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Demographic Influences on Retirement Security

Demographic Influences on Retirement Security

Al Waller: Saving, investing, and planning for a financially secure retirement is a major challenge for just about everyone. It can be especially difficult for some people more than others.

Welcome back to ClearPath – Your Roadmap to Health & WealthSM. I’m your host, Al Waller. Joining me is Catherine Collinson, founding CEO and president of nonprofit Transamerica Institute® and its Transamerica Center for Retirement® Studies to discuss the current state of retirement security among U.S. workers and how demographics can influence their ability to successfully prepare for retirement.

Before we get started – a reminder that we would love to hear from you and learn what topics you would like us to cover or give us feedback on this episode. Please drop me or Catherine a note at [email protected].

Catherine, you and your team recently did a deep dive into demographic influences on retirement readiness. You published a survey report Emerging From the COVID-19 Pandemic: A Compendium About U.S. Workers’ Retirement Outlook. Tell us about the report and what you found.

Catherine Collinson: The Compendium is based on a survey of employed workers at for-profit companies conducted in late 2021. It offers more than 35 key retirement indicators by demographic breakouts, including household income, employment status (full-time, part-time), and level of educational attainment, among others.

Amid societal concerns about Social Security, the disappearance of traditional defined benefit pensions, and intensifying expectations that workers self-fund a greater portion of their retirement income, our research found that many workers are inadequately saving, and they are at risk of not achieving a financially secure retirement.

And when we think about this, we live in a time when there's widespread concerns about Social Security. Traditional pensions have been vanishing from the retirement landscape. And workers are increasingly expected to self-fund a greater portion of their future retirement income.

To illustrate, our survey finds that almost half of workers (49 percent) expect their primary source of retirement income to come from 401(k)s, 403(b)s, Individual Retirement Accounts or IRAs, and other savings and investments. However, the total household retirement savings among workers is just $67,000 (estimated median). And when you think about it, $67,000 just doesn't go that far in a retirement that could last 20 or 30 or more years.

Al Waller: Well, Catherine, it's been said many times that our money doesn't go as far as it used to. Let’s delve into some of the groups that are more vulnerable and discuss potential interventions and solutions.

Catherine Collinson: That sounds like a plan. At risk of stating the obvious, it’s a lot easier to save if you have money than if you don’t. Lower-income workers are facing a double whammy because they have less income available to save and they are less likely to be offered retirement benefits by their employers.

Only six in ten workers (60 percent) with a household income (“HHI”) of less than $50,000 are offered a 401(k) or similar plan by their employer, compared with approximately three in four workers with an HHI of $50,000 or more.

It’s hardly surprising, retirement savings increase dramatically with household income. But you still may be astonished by the orders of magnitude. Workers with an HHI of less than $50,000 have saved just $3,000 in total household retirement accounts, while workers with an HHI of $50,000 to $99,000 have saved $42,000, and those with an HHI of $100,000+ have saved $172,000 (estimated medians).

Almost half of workers with an HHI of less than $50,000 (48 percent) expect to retire at age 70 or older or do not plan to retire. Thirty-five percent expect Social Security to be their primary source of retirement income.

Al Waller: Wow, those are stark contrasts!! Just listening to the figures that you just quoted here, the gulf between those groups and respective numbers is absolutely astonishing. Given the disparity, what can be done to help lower income workers improve their retirement outlook?

Catherine Collinson: The single most important ingredient for a worker to achieve a secure retirement is access to meaningful employment with competitive compensation and benefits throughout their working years. Workplace retirement savings plans, such as 401(k)s or similar plans, have proven to be the most effective way to promote savings among workers.

Expanding retirement plan coverage so that all workers have the opportunity to save in the workplace can be especially helpful for lower income workers. Raising awareness of the Saver’s Credit, a tax credit for retirement savers, can be helpful too. Our survey found that fewer than half of all workers are aware of it.

Al Waller: I'm glad you referenced the Saver’s Credit. For our listeners who aren’t familiar, we recently dedicated an episode of this podcast to the Saver’s Credit. I hope you’ll check it out.

Now, let’s touch on the difference in retirement readiness between part-time versus full-time workers.

Catherine Collinson: Many employers offer health, retirement, and other benefits to their full-time employees, but they do not extend eligibility to their part-time employees. With lower pay and less access to employer-sponsored benefits, part-time workers are at a disadvantage in saving for retirement. Our survey found that only 19 percent of part-time workers “strongly” agree they are building a large enough retirement nest egg.

Also, to illustrate the benefits gap, slightly more than half of part-time workers (51 percent) are offered a 401(k) or similar plan by their employer, compared with 77 percent of full-time workers.

In terms of total household retirement savings, part-time workers have saved just $29,000, while full-time workers have saved $74,000 (estimated medians).

Forty-eight percent of part-time workers expect to retire at age 70 or older or do not plan to retire. Twenty-nine percent expect Social Security to be their primary source of retirement income.

Al Waller: Catherine, on this podcast, we recently discussed new retirement legislation, the SECURE 2.0 Act of 2022. I recall your mentioning a provision that will help more part-time workers gain access to employer-sponsored retirement benefits.

Catherine Collinson: Al, you are indeed correct. Beginning in 2025, SECURE 2.0 imposes more stringent requirements for employers offering retirement benefits to extend eligibility to their long-term, part-time employees.

As a tip for part-time workers, I’d also like to suggest seeking out full-time employment with benefits, when possible. Our research finds that many part-time workers do so because they are balancing other responsibilities such as parenting, caregiving, going to school, or even transitioning into retirement. However, if and when the appropriate time comes, consider taking on a full-time job. It can be financially advantageous in the long run.

Al Waller: Good counsel there, and I guess what it really comes down to is your personal circumstances regarding opting for part-time versus full-time employment. But given the numbers you shared, the financial saving figures here are pretty compelling.

Now, let’s move onto the next demographic analysis which addresses level of educational attainment. With the skyrocketing cost of higher education, we’ve all likely read or heard news stories questioning if the expense of a college degree is really worth it. What did your team’s research find about the retirement prospects of those without a college degree versus those with a degree?

Catherine Collinson: In short, our research finds that having a college degree makes a big difference. Contextually, a college degree can bring career opportunities, higher pay, and better employer benefits, which translate to improved retirement confidence. Among workers aged 25 and older, our survey found that those with a college degree are twice as likely as those without a degree to be “very” confident in their ability to fully retire with a comfortable lifestyle (35 percent, 17 percent, respectively).

More than four in five workers with a college degree (82 percent) are offered a 401(k) or similar plan by their employer, compared with just two-thirds or 67 percent of workers without a college degree.

Workers without a college degree have saved $32,000 in total household retirement accounts, which is less than one-fifth of the $170,000 saved by workers with a college degree (estimated medians).

Forty-two percent of workers without a college degree expect to retire at age 70 or older or do not plan to retire. Thirty-two percent expect Social Security to be their primary source of retirement income.

Al Waller: The research speaks for itself!! And as far as the cost of pursuing a degree, allow me to inject an observation regarding the local Community College and State College options because I found during my days doing corporate recruiting, that those candidates armed with degrees from those institutions were successful and, oh, by the way, didn't carry the sizable college debt hanging over their shoulders afterwards.

During our recent podcast about SECURE 2.0, you also shared the good news that the new legislation has a provision to make it easier for workers to save for retirement while paying off their student loans.

Catherine Collinson: Yes, I did. Thanks to SECURE 2.0, employers offering a 401(k) plan may add a feature that enables them to make a matching contribution to the plan in the amount of an employee’s qualified student loan payments if they are not saving in the plan.

This is terrific news. What we see in our research is younger generations are graduating from college with higher levels of student debt, and they have competing financial priorities. It's super important for them to get started on their retirement savings journey to fully leverage their long-term savings horizon, but for some it's just not feasible. So, this new provision in SECURE 2.0 is kind of a best of both worlds situation. They can pay their student loan repayments, the employer can make a matching contribution into the plan reflective of those payments, and they're off and running on their savings journey.

Al Waller: As we wrap up our conversation, I’ve heard loud and clear the common theme of the importance of expanding access to workplace retirement plans. What encouraging words can you offer our listeners that help is on the way?

Catherine Collinson: Al, there’s lots of good news to report. Policymakers have been focusing heavily in this area. SECURE 2.0 makes it easier and more affordable for small businesses to adopt a 401(k) or similar plan or join a multiple employer plan or pooled employer plan. Also, many states are in the process of implementing state-facilitated retirement savings programs.

But progress takes time. In the meantime, workers without access can still save in tax-advantaged retirement accounts on their own. Stay tuned because we’re dedicating an upcoming episode of ClearPath – Your Roadmap to Health & Wealth on how to save for retirement if you’re not offered the opportunity to save in the workplace.

Al Waller: That’s excellent – I’m looking forward to it. You also touched on a couple of other themes that I’d like for you to comment on before we sign off, including workers’ expectations of working into older age, as well as expectations of reliance on Social Security.

Catherine Collinson: Absolutely - let me take both themes one at a time. The first theme that you touched on is expectations of working longer and retiring at an older age.

Many workers across demographics expect to work beyond traditional retirement age – and plan to continue working in retirement. Doing so can bring income, benefits, opportunity to save, and time to potentially bridge savings gaps – and it can provide opportunities to stay active, maintain social connections, and have a sense of purpose. However, it won’t happen automatically. It requires safeguarding your health, so you can continue working and keeping your job skills up to date with the employment market.

Your second point is about expectations of relying on Social Security. I encourage all our listeners, especially those who expect to live on Social Security, to learn as much as possible about their benefits and claiming strategies to optimize them. We dedicated an episode of this podcast to Social Security Explained, I hope you’ll check it out.

I also encourage everyone to stay abreast of any potential changes to Social Security that could affect them. Given its funding status, reforms are imminent, but we just don’t yet know when or how they will take shape because any changes, in fact, will likely impact our own retirement planning.

Al Waller: Thanks, Catherine, for your thorough research and sage guidance. For our listeners out there who are interested in the research report we’ve discussed today, Emerging From the COVID-19 Pandemic: A Compendium About U.S. Workers’ Retirement Outlook, you can it find at www.transamericainstitute.org.

Until our next episode, stay safe, be well, and thanks for listening.

ClearPath – Your Roadmap to Health & Wealth is brought to you by Transamerica Institute, a nonprofit private foundation dedicated to identifying, researching, and educating the public about health and wellness, employment, financial literacy, longevity, and retirement. You can find our weekly podcast on WYPR’s website and mobile app, wherever you get your podcasts, and at transamericainstitute.org/podcast.

ClearPath – Your Roadmap to Health & Wealth is produced by the Transamerica Institute with assistance from WYPR.

The information provided here is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical, or financial advice or guidance.

Al Waller is a long-time Baltimore native and employment expert with a 30-year career in leading and advising locally and globally based corporations on matters including: Talent Acquisition and Retention, Employee Relations, Training and Development.
Catherine Collinson is the founding president and CEO of nonprofit Transamerica Institute and its Transamerica Center for Retirement Studies, and she is a champion for Americans who are at risk of not achieving a financially secure retirement. With two decades of retirement industry-related experience, Catherine is a nationally recognized voice on workforce, aging, and retirement trends. She was named a 2018 Influencer in Aging by PBS’ Next Avenue. In 2016, she was honored with a Hero Award from Women’s Institute for a Secure Retirement (WISER) for her tireless efforts in helping improve retirement security among women.