Outside the Box: How the U.S. can avoid a future where millions of retired Americans can’t meet their basic needs

The burden of preparing for retirement is increasingly difficult for middle-class workers. Housing, healthcare and long-term care costs are increasing faster than wages and salaries, while the shift from pensions to 401(k) plans has pushed more retirement risk onto employees.

For Americans facing chronic economic inequities, the retirement struggle is even more difficult. Older Black Americans have median household income that is just three-quarters that of their white counterparts, and they rely more on Social Security than older whites. Older Latinos have less retirement income than either whites or Blacks and more income from earnings because they continue working into older age, due in part to their lack of retirement savings.

Depending on a worker’s age, the Covid recession likely has impacted Americans’ retirement in different ways. Workers in their 60s who lost a job may have decided to claim Social Security early. Unfortunately, claiming Social Security early means substantially lower monthly benefits. Younger workers, especially millennials, who have already lived through one major recession, may see their start to savings delayed if they’ve lost a job. Delaying savings significantly reduces the total amount of savings a worker may accumulate by retirement age.

The U.S. is on a path to a predictable and unfortunate outcome — millions of working Americans unable to meet their basic needs in retirement. That forecast is especially grim for older Americans, for their families who would have to step in to provide financial support, and on strained social services and state and local governments.

But there is a way forward that would have meaningful and long-term impacts. Three policy actions would have a significant impact: address long-term care costs; create stronger tax provisions and strengthen and expand Social Security.

Address long-term care costs 

Long-term care has received a renewed focus given the toll  COVID-19 has taken on the nation’s nursing homes. According to Kaiser Family Foundation data, more than 91,000 older Americans have died in nursing homes or other long-term care facilities due to the coronavirus. 

More broadly, it is imperative that the Biden administration think seriously about long-term care because a growing number of baby boomers are retiring at a time when it is becoming increasingly difficult to afford the costs. As a result, many older American families find themselves forced to spend down their assets so they are eligible for long-term care coverage under Medicaid, putting even more pressure on this program. In fact, a recent report detailed Medicaid’s role as the largest payer of long-term care costs in the nation.

One model to consider is an innovative social insurance program in Washington State. Launching in 2022, Washington residents will pay 58 cents of every $100 into a long-term care trust fund. After ten years, residents can claim up to $100 a day in benefits, with a lifetime cap of $36,500. While a lifetime cap of $36,500 may seem small, it could go a long way for the many older Americans with more manageable long-term care needs. Washington State expects to reduce Medicaid costs with this program.

Create stronger retirement tax provisions

During his campaign, Biden released a substantive proposal to reform the tax credits associated with retirement savings. The current tax structure unfairly benefits high-income earners while doing little for low-income earners, especially for those with little or no tax liability. 

Reforming these tax benefits to promote savings across the income spectrum would empower low- and middle-income workers to save more for their future.

More importantly, Biden’s campaign proposal would create an “automatic 401(k) plan” for workers who do not have a retirement plan through their employer. Such action would be a bold step, solving a chronic problem that has plagued the nation’s retirement infrastructure for decades — it would make retirement plans available to all workers through their job. 

Strengthen and expand Social Security 

With regard to Social Security, the first step of the Biden Administration should be to work quickly with Congress to shore up Social Security’s financing to protect benefits and ensure the trust fund is sustainable. Given the large role Social Security plays in providing retirement income for the middle class, expanding benefits is one of the most direct paths toward relieving the burden of retirement for working families.

Expanding Social Security benefits could take several forms. It could be a straightforward increase in benefits either by a certain dollar amount or by targeting a slightly higher replacement rate of preretirement earnings. Expansion also could mean plugging holes in the existing system by establishing a minimum benefit level set above the federal poverty line. It  could involve establishing caregiver credits for people who take time out of the workforce to care for children, a spouse or parents. The spousal benefit could be updated to reflect the realities of 21st century life and the contemporary workforce. 

Two things are clear: Economic security is a top priority for Americans and political division persists. Enacting retirement policy solutions would be a win-win for the country — delivering real financial relief for working families on an issue that transcends political affiliation.

Dan Doonan is executive director of the National Institute on Retirement Security, a nonpartisan, non-profit think tank established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers and the economy as a whole.

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