UNITED STATES: Speaker of the House Nancy Pelosi, D-Calif., holds her weekly news conference in the ... [+]
For workers nearing retirement, the coronavirus pandemic threatens personal finances nearly as much as it does personal health. While the economic fallout from the coronavirus affects us all, workers over 55 have a distinct disadvantage: they not do not have time to recover. If and when the economy picks back up again, it can take years for an individual’s investments to recoup their value, if at all. For those who need to retire or are forced to retire involuntarily because they cannot find another job, it may be too late. They face a retirement marked by deprivation.
Older workers have been left out of the federal government’s response to the economic crisis caused by the coronavirus pandemic. If we don’t end this oversight in the next “Phase 4” stimulus package, millions of middle-class workers will fall into poverty or de facto poverty as they retire over the next ten years.
To save retirement, five policies must be included in the next federal stimulus package.
1. Expand Unemployment Benefits and Extend Medicare
Credible estimates have the jobless rate rising to as high as 30% in the coming months, which could imply as many as 12 million older workers losing their jobs. When the economy does recover, older workers will face greater barriers in returning to work than their younger counterparts. Older workers are likely to be unemployed longer than younger people, and when they find a job they will on average earn 20% less than their previous salary.
To support these workers, in addition to the extra $600 a week for all the unemployed, we need to raise unemployment benefits for workers over 55 for at least until the end of the year. The extra benefits will recognize older workers’ increased fragility in the labor market. And to ensure access to health care coverage if they can’t find a job—or they are a 1099 worker or their employer does not offer health care—we should lower the eligibility age for Medicare to 55.
2. Increase Social Security Benefits by $200 a month
Help to seniors beyond the $1,200 checks was not included in the first three stimulus packages. Many seniors have nothing but Social Security because employers do not have to provide a pension plan. Employers of low and middle income workers are less likely to offer any retirement plan. Without a plan at work, many workers are not able to save enough. Lower and middle income workers are also more likely than higher income people to withdraw money from their long term retirement savings to meet short term needs, which substantially sets a person back in meeting their target savings.
Since Social Security provides necessary and reliable retirement income, benefits need to be increased permanently to drastically lower elder poverty. To begin, policy makers can implement Social Security "Catch-Up" Contributions, a program that defaults workers into contributing an additional 3.1% of their salary into Social Security starting at age 50. The proposal would increase monthly benefits at all earnings levels. Luckily, we know this can be done.
3. Prohibit Federal Aid to Companies That Stop Contributing to Workers’ Retirement Accounts
Our retirement system relies on employers to sponsor retirement plans in the form of traditional pensions or retirement savings accounts like 401(k)s. Even in the best of times, relying on employers to voluntarily provide retirement coverage is why around half of all workers do not have retirement coverage.
But in times of economic crisis, employers who do offer coverage will pull back on their promises to match their employees’ contributions. This is happening already, including at major companies such as Marriott and Amtrak. Sadly, even our heroic health care workers are not immune from the benefit cut. Federal support going to private companies should reward those who continue to fulfill their commitments to employees.
4. Reverse Policy Allowing 401(k) Withdrawals Without Penalty
The CARES act suspended financial penalties for those making pre-retirement withdrawals from their 401(k) and IRA accounts. On its face, this sounds like a good thing. However, this removes a disincentive that is in place for a reason: it protects retirement funds from falling prey to short-term needs. Rather than encouraging people to sacrifice their future selves, policy makers need to find other ways to help affected workers pay their bills today, including expanded unemployment insurance.
5. Long Term Fixes: Create a Public Option to 401(k) Accounts
The pandemic’s effects on the stock market are wiping out retirement wealth. Why? Because Congress and employers shifted the all the risks of recession to individuals over the last 40 years by favoring the individual-directed, voluntary, and commercial 401(k)-type accounts. As 401(k) holders see their retirement wealth fall by 20% or more in this recession, individuals bear the burden. Those nearing retirement may never catch up.
The erosion of 401(k) and IRA balances is a predictable symptom of our broken retirement system. The systemic fix is to create a public option as an alternative to volatile defined-contribution accounts. Guaranteed retirement accounts would invest workers' retirement contributions in pooled accounts that guarantee a stable rate of return, immune from the ups and downs of the market. This stability heads off the possibility of becoming old and poor just because you are the wrong age at the wrong time in the business cycle.
Of the more than 15 million workers aged 55 to 64 in 2020, we predict nearly half could be poor or near poor by the time they’re 65. This number will surely grow as a COVID-19 recession destroys pension accounts and older workers’ jobs—and if the federal government does too little to help in its next round of stimulus.
