Retirement Matters
March 2024
Retirement Crisis — Most State of Michigan, Defined Benefit (DB) state employee retirees depend on financial support from their State pension, Social Security, and Medicare. However, policy changes have weakened our retirement infrastructure. After March 1997, State employees became ineligible for a pension. State employee pensions were replaced with a Defined Contribution (DC) plan, relying on 401(k) investments instead. The disadvantage is that the retiree may not have as much money available for retirement, as they would have had, if the employer had provided a pension managed by professional investors. In contrast, most employees have busy lives, without adequate time or knowledge to consistently earn a high enough rate of return on investments, compared to what they would have received with a State pension. In addition, State employee pensions have not kept up with inflation. (See SERA-Nade coverage on the $300 annual COLA cap on State Employees’ Retirement System pensions.)
401k’s Not Doing the Job — Those that oppose providing pensions would like us to believe that individuals can adequately finance their retirement by investing in 401k’s and other qualified retirement plans. However, research shows that most working age Americans are not buying it. In February 2024, the National Institute on Retirement Security (NIRS) released a survey of views of working age Americans on retirement insecurity. They were asked “To what extent do you agree or disagree: America is facing a retirement crisis.” This opinion poll found those that “somewhat agree” or “strongly agree” combined, increased from to 79 percent in 2023 from 75 percent in 2019.
Workers Say They Should Have Pensions — According to the chart below, Americans were asked to what extent they agreed that all workers should have a pension so they are independent and self-reliant in retirement. Pensions are economically efficient and the retirement income has a substantial economic impact on communities. The NIRS opinion poll found those that “somewhat agree” or “strongly agree” combined, increased to 82 percent in 2023 from 76 percent in 2019, with most of this increase coming from the “strongly agree” group.
- 55% of Americans are troubled that they will not have financial security during their retirement.
- 77% agree that the end of many pensions has made it difficult to achieve the American Dream in retirement.
- 73% said recent inflation has them more concerned about retirement.
- 87% are concerned in general about rising costs.
- 80% are anxious about the rising cost of long-term nursing care.
- 66% are worried about rising healthcare costs in retirement.
- 75% are distressed about rising housing expenses in retirement
- 66% are stressed about increasing costs to get help with everyday chores, which they may need as they age.
Public Services at Stake — Ending public employees’ pension plans has deprived more than retirees. Recent NIRS reports, focusing on the states of Rhode Island and Alaska, show that a shift from a state DB pension to a hybrid retirement plan resulted in greater public employee attrition. For Rhode Island, specific data shows a pattern of higher turnover for state employees, municipal general employees, police officers, firefighters, and teachers. Trends show it’s more difficult to retain experienced workers, contributing to a less experienced workforce, that may affect productivity and the quality of public services.
Cuts to Social Security and Medicare — What adds to this retirement insecurity is the continuous call for reducing Social Security and Medicare benefits, rather than taking action to raise the needed revenue. Of all likely voters, 70 percent oppose establishing a Commission to cut Social Security and Medicare. This is a high rate of bipartisan opposition to reductions, based on a February 2024 Data for Progress survey. It’s important to support those policymakers that will actually take action to increase funds for these programs and avert reductions. Remember, actions speak louder than words. Watch to see if your candidate is sponsoring, advocating, and voting for the needed legislation, or are they just giving you lip service which defers solving the problem. Taking no action is a decision too.
Retirement Security Needs Higher Priority — Americans want their policymakers to give their retirement issues a higher priority, say 86 percent of Americans, according to the February 2024 NIRS survey. Government should make it easier to offer pensions to their workers, say 84 percent of Americans. There is a strong desire for a return to pension plans because of the certainty that pensions provide, and they are seen as a way to reestablish the American Dream.
Safeguards Needed Now — Americans want action to safeguard Social Security with increased funding now, rather than waiting ten more years to find a solution to the projected deficit, say 87 percent of Americans. Not taking action soon means that it will cost more later, as it will be paid for over a smaller number of years. Social Security must remain a priority despite the state of federal budget deficits say 87 percent of Americans. Social Security should be expanded, say 52 percent of Americans.
Are Your Adult Children Preparing? — Leaders in Washington don’t understand how hard it is for workers to save for retirement, say 87 percent of Americans. Most of us wished we would have saved more for retirement. Hopefully, retirees should have enough savings to live in dignity after a lifetime of working. Most of the current SERS retirees are part of the baby boomer’s cohort born between 1946 and 1964. Immediately following the baby boomers is Generation X (Gen Xers), or the demographic cohort with 65.2 million people in the U.S. as of 2019. They were born between 1965 and 1980, and are quickly approaching retirement as the first cohort that will retire largely without pensions. The bottom half of Gen Xers only have a few thousand dollars saved for retirement, according to NIRS research. So, most of the Gen Xers are not even close to having enough savings for retirement. Without it, they are more likely to live in poverty and need public assistance or families to help them make ends meet. It’s up to us to vote to strengthen retirement security.
Editor’s note: Joanne Bump serves as feature columnist for “Retirement Matters.” Column content is time sensitive and is based on information as of 3/9/24. Joanne can be contacted by e-mail at joannebump@gmail.com.
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