We must save more for retirement

The Observer editorial board

With the long-term health of Social Security uncertain, workers need to save more for retirement.
With the long-term health of Social Security uncertain, workers need to save more for retirement. Getty Images

We stink at saving for retirement.

That’s one of the takeaways from a recent report on retirement in America, co-published by the Institute for Policy Studies and the Center for Effective Government.

The other big finding? America’s top CEOs are really, really good at it.

So good, in fact, that the company-sponsored retirement assets of the top 100 CEOs equal the retirement savings of 41 percent of U.S. families – a whopping 50 million households. The CEO-to-worker retirement gap is even bigger than the more familiar pay gap.

Helping to widen the gap is the fact that Fortune 500 CEOs have some $3.2 billion socked away in special tax-deferred retirement accounts that aren’t subject to the same annual contribution limits governing 401(k)s.

That’s a snarl-inducer for workers who see CEOs and corporate boards killing pensions and trimming 401(k) benefits, bumping up the quarterly earnings report – and CEO compensation – in the process.

Still, the practical solution isn’t necessarily to go after CEOs. It’s to help the average worker stink less at saving for retirement. Nearly half of U.S. workers have no retirement savings, according to testimony Washington University researcher Michal Grinstein-Weiss offered in March to the U.S. Senate’s Special Committee on Aging.

Among those who have retirement savings, the median account balance sits at a paltry $3,000 for working-age households and just $12,000 for households nearing retirement.

To be sure, many low-income people can’t afford to save for retirement. They’re struggling to pay more immediate needs like the electricity bill or the rent. They end up relying on Social Security, which was never intended to be a primary source of retirement income.

Many others could easily save more, but don’t because figuring out the right retirement strategy feels a lot like being told to do your Algebra homework in middle school – it’s complicated, and no fun.

One solution, Grinstein-Weiss told senators, is to take the headache factor out by automating the savings process. Automatically enroll employees in a payroll-deduction savings plan. Such plans could set the initial paycheck deduction at a modest amount, then automatically increase over the years. Employees could opt out if they choose.

Such auto-enrollment programs have shown promise in some states. In Illinois, a 2014 law calls for private-sector workers in small businesses with at least 25 employees to be automatically enrolled in a Roth IRA, with a 3 percent contribution rate. Maine deposits $500 into college savings accounts for every newborn.

Republicans and Democrats have put such retirement-boosting ideas forward in Congress, and President Barack Obama called for similar reforms in his 2015 State of the Union address.

But as we all know, not much beyond talk gets done in Washington, D.C.

The nation’s top CEOs can look forward to financially secure golden years. It’s easy – and understandable – to feel a twinge of envy, but the rest of us had better make sure we aren’t shortchanging our own futures.