Tyler Bond, Research Manager, National Institute on Retirement Security
Elaine Weiss, Lead Policy Analyst for Income Security, National Academy of Social Insurance
Many Americans had reason to be concerned about their retirement prospects long before 2020. For decades, the racial wealth gap between Whites and African-Americans has increased, while the gap between Whites and Latinos has not diminished. Workers of color and low-income workers have long had less stable jobs, which provided fewer supports and exposed them to higher risks.
Now, communities that were already the most vulnerable to being insecure in retirement have been hit hardest by COVID-19. This is especially concerning for women of color, who tend to have low-wage, front-line jobs.
The pandemic and resulting economic downturn are also affecting prospects for a secure retirement across generations. The impact for Boomers is the most immediate. While they have more years to earn and save for retirement, however, Millennials and members of Gen X face higher hurdles to security, and Gen Z may well end up in an even worse, situation.
On May 19, 2020, Academy Members and partners participated in a virtual roundtable on the COVID-19 pandemic's impact on retirement security for different generational cohorts.
The median household age 55+ with retirement savings has just $104,000 put away, according to the GAO. A large share has no savings at all, and these figures vary substantially across subgroups. As a recent study by the National Institute on Retirement Security (NIRS) highlights, older women have only 83% of the household income of their male counterparts. Older Latinas and Black women have much less – just 63%. While most Boomers rely heavily on Social Security, the NIRS report finds that those benefits represent a much larger share for low-income older men and women – with Black and Latinx retirees disproportionately represented.
This downward trend in retirement security is particularly pronounced among Millennials, who face a unique set of economic challenges. As a recent Atlantic article asserts, “Millennials are the New Lost Generation.” Many of them entered the labor force during, or in the immediate aftermath of, the Great Recession, making for a rocky start. That instability is compounded by prohibitive costs of education, housing, and child care, which depress Millennial workers’ ability to save for retirement through their 20s and 30s.
There is also stark inequality in the ownership of financial assets. According to another NIRS report, the top 25% of Boomers by net wealth owned 91% of that generation's financial assets in 2016, and the top 25% of Millennials owned nearly as high a share, 85%. While the wealth disparity among Millennials appears slightly smaller, the high level is especially concerning given how early Millennials are in their lifecycle. This wealth concentration predicts much larger disparities as Millennials get closer to retirement. And the COVID-19 crisis points to further disproportionate loss of ground; a recent study finds that “52 percent of people under the age of 45 have lost a job, been put on leave, or had their hours reduced due to the pandemic, compared with 26 percent of people over the age of 45.”
Millennials, now the largest segment of the U.S. workforce, are by far the most diverse labor force in U.S. history. This offers the potential to leverage a much broader and more innovative set of perspectives. It also highlights the challenges that women, African Americans, Latinx, and immigrant workers face relative to their white, male, US-citizen peers in earning enough to thrive and to save for a dignified retirement. As Generation Z, which will further enhance that diversity, enters the workforce, will we act to improve their prospects for a secure retirement?
The 85-year old Social Security program remains a key element of a secure retirement for most Americans. A second element, pensions, which provide similar stability to that of Social Security, have been eroded in recent years by a series of policy choices. And the third element, retirement savings accounts, reveals growing disparities and weaknesses. The importance of shoring up all three and striking a better balance among them is thus increasingly clear.
Most immediately, Congress can address the looming shortfall in Social Security’s financing to prevent future benefit cuts for all retirees. These cuts would fall particularly hard on low-income beneficiaries and communities of color.
Congress should also consider ways to bring Social Security into the 21st century, such as enhancements that improve stability for today’s older workers, making adjustments to the spousal benefit, providing caregiving credits, and reinvigorating the minimum benefit, which has eroded to support only a fraction of today’s beneficiaries. The latter option is being explored by the Academy’s Economic Security Study Panel and was highlighted last spring in a concept paper, Assured Income.
Policymakers should also bolster other legs of the retirement “stool,” giving more retirees access to workplace savings plans and public pensions. States can enact state-facilitated retirement savings plans, like CalSavers and the Illinois Secure Choice plan, while Congress can build upon the provisions of the SECURE Act to incentivize employers to offer retirement plans to part-time employees. Congress could also consider enhancing the Saver’s Credit to support retirement savings among low-income Americans. Finally, state and local leaders must strengthen funding for their pension plans for the firefighters, nurses, teachers, and other front-line workers who are, indeed, essential in the fight against COVID-19.
Recently, President Trump, via executive action, created a payroll tax “holiday” that he threatens to turn into a permanent “vacation.” Changing Social Security’s dedicated sources of income, especially at this critical moment, would greatly weaken retirement security for today’s older workers and for future generations. Instead of destabilizing this vital pillar of our nation’s long-standing social insurance infrastructure, we must ensure bright prospects for a secure retirement for all generations.