The headlines are written with a sense of doom, as if presaging an encroaching hurricane or warning about the impact of climate change.
“Millions of older workers are nearing retirement with nothing saved,” CBS News reported last month.
“Americans’ Outlook for Their Retirement Has Worsened,” says Gallup News.
“More Americans say they can never retire,” writes The Hill.
Indeed, a crisis is coming, including in our state. According to state Treasurer Mike Pellicciotti, two-thirds of Washingtonians in their 30s and 40s have no retirement savings.
Social Security — which workers have been paying into throughout their careers — can ease only part of the burden. The median household income in Washington is $82,400; to have half that amount for living expenses in retirement, somebody in our state will require $1.9 million in savings, according to the NerdWallet Retirement Calculator. It doesn’t take a Milton Friedman to know that Social Security won’t cover that amount.
“Things are out of whack right now,” Pellicciotti told the Editorial Board of the Yakima Herald-Republic. “Something needs to be done.”
Pellicciotti has conducted a series of town halls across the state to discuss retirement savings. It is important to raise the public profile of the issue, but we have doubts that Americans can be made to listen. In 2014, for example, Time magazine presented a cover story under the headline: “2030: The Year Retirement Ends”; but a decade later, saving often remains an afterthought.
Part of the reason for that is vastly increasing wealth inequity. According to the nonpartisan Economic Policy Institute, average worker pay increased 18 percent from 1978 to 2021, while CEO pay rose 1,460 percent. The typical CEO now makes 400 times as much as the average worker.
Over that time, wages have not kept up with increases to the costs of shelter, food, education and health care, making it more difficult for workers to save. And household computers and cellphones — essentials for navigating modern life, not luxuries — have added to household expenses.
On top of that, the nature of retirement saving has been transformed. As recently as 30 years ago, about 38 percent of U.S. workers had defined pension plans from their employers; now, that number is approximately 13 percent. Those pensions have largely been replaced by 401(k) savings plans, but not enough workers take advantage of that option.
Education is one method for helping Americans understand the financial realities of their future. Pellicciotti notes that most states, unlike Washington, make personal finance classes a requirement in public schools.
Oregon passed a bill this year making it a graduation requirement, with the Senate president saying, “Our students must be prepared to make major financial decisions immediately upon graduating high school, if not sooner. This bill will help ensure our young people are leaving school with the skills they need to make good financial decisions now and throughout their lives.”
Washington would be wise to follow suit. Financial knowledge is an essential life skill.
In addition, many states have set up automatic paycheck deductions that go into retirement accounts managed by nonprofit organizations. “Retirement is something that needs to be easy — easier for employees and easier for employers to provide,” Pellicciotti said in Yakima.
Indeed. Lest the headlines of today become the painful reality of tomorrow.
