and for couples it is less than $15,000.
All this did not happen by accident. And we will not solve this problem with false hope, denial or slogans.
How many of you are already financially helping your elderly parent(s)? How many are financially helping your young adult children? It is extremely difficult to save money for retirement when doing these things or if you’re unemployed, underemployed, or forced into part-time work.
Since 1970, worker productivity, corporate profits and the 1%ers’ income all skyrocketed. But workers’ wages have been suppressed. Both adults in most households now work. Many work longer hours. Yet many families still can’t get ahead.
By 2012 nearly all those good corporate defined-benefit pension plans were flipped to 401(k)s which, in general, do not provide financial security. Today over half the private sector workers still have NO pension plan.
If Wisconsin reflects the nation, then we have about 1.4 million Wisconsin households with couples ages 34 to 64. Experts say these households, on average, have a shortfall of about $90,000 in retirement savings. This means they need $90,000 MORE TODAY in retirement savings than they have. The estimated pension savings shortfall for those Wisconsin families is about $126 billion. Do you hear the politicians and corporate leaders talking about that? Nationwide, 70 million households have an estimated $6.6 trillion pension-savings shortfall.
Why are we facing this retirement crisis? Because over half our workers have no retirement plan. About one-third have 401(k)s. Seventy five percent of workers nearing retirement have less than $30,000 in their 401(k). Some of Wisconsin’s workers are fortunate to have a defined benefit (DB) pension plan from their government, school or large corporate employer. The DB plan is the one that pays you a monthly fixed check for the rest of your life based upon number of years you worked, earnings record, and age at retirement.
How did we end up in this fix? Why aren’t political leaders offering solutions to the looming retirement crisis?
Union Values
By the early 1980′s, 35% of all workers were unionized. Most large corporations were unionized. Most people know that unions push for good defined-benefit pensions because these are the only pensions that provide security in retirement during good and bad economic times. At that time, about half the private sector workers had a pension plan and half had nothing. Nearly all those pension plans were defined benefit while a few had 401(k)s.
Then the US government and corporations set out to crush the unions or flee to non-union states or countries. Remember Pres. Reagan’s handling of the air traffic controllers’ strike for better safety procedures? He fired them all. Today only 7% of all private sector workers are unionized. Millions of good jobs have been offshored. By 2012 nearly all those good corporate defined-benefit pension plans were flipped to 401(k)s which, in general, do not provide financial security. Today over half the private sector workers still have NO pension plan.
That did not happen in the public sector. Unionized public workers kept fighting for good defined benefit pension plans through their union representation.
The public sector pension funds are run more economically, have better returns than 401(k)s, and provide retirees with a fixed monthly check for life. Those regular pension checks plus Social Security and some savings allow public workers to live comfortably in their senior years. A vast majority of each pension check comes from investment earnings – not tax dollars. And the trillions of dollars in public pension funds are invested in the private sector helping our nation’s economy.
The private sector does many things well. But due to corporate avarice, it has blown the retirement security issue for its workers. We must look to the public sector for the solution.
The Wisconsin Retirement System (WRS) is one of the few premier public pension funds in the world. It pays a defined benefit monthly check to nearly 170,000 retired Wisconsin public workers.
The questions now before us are:
- How can we use the WRS as a model to develop a “sister” state-managed, defined-benefit pension plan for private workers who have no pension plan or only a 401(k)?
- How can we encourage people and groups to come together, learn about the retirement crisis, and develop solutions?
- All workers deserve financial security in retirement. How can we inject this issue into the November elections for state assembly representatives and senators – so we can begin to face the retirement crisis head-on?
If you are concerned about your own or your children’s retirement future, please contact your state legislators. Ask them to start investigating this issue, developing some solutions, and keep you informed of their progress.
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– Buzz Davis is a retired state government planner, is a member of the AFT-W Retiree Council Executive Board, AFT-W’s representative to the Wisconsin Coalition of Annuitants which represents 35,000 state, local and education retirees, and a member of Wisconsin Alliance for Retired Americans.
Sources: New York Times – Our Ridiculous Approach to Retirement; The Week – How 401(k)s are Failing Millions of Americans; US News – 7 Reasons You don’t Have a Pension; Retirement USA – Facts of the Day; Pension Rights Center Testifies in Support of a Connecticut Bill about Public Retirement Plans
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JEllis
January 10, 2013 at 11:18 am (UTC -6) Link to this comment
I think many people do not know how to make sense of their financial interests. Many people have no retirement plan, but can they go about constructing one by themselves? Who do they trust to help them? Their parents? Were they successful? People do not need family or friends for help, they need coaches.
While I agree that unions can help advance the financial interests of middle income Americans, Americans themselves must learn what their financial interests are so they can learn how to protect themselves more effectively.
The financial services industry should be called the financial dis-services industry. Many institutions are busy selling their products — practicing their profit plans on consumers. They do not teach people about how money works because they will make less money off of a consumer who can make informed financial decisions.
For example, they do not want their customers to know they should seriously consider only buying enough house to pay off in 15 years. Why? Because the loaning institutions make oodles of money off of 30 year mortgages and re-financing schemes. Financial institutions are only interested in knowing you can make a payment. They don’t care if you have money left over to put into retirement. Consequently, uninformed Americans decide to use debt to finance some of their dreams. Do Americans know they can learn to develop budgets which help them achieve their dreams? Imagine this, use a budget to accelerate a mortgage payment schedule TO HELP REACH A GOAL TO GET THE THING PAID OFF IN 15 – 18 YEARS! Then re-direct what used to be mortgage payments into retirement accounts?
These are things Americans must know about and unions should help people understand this. Is financial illiteracy the norm nowadays? Do Americans know they should not consider retiring unless they are out of debt? Do Americans know how much money they should have in their retirement account by the time they want to retire? Do Americans know how slowly they should deplete their retirement accounts, to make the money last through retirement. Financial planning exists but planners charge money for the coaching. Rich people will pay financial planners to help them manage their finances. The rest of us feel we cannot afford such services, so we go out on our own flying blind.
Debt is a wedge that gets between us the consumer and our chances of retirement in dignity. And the financial institutions are eager to keep us in debt so they can also sell their expensive insurance products. Capitalism has become a huge giant vacuum cleaner sucking out dollars out of our wallets. And the big banks are in the middle of it. And they own our governments — it is called regulatory capture.
admin
January 15, 2013 at 9:41 am (UTC -6) Link to this comment
JEllis, the idea you spelled out makes so much sense. We’ve floated it around and perhaps we can make it happen. SCFL once had a program called “Common Sense Economics” but building on it with a practical application like this would reach out to those who don’t normally attend labor education classes. If you have any ideas for where we could look for ‘coaches’ please let us know. Many thanks for sharing the idea!!!
douglas
April 29, 2013 at 11:36 am (UTC -6) Link to this comment
What happened to the SCFL Program called “Common Sense Economics”?
admin
April 29, 2013 at 11:49 am (UTC -6) Link to this comment
Thanks for asking, Douglas. Common Sense Econ was a major project some years ago that resulted in numerous training sessions for hundreds of union members. Once the training was accomplished, however, the materials sat on the shelf and the examples used quickly became out of date. It would be a worthy endeavor to do this again, but very labor intensive (in the ideal world it would be done on a national level). But then a lot of this type of information is now shared widely on the internet.
Pending pension problem gets more attention: ARIA post | aria
August 7, 2012 at 1:50 pm (UTC -6) Link to this comment
[...] Aug. 7, 2012 – The realization of a pending retirement crisis seems to be sinking in, with more commentators and observers warning that the lack of adequate retirement income will have major social implications. While many of today’s retirees are relatively well off, the same won’t be said for the millions of boomers headed to retirement without adequate sources of income – many of whom will be spending their retirement years still working, or living with vastly reduced income levels. The looming crisis isn’t helped by the ongoing switch from DB to a savings-type model, a move that puts the risks on individuals and assumes people will be able to voluntarily save in the face of all the other demands on their money. For more on this, click here. [...]