It seems that more American workers are stressed about retirement than ever before. According to a 2017 Retirement Confidence Survey, an annual joint effort conducted by the Employee Benefit Research Institute (EBRI) and Greenwald & Associates, half of those employees said they would be more productive at work if they didn’t spend so much time worrying. Thirty percent of workers feel mentally or emotionally stressed about preparing for retirement, and another 30 percent say that they worry about their personal finances even while at work. “The percentage of workers who feel very confident in being able to afford a comfortable retirement is low,” said Craig Copeland, EBRI senior research associate, and co-author of the report. “Furthermore, many workers are worried about retirement issues and their personal finances more broadly.”
The three contributing factors are lack of an employer-sponsored retirement plan, debt, and low savings. Is there a better solution out there? Read on to find out what more than 30 states have considered or already passed into legislation to help their workers find a better way to save.
WHY CAN’T YOU DO IT THE OLD WAY?
Once upon a time, American workers got a job, went to work, and then retired after 30 or 40 years with a nice pension that lasted them for the rest of their lives. That model – known as the defined-benefit plan, promised employees a specific amount of monthly retirement income based on a formula that took into account their salary, years of service, and age. It was a nice benefit that inspired loyalty and service and made retiring easy-peasy. The worker didn’t have to worry about stocks or bonds unless they wanted to, and that pension income plus Social Security was usually enough to retire on even if the stock market took a nosedive.But then something unexpected happened: we started to live longer. Companies started having problems because they couldn’t afford to pay out the pensions and many of them filed for bankruptcy. Enter the new way: defined contribution plans such as the 401(k). These plans give employees an individual retirement account that grows through investments accumulated by both employer and employee contributions. Annual returns are based on investment performance and generally not guaranteed, but these plans can give workers access to annuities upon retirement.
THE PROBLEMS: WHERE DO YOU EVEN START?
“I continue to be struck by the relatively small share of workers who do formal retirement planning.” said Lisa Greenwald, assistant vice president of Greenwald & Associates, and co-author of the Retirement Confidence Survey. In many cases, the problem is lack of access to a plan. In the state of California today, 7.5 million people work for an employer who doesn’t offer a retirement plan, and more than a third of nongovernment workers in the United States don’t have access to a retirement plan according to the latest research. Another obstacle is mounting debt, particularly for younger savers. Current research from the Pew Charitable Trusts found that eighty-seven percent of workers under the age of 40 reported debt, with 48 percent of that debt coming from credit cards and 44 percent from student loans. But what also bears mentioning is that younger workers are generally confused about the many aspects of these plans. Not everybody is comfortable with the world of investing, and playing the stock market is not for the faint of heart. In 2008, the nation’s 401(k) and IRA plan lost about $2.4 trillion in the final two quarters of 2008, and the average loss for workers who had been on the job for 20 years was about 25 percent. What kind of stocks should you be invested in? What percent should be allocated to bonds? Are some kinds of bonds better than other kinds of bonds? These questions might sound basic, but more than a third of workers under 30 couldn’t even name the type of retirement plan their employer offers.
THIS MIGHT BE A BETTER WAY TO SAVE
In spite of congressional pushback, California officials have vowed to implement a state-run retirement program that was signed into action by Governor Jerry Brown on September 29, 2016. The mission of the plan, named Secure Choice, is to promote greater retirement savings for the workers of California who currently lack access to plans. The program is voluntary, low-risk, low-cost, and portable. Because the contributions are pooled and managed, employees are given greater access to higher returns for lower fees. For small businesses, the work it takes to set up the plan is minimal. Risks to the state are also minimized because the accounts are financed entirely with employee contributions and so they do not present the fiscal problems that crop up with public pension plans.While even proponents of the plan point out that it’s not perfect, it gives a place for millions of employees to start saving consistently. Other states such as Illinois also plan to move forward with their version of Secure Choice even in the face of a recent ruling that blocks progress. “We want to make sure that Illinois employees have access to workplace retirement savings, so they can prepare for their retirement and be able to enjoy their golden years,” saidIllinois Treasurer Michael Frerichs. More states around the country are also looking into ways to use and offer the efficiencies of public retirement systems. Here is a list of the states that have introduced or enacted legislation to help workers who need a better way to save for retirement. We at Annuity Gator don’t offer retirement plans to help you save, but we do offer advice on retirement income plans. An annuity is a traditional way to receive income from a defined benefit pension plan. If you have money saved in a 401(k) or IRA, then you can get rid of your money stress by getting the guarantees enjoyed by the pensioners of the good-old days. Shop around and compare to find the annuity that gives you the right amount of income for the right amount of time. We offer free retirement income planning feedback without any high-pressure sales pitches because we don’t work for an insurance company, we work to provide facts to you, the consumer. Do you have income planning questions? GO HERE to get started.