ICYMI: Sen. Kelly Discusses the Importance of Retirement Saving Plans in Special Committee on Aging
Yesterday, in a Senate Special Committee on Aging hearing, Arizona Senator Mark Kelly discussed the pandemic’s effects on retirement and how Congress might shape better policy to enroll more independent workers and freelancers in retirement savings plans.
According to the Federal Reserve, 25 percent of non-retired adults have no retirement savings or pension at all. While 36 percent of adults think their retirement saving is “on track,” it is estimated that nearly half of pre-retirees underestimate their life expectancy by five or more years and must recalculate their retirement savings.
In the hearing, Kelly asked Dr. Nari Rhee, the Director of Retirement Security Program of the UC Berkeley Center for Labor Research and Education, what impact on retiree savings the data shows after 3 million Americans retired earlier than usual during the pandemic. He also asked the Project Director of the Retirement Savings Project at The Pew Charitable Trusts, Dr. John Scott, for recommendations on how to incentivize freelancers and nontraditional workers to enroll in retirement savings plans.
Sen. Kelly addresses witnesses in the Senate Special Committee on Aging hearing.
You can read a transcript of Senator Kelly’s remarks below. Watch his full exchange with witnesses HERE.
Sen. Kelly: Thank you chairman, and thank you for folks who came to testify here today. My first question is for Dr. Rhee. Dr. Rhee, earlier this year this committee looked at the impact of the COVID-19 pandemic on older workers and something we saw then and we are continuing to see now is that some folks are just not returning to work, instead they are choosing to retire early. Now whether that’s for health and safety, or trouble finding a job, or other reasons, it’s unclear. I would like to get into that for a second. Dr. Rhee, recent data suggests that as many as three million Americans, three million retired earlier than they planned due to the pandemic. I’m interested to find out from you if you have any data on, first of all, you know, why, specifically but also, are we concerned or is there a concern that these individuals risk running out of money during retirement and is there any data on that?
Dr. Rhee: Thank you, that’s a really good question. So, the pandemic recession was a really strange recession because it impacted different groups of workers by income in different ways. So older workers in high income didn’t see as much impacts, but the low income workers, especially low income older workers were hit. Much harder in this recession than back in the 2008 great recession. And so for workers eligible for Social Security 62 and older who are low income, they are 20% more likely to retire last year than they were the year before. And so one thing to keep in mind is that retirement savings is really concentrated and honestly the top 20% of the income distribution. So if you look at the middle 20% of workers of households by income, the median retirement savings was only $30,000 for ages 55-64, which is negligible. And if you look at lower income scales, it’s essentially the typical household has nothing. So the big issue is that they then are claiming Social Security earlier than they should be and, again, every year that you claim early can have a 7% to 12% deduction from your base Social Security benefit, and that’s for the rest of your life.
Sen. Kelly: Thank you, Dr. Rhee. Dr. Scott, your testimony referenced retirement savings for independent contractors and gig workers. And we know they have access to retirement plans if they want them. We have seen the benefits of automatic enrollment. And we know folks are much more likely to save if they have a little bit of a nudge or a push from their employer. So how can we make retirement plans more attractive to independent workers and freelancers and how can we create more portable plans that people can take with them from job to job?
Dr. Scott: Thank you, Senator. It’s a great question. I mean as I mentioned in my statement, I think the demand is there despite the low levels of access amongst these nontraditional workers or contingent workers. And I think part of the issue is that there is a wide variety of these kinds of workers. We have independent contractors who work in the high tech industry. We have day laborers, we have temp staff. And so it’s very difficult to say well, here’s one solution that’s going to fit all these kinds of workers who have different kinds of jobs, they work in different ways, and probably most relevant, they get paid in different ways. Approximately, according to our survey, about 70% of nontraditional workers are paid electronically, but, you know, many others are paid by check or by cash. I remember I paid my real estate agent when I bought my house by check. So you think well, how can we divert 5% of that check, paper check into an IRA? So, I think it’s going to probably take more than one way to get these nontraditional workers into the savings system. I think we should be thinking about, you know, maybe it’s through the tax system, some of these workers have to file quarterly returns or estimated payments. And so maybe that’s an opportunity to sort of nudge them towards saving for retirement. Perhaps it’s through some of the companies that employ workers as independent contractors. But, you know, it’s very difficult to use automatic enrollment in this situation because it’s not like a situation with an employee, however, there are other methods, called or active choice where you present them with the opportunity, “Do you want to save part of this money that we are paying you?” say 5%, or not, and that act of active choice makes people stop and consider and then they are more likely, not as likely through automatic enrollment, but they are more likely to divert some of that money to savings. So I think we need to be more creative and innovative with this segment of the workforce.
Sen. Kelly: Alright, thank you Dr. Scott, and thank you Mr. Chairman.