Report: New SECURE 2.0 retirement law still falls short for low-income workers
Even up to 40% of middle-income workers are at risk of slipping into near-poverty in retirement, according to the Schwartz Center for Economic Policy Analysis, which recommends universal retirement accounts.
As the year draws to a close, another round of changes to the U.S. retirement system is on tap — via the SECURE 2.0 Act of 2022, which has just been passed by Congress.
Part of the $1.7 trillion 2023 omnibus appropriations bill unveiled in late December and passed by the Senate and House before Christmas, the SECURE 2.0 Act includes, as CNBC.com reports, provisions “intended to build on improvements to the retirement system that were implemented under the 2019 SECURE Act. Those changes included giving part-time workers better access to retirement benefits and increasing the age when required minimum distributions, or RMDs, from certain retirement accounts must start — to age 72 from 70.5.” (The new law increases that mandatory age to 73 in 2023.)
SECURE is an acronym for “Setting Every Community Up for Retirement Enhancement,” and other provisions of SECURE 2.0 include small incentives to contribute to a retirement plan, emergency expense distributions, automatic enrollment in a retirement plan, a higher catch-up contribution limit, a savers’ match, and an employer fund match for student loan payments.
A change in the retirement system is greatly needed, because the current system
disproportionately benefits those with high incomes, according to a new report from the Schwartz Center for Economic Policy Analysis (SCEPA). The report calls for a universal retirement plan that would reduce inequality and prevent downward mobility. Unfortunately, researchers say, SECURE 2.0 “will not address the fundamental inadequacies imbedded in it.”
As the report’s co-authors Siavash Radpour, Eva Conway, and Teresa Ghilarducci write: “The retirement crisis is a real and growing threat. Social Security, retirement savings, and other private retirement assets represent the largest components of household wealth and are among the most unequally distributed forms of wealth among households in the bottom 90% of wealth distribution. Social Security plays a major role in reducing inequality in retirement wealth and wealth in general. However, wealth inequality, driven by a lack of private savings, leaves many retirees unable to maintain their pre-retirement income, putting them at risk of a sharp decline in their living standards as they age.”
Serious legislative proposals to address the retirement crisis should aim to fix the massive inefficiencies, inequities, and inadequacies of the current retirement system, the authors claim.
A 26% reduction in elder poverty by 2045?
Among the report highlights:
- Due to the “systemic flaws” of the U.S. retirement system, between 2019 and 2045, the number of poor or near-poor people over the age of 62 will increase by 22.3% — from 18 million to 21.3 million.
- Universal access to retirement savings may be one of the best complements for a re-enforced Social Security to supplement retirement income and ease the retirement crisis.
- Even under conservative assumptions, universal access could reduce elder poverty by 26% by 2045 if all workers had access to a workplace retirement plan in 2019.
“We pinpoint the lack of workplace retirement plan coverage as the main cause of inadequate and massively unequal retirement wealth,” said Radpour, associate research director of SCEPA, which is a policy research center housed within The New School’s economics department. “Universal retirement accounts and providing workers with more equitable and better targeted tax incentives are among the best methods to supplement Social Security, address inequality, and prevent downward mobility in retirement.”
The SCEPA report also makes the following policy recommendations:
- Establish a universal retirement plan, similar to Guaranteed Retirement Accounts
- Make retirement tax expenditures more equitable, which the authors argue also would make them more effective and efficient.
- Protect retirement savings from the urgency of short-term spending needs, especially among individuals with incomes who are more likely to need access to cash.
- Strengthen and expand Social Security, which the authors call “the bedrock of the American retirement system.” They add that “Social Security retirement and disability insurance ensure that workers will have a secure stream of income that keeps them out of poverty, no matter what happens to them.”