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Aug 14 2020

Retirement Insecurity

At the worst of the Great Depression, one-quarter of the U.S. workforce was unemployed. Millions of Americans were homeless and breadlines were common in many cities. The prospects for older Americans was particularly grim—half lived in poverty.

On August 14, 1935, President Franklin Roosevelt signed the Social Security Act, stating that “we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age. This law, too, represents a corner stone in a structure which is being built but is by no means complete...”

Social Security not only has prevented tens of millions of men and women from falling into poverty, it has become the bedrock of retirement security for all Americans. However, the “three-legged stool” of retirement—Social Security, pensions and private savings—has been slowly coming apart. Since the late 1980s, the percentage who receive traditional pensions has been cut by more than half. Today, less than half of low wage earners have defined contribution accounts like a 401(k) or IRA. 35%of near retirees—those ages 55-64—have neither a defined benefit pension nor a defined contribution plan.

The coronavirus recession poses a unique threat to older workers nearing retirement, many of whom had struggled to save enough for a secure retirement even during the Obama-era economic expansion. Americans over age 55 are now in a doubly precarious position, facing both economic uncertainty and the health risks of a pandemic that is particularly dangerous for their age group.

Approximately 60 percent of working-age Americans have no savings in retirement accounts. One-third of near retirees—those ages 55-64—have neither a defined benefit pension nor a defined contribution plan. For those older Americans who are fortunate to have retirement savings, the median value of their accounts is only $88,000. As a result, many are working beyond the traditional retirement age of 65. These challenges are explored in depth in the recent update of the Joint Economic Committee report, Retirement Insecurity.

However, this work is proving more difficult to find. In past recessions, older workers largely fared better than prime-age workers, facing lower unemployment rates than their younger peers. Traditionally, their years of working experience have been valued by employers. But in the first months of the coronavirus recession, the unemployment rate for workers over 65 rose substantially faster than the rate for prime-age workers.

Congress acted decisively this spring to provide economic support to American families as the economy headed toward its highest unemployment rate since the Great Depression by passing enhanced unemployment benefits, direct payments, the Paycheck Protection Program and other measures. Research has found that this swift action likely prevented a much worse recession and a significant increase in poverty.

Many of these policies, like the $600 in additional weekly unemployment benefits, were temporary. However, the health crisis, which caused the economic catastrophe those measures were designed to address, has significantly worsened. In recent weeks, there has been a weekly average of more than four times as many new confirmed cases per day as when the Coronavirus Aid, Relief, and Economic Security Act (CARES) passed in March.

One critical but temporary policy was the Pandemic Electronic Benefit Transfer (P-EBT) program, which helps low-income families with children replace the meals they received from federally funded school meal programs before the coronavirus forced their schools to close. P-EBT was created as part of the Families First package in early March and an extension was included in the House HEROES Act passed in May. However, it was not included in the recent Senate Republican HEALS proposal. Instead of any provisions to address hunger among low-income children and families, the HEALS proposal included an increase in the deduction for business meals that has been widely criticized and derisively called the “three-martini lunch deduction.”