Workers To Congress: Fix Social Security

I had the wonderful opportunity to engage Catherine Collinson, CEO and President, nonprofit Transamerica Institute and Transamerica Center for Retirement Studies about the newly released 22nd Annual Retirement Survey – which after 22 years provides an amazing time series on American attitudes about retirement.

Teresa Ghilarducci: Catherine, your 2022 survey focused on how the pandemic might have caused setbacks in retirement saving. What did you find?

Catherine Collinson: Our report, Emerging from the COVID-19 Pandemic: The Retirement Outlook of the Workforce, surveyed more than 10,000 adults in the U.S. including 5,846 workers. Some good news. 73 percent of workers are currently saving in an employer-sponsored plan or outside of work. Bad news. There are significant problems:

• A minority — just 29 percent of workers — strongly agree they are building a large enough retirement nest egg;
• 35 percent have dipped into their savings for short term needs;
• And, worker household retirement savings is inadequate. Their median balances is only $54,000; unemployed workers have $200; self-employed workers, $42,000, and those employed, $65,000.

Social Security

Ghilarducci: Your survey found workers want a lot of things from Congress and the President. How have these priorities changed over time?

Collinson: Our survey presented respondents with a carefully crafted select-all list of potential priorities for the President and Congress to help people have a financially secure retirement.

Addressing Social Security’s funding shortfalls tops the list of priorities – which is something our survey has consistently found over the years.

Congress is currently crafting bipartisan legislation that expands access to workplace retirement plans, expands automatic enrollment and escalation, and facilitates employers to make matching contributions for employees’ student loan payments. While these esoteric proposals may fall lower on workers’ listed priorities, in their totality, they promise significant strides in increasing retirement security. Nevertheless, they do not address the Social Security or other elephants in the room.

Ghilarducci: I agree with you. The most popular priorities were President and Congress addressing Social Security’s and Medicare funding shortfalls and making out-of-pocket health care expenses and prescription drugs more affordable. Nothing has happened. It is a bit sad to me that Congress moved on items workers had less enthusiasm for. Only 29 percent agreed allowing employers to match employees’ student loan payments in the form of a contribution to their retirement plan was a priority.

And, now for the question, the American retirement system works best for those rare workers whose win the trifecta – always have an employer who offers a retirement plan, receives steady raises, doesn’t change jobs, and has stable economic and personal lives. Is that right?

Collinson: True. Employer plans are the best way to save because of the convenience of payroll deduction and tax-advantages of 401(k), 403(b), or similar plans. But even if workers are offered a plan, they must take full advantage of the plan features, such as employer matching contributions, investment guidance, and planning resources to get the best results. Of course, being continuously employed, having steady income, and pay raises makes long-term savings easier.

The self-employed can save in traditional and Roth IRAs, SEPS and Solo 401(k)s. However, without an employer, the self-employed must undertake a do-it-yourself approach and self-employment often involves less predictable streams of income. The unemployed have other issues.

The Risks of Unemployment

Ghilarducci: Catherine, you found the pandemic made a lot of people’s income and jobs unstable, correct?

Collinson: Without doubt. The survey found 36 percent of workers were unemployed for various reasons at some point during the pandemic, and 38 percent experienced reductions in hours and pay, layoffs, and furloughs. These employment shocks often trigger financial setbacks threatening people’s ability to save for retirement.

Ghilarducci: I really liked your survey’s emphasis on the unemployed. They are often forgotten. What did your survey find?

Collinson: Without a paycheck or access to employer-sponsored retirement benefits, unemployed workers may find it impossible to save and 44 percent of unemployed workers have no emergency savings. 33 percent of unemployed workers expect to rely on Social Security as their primary source of income in retirement – despite 72 percent being concerned that Social Security will not be there for them when they are ready to retire.

Ghilarducci: Catherine, you wrote, “From a public policy perspective, it is important to recognize the risks and vulnerabilities of unemployed workers to avoid leaving them behind.” May I drill down on that a bit? Should a retirement contribution be added to unemployment benefits?

Collinson: Adding a retirement contribution to unemployment benefits may seem far-fetched, but it is worthy of policymakers’ consideration. All workers need to save steadily. Conceptually, something similar already exists. The Saver’s Credit is a tax credit for eligible tax filers who save in a 401(k), IRA, or other qualified retirement account. Unemployment benefits are considered taxable income, so if financially feasible, the unemployed could contribute to an IRA and potentially benefit from the credit. Only 24 percent of unemployed workers are even aware of the credit.

Additional policy reforms could enable unemployed workers to roll outstanding 401(k) loan balances to an IRA and suspend the repayment period until they become employed again. This could alleviate 401(k) loan defaults and treating outstanding balances as an early withdrawal with the 10 percent penalty for those under the age of 59½.

Limits to Financial Literacy

Collinson: You say workers could learn more about investing and engage in long-term financial planning. But from all your years of experience do you think financial education will solve the problem of employers not providing plans – half of workers don’t have an employer plan at work.

Engineering ways all workers can save in the workplace is paramount to improving retirement security. Hand in glove, increasing financial literacy is also needed so workers can make informed decisions and effectively manage their savings and investments.

Ghilarducci: Thank you Catherine. What I learned from you and the survey is that Congress is avoiding making Social Security stronger and creating universal retirement plans. It is still relying on do-it-yourself approaches and tax incentives that help the most fortunate workers with steady jobs and ever increasing incomes.

The conversation has been edited and condensed for clarity.