American women are facing a much bigger retirement crisis than men. They are likely to earn less during their working lives, and then to live longer after they retire. And if they take on extra unpaid responsibilities instead of paid work, such as looking after children, elderly parents, or — most financially devastating of all — a sick or disabled spouse, the problem gets even bigger.
So reveals a recent study from the National Institute for Retirement Security, a think tank.
And it raises the issue of what people can do about it—both as individuals, taking responsibility for their own retirements, and together through public policy.
“Older women receive approximately 80 percent of the retirement income that older men receive,” report researchers Tyler Bond, Joelle Saad-Lessler and Christian Weller.
The 20% gap between men and women’s average retirement income, says the NIRS, is about the same as the ‘gender pay gap’ during working years.
The gap really gets worse in later retirement, as more women become widows, they note.
“Women experience a steep decline in income past 80,” they write. “Women age 80 and older are much more likely to be widows… Health care costs and long-term care costs in retirement are challenging for most people, but can be more so for women, who bear these costs for longer and may have already spent down assets if their spouse predeceases them.”
This isn’t new. “Women with husbands who are 2.5 years older should expect to be the sole breadwinner of their households for over a decade,” says Diane Garnick at TIAA.
Sandra Gilpatrick, a financial planner in Boston who specializes in helping female clients, says many women are caught in a vicious circle. “Women are still the primary care givers to both their older parents and to young children,” she says. “Trying to balance a job with care giving obligations is a losing workforce proposition.”
If women work fewer hours, they earn less money and miss out on promotions. They also have less money available to sock into their 401(k) or equivalent. Oh, and if they earn less money over their careers they’ll also get a smaller Social Security check, she adds.
Labor economists note the gender pay gap has multiple causes, such as career and life choices, in addition to direct sexual discrimination. Regardless, it’s there and the effects on retirement can be severe.
Women earn less than men, on average, during their careers. Women who take time out to raise children lose years of working credits toward Social Security and possibly other pension plans. And women who work part time, such as while raising children or after children go to school, may be ineligible for participation in a company’s 401(k) plan or equivalent. Women are nearly twice as likely as men to be working part time, the NIRS researchers point out.
All of this adds up.
In total, the researchers argue, 27% of American women over 65 are poor or “near poor,” compared with 20% of American men.
On the other hand, say researchers, women who get and stay married, and those who have children young or not at all, are far less likely to face a retirement crisis than their peers.
So too, are those who choose public-sector careers, such as teaching, that come with solid final salary pension plans (though the funding issues in many of those plans may raise concerns for the future).
“Women in a first marriage, especially one in which both spouses work and both spouses save, have the best retirement outcomes,” says the NIRS. “Married older Americans, both men and women, fare better in retirement than any group of non-married older Americans, whether divorced, widowed or never-married.”
Just 13% of married women over 65 are poor or “near poor,” they report.
The figure among divorcées over 65? Try 35%.
(Meanwhile the rates of poverty, and near poverty, for the over 65s who’ve never married are more than 40%. And that’s true for men as well as women.)
But what is to be done?
There are clear public policy measures that would be likely to help, such as eliminating unfair pay disparities, and providing more taxpayer support for child care costs so more young mothers could go back to work earlier. Public policy measures that helped the retirement crisis across the board would benefit both sexes.
More companies offering paternity leave is another social or public policy change that could move the dial, notes Gilpatrick. “What I would love to see happen is men taking paternity leave! Having more men take advantage of their workplace paternity benefit will help ease the burden on working women.”
But while we are waiting for these things to happen, there are practical things individuals, particularly individual women, can do right now to help their situation, advisers point out.
Gilpatrick highlights two: Spousal IRAs for stay at home moms, and long-term care insurance.
A spousal IRA is simple. It lets you sock away up to $6,000 a year in pretax money for your retirement, even if you’re not working but your spouse is.
Long-term care insurance, notes Gilpatrick, is especially important for women.
“Most long term care needs are at the end of life,” she says. “So who will be there to help if you outlive your spouse? Also, being a caregiver takes both an emotional and physical toll. Wives who may be expected to care for their husbands can see their own health rapidly devolve. I worry most about women who are a decade plus younger than their husbands without long term care planning.”
Meanwhile, if women face a bigger retirement challenge than men they need to invest at least as aggressively for long-term accumulation, if not more so. Instead, the reverse is true.
A remarkable study by Mass Mutual, the insurance company, a few years back found that women overall admitted they were less confident about making financial plans and less confident about handling investments. The gender gaps were simply amazing. For example, women who had college degrees still felt less confident about investing their retirement savings than guys who had dropped out of high school. Men with degrees were twice as likely to feel comfortable handling their retirement investments as women with degrees.
Women are also much more likely to be worried about stock market volatility and investment “risks,” the study found. The overall result was that, basically, women tended to be underinvested in stocks by a wide margin. Men were 26% more likely to invest their savings for growth. TIAA found similar results. Men were more likely to invest in stocks and mutual funds. Women typically held more cash.
This—like the roots of the gender pay gap—is another hot academic topic. Are women more likely to be risk-averse due to nature or nurture? You can find studies arguing either way. But, once again, it doesn’t really matter when it comes to retirement planning.
Holding cash or bonds isn’t going to get most people to their retirement goals. Avoiding the stock market because you don’t understand volatility is just leaving money on the table, regardless of your sex or anything else. The investment returns from so-called “risky” or volatile assets, such as stocks and real-estate investment trusts, beat the alternative into a cocked hat over any reasonable stretch of time.
The gap is so big that even if you bought a global stock index at the worst moments in the past 20 years—just before the crashes of 2000-3 and 2007-9—and held on, you would be better off today than if you would held your money in short-term, “safe” bonds. Even the worst long-term returns from stocks beat “safe” investments.
Ironically, studies have also found that women tend to make better investors than men over time because they are less prone to overconfidence, and they are less likely to trade needlessly.
An intriguing experiment found that one of the fastest ways to improve the investing performance of men and women was to get them to participate in a stock trading game for a few weeks. Researchers found that by the end women were more confident, and men were less overconfident. Both ended up better off.
“What I do see from my professional experience is when women can receive financial education about concepts like inflation eating away at low risk assets and learn about risk assets in an appropriate long term allocation, they are more willing to take on the diversified portfolio,” says Gilpatrick. “I like to educate my clients, as it helps to give them a good level of comfort and confidence to invest in a diversified portfolio. As women live longer, it is even more important for them to take on risk assets to strive to achieve returns to help make their longer life expectancy.”
Legislation granting cost-of-living adjustments for retirees in six Oklahoma pension plans, including teachers, firefighters, police, public employees and justices and judges, was signed into law Thursday by Gov. Kevin Stitt.
House Bill 3350 bases COLAs on the number of years people have received retirement benefits from the state. Those retired for five years or more as of July 1 will receive a 4% increase in monthly pension payments. Those retired at least two years but not five will get a 2% increase.
HB 3350 enjoyed bipartisan support in both the House and the Senate. It passed the House earlier this year with a unanimous vote of 99-0 and the Senate with a vote of 41-5.
HB3350 was proposed after an actuarial analysis showed a 4% COLA would not affect any retirement plan’s funded ratio by more than 2.9%. Overall, the plan would affect the system’s cumulative funded status by around 2%, and the plans would continue on an upward funding trajectory in the future even after a COLA.
Benefit managers for each of the pension plans spoke during an interim study last fall about their plan’s ability to absorb the COLA and its necessity for pensioners.
State retirees last received a COLA in 2008. Since then, inflation has increased 19.5%, according to U.S. Bureau of Labor Statistics.
The COVID-19 pandemic has had a devastating impact on families and communities across the country, but the crisis has underscored the vulnerability of older Americans in particular. That’s why the AFT sent a letter to Senate Majority Leader Mitch McConnell on May 5, urging him to support and protect America’s older adults, not punish them.
“We are writing to you as retired members of the American Federation of Teachers and public pension fund trustees to demand that you commit to supporting and protecting America’s seniors during and after this crisis—and stop proposing policies that would punish seniors,” the letter states.
There are more than 1 million cases of COVID-19 in the U.S. Although people of all ages have been infected, older Americans are most vulnerable to the coronavirus. Yet, programs that would help them have been repeatedly attacked, and McConnell has proposed further spending cuts—putting the health and economic stability of older Americans in jeopardy.
“So many retirees depend on our pension benefits in order to lead an economically secure life. Anything that would endanger those benefits by removing constitutional and regulatory guarantees would diminish and impair the lifestyle that we fought for in union solidarity,” says Tom Murphy, chapter leader for the Retired Teachers Chapter/United Federation of Teachers. “The Senate should enhance, not diminish, the economic needs of retirees as well as in-service union members.”
“The president and members of Congress want to cut Social Security and Medicare, and it’s not right,” says Janice Poirier, president of Florida Education Association-Retired. “Their priorities are not in the right place. She signed the AFT’s letter in hopes of getting through to McConnell. “Maybe he will read the letter and be moved to do the right thing.”
In the letter, retirees also called for solutions that improve the economic security of retirees and the health of Social Security instead of cuts. The letter calls for an increase in minimum benefits to reflect a growing cost of living, and requests that the Windfall Elimination Provision and Government Pension Offset provisions be reformed so that they do not unfairly penalize retired public employees.
“I’ve experienced what it’s like to be mistreated because we are senior citizens. That’s why I decided to get into the fight to protect pensions and the social safety net,” says Rita Runnels with the Texas AFT Retiree Plus. Runnels, who is also a member of the AFT Retiree Council, has testified before the Texas Legislature asking lawmakers to better fund their pension system and allow a cost-of-living increase. Runnels husband, Charles, died from throat cancer in March, but she says they had to raise money to pay for his chemotherapy because the out-of-pocket costs were too much. “We are paying so much for healthcare, but when you need it you can’t get it because you can’t afford it.”
In the letter, the AFT asked McConnell to move away from any suggestion that states should declare bankruptcy to deal with the economic upheaval caused by the pandemic. Such a move would in effect gut public services and pensions that workers have contributed to for decades over the course of their employment. “The federal government should provide states with urgently needed relief during this crisis, to be used as they see fit to address budget shortfalls,” the letter stated. “To cut funding to states now would be to turn your back on public employees and older Americans when they are at their most vulnerable.”
The letter also called on McConnell to take immediate steps to protect our election system and ensure that all voters can cast their ballots without jeopardizing their health and safety.
“I hope they will hear our voices and listen to our stories and not mess with funding,” says Runnels. “It’s unfair to take food out of one hand to feed another. We have to look at other ways to address this crisis.”
WASHINGTON–(BUSINESS WIRE)–Public pension funds helped power the U.S. economy during 2018, generating $179.4 billion more in state and local government revenues than taxpayers put in, according to a biennial study by the National Conference on Public Employee Retirement Systems.
Public pensions’ positive financial impact rose 30.6 percent from the $137.3 billion level notched in 2016, according to the study, “Unintended Consequences: How Scaling Back Public Pensions Puts Government Revenues at Risk.” The 2020 edition of the study builds on NCPERS’ 2018 landmark analysis of how investment and spending connected to pension funds impact state and local economies and revenues.
The analysis of how investment and spending connected to pension funds impact state and local economies and revenues draws on historical data from public sources including the U.S. Census Bureau, Bureau of Economic Analysis, and Bureau of Labor Statistics. While pension fund assets are invested globally, the economic impact of these investments can be traced down to individual states based on the NCPERS study methodology.
“The positive economic effects of public pensions increased significantly over the course of two years,” said Michael Kahn, NCPERS’s research director and the study’s architect. “This means that if public pensions didn’t exist, policy makers would need to increase taxes on their constituents to sustain the current level of public services.” Kahn noted that the study also found that in 40 states, pensions were net contributors to revenue in 2018, an increase from 38 states in 2016.
The original Unintended Consequences study in 2018 broke ground by examining how state economies and tax revenues are affected when pension funds invest their assets and retirees spend their pension checks, and how taxpayer contributions compare to revenues, said Hank H. Kim, executive director and counsel of NCPERS.
“Decade after decade, public pension funds have worked by accumulating assets over a worker’s lifetime,” Kim said. “Steady contributions by employers and employees plus investment returns over the long haul have consistently produced results that provide career public servants with a modest but reliable income stream in retirement.”
“Pensions are the quintessential long-term investment, yet they are often cast as a pawn in political dramas over short-term spending,” Kim added. “This study underscores that breaking faith with public pensions is actually a costly strategy for state and local government. In the long-term, diminishing public pensions will backfire.”
NCPERS’s analysis of the data also showed:
- The economy grows by $1,372 for each $1,000 of pension fund assets. While the figure sounds small on the surface, the size of pension fund assets—$4.3 trillion in 2018—means that the impact of this growth is greatly magnified, the study found.
- Investment of public pension fund assets and spending of pension checks by retirees in their local communities contributed $1.7 trillion to the U.S. economy.
- Economic growth attributable to public pensions in turn generated approximately $341.4 billion in state and local revenues. Adjusting this figure for taxpayer contribution $162 billion yields pensions’ net positive impact of $179.4 billion.
The National Conference on Public Employee Retirement Systems (NCPERS) is the largest trade association for public sector pension funds, representing more than 500 funds throughout the United States and Canada. It is a unique non-profit network of public trustees, administrators, public officials and investment professionals who collectively manage more than $4 trillion in pension assets. Founded in 1941, NCPERS is the principal trade association working to promote and protect pensions by focusing on advocacy, research and education including e-learning for the benefit of public sector pension stakeholders.
Don’t let the debate over a federal bailout for states — which every state is going to need, in the wake of the coronavirus pandemic — get hijacked by what we’re going to call the “pension pariah.”
President Trump and Republicans in Congress are resisting calls for an additional COVID-19 aid package to benefit states, cities, and other local governments. But they’ve found a new whipping boy to cast as a scapegoat in the debate: public pensions.
Blame Illinois Senate President Don Harmon if you like. Harmon made a pitch for $41 billion in federal aid to address economic shortfalls stemming from the coronavirus lockdown, including $10 billion to prop up the state’s pension system.
Rich Miller posted an item on that debate on his Capitol Fax blog Monday. One respondent called Harmon’s request a “hanging curveball,” and indeed Republicans took mighty swings at it.
Senate Majority Leader Mitch McConnell of Kentucky responded by saying states like Illinois should be allowed to declare bankruptcy instead of relying on a federal bailout. We’ll get back to why that is a terrible idea — and politically expedient for him — in a moment. But former South Carolina Gov. Nikki Haley, a former member of Trump’s cabinet, followed on over the weekend with a tweet stating: “A fifth aid package should not bail out states that have relentlessly spent and taxed their way into oblivion. Illinois lawmakers are seeking tens of billions in taxpayer funds to deal with the state’s looming pension debt — that has nothing at all to do with the COVID-19 pandemic.”
That’s a strange place to draw the line, when you consider that declining state tax revenue makes it difficult if not impossible for Illinois to maintain the schedule it’s established to make up for years of pension “holidays,” granted by both major political parties. This, at a time when falling stock prices cut existing pension funds — which of course are largely invested in the stock market — thus requiring even more to be paid back to make the funds solvent again.
So it has everything to do with the economic crisis brought on by the COVID-19 pandemic, but that didn’t keep Trump from piling on Monday morning, tweeting: “Why should the people and taxpayers of America be bailing out poorly run states (like Illinois, as example) and cities, in all cases Democrat run and managed, when most of the other states are not looking for bailout help? I am open to discussing anything, but just asking?”
First of all, every state, whether it has a Republican or a Democratic governor, is going to need a federal bailout to address tax revenue lost in the economic lockdown. The losses are catastrophic. Second, Illinois’s particular pension problem is due, once again, to pension holidays granted by both Republicans and Democrats. Perhaps Harmon could have framed his request better, but Illinois has every right to ask for help in making pension payments it was on schedule to make, and would have no doubt made but for the coronavirus crisis.
But that’s all just playing into their hands in the debate. The main point we want to make at this time is that a pension is not a political pariah. It is a fund workers have paid into to provide retirement income, and for many public workers like teachers, who don’t pay into Social Security, it’s their only source of retirement income.
We’ve allowed people on both sides of the political aisle to characterize pensions as some unnecessary appendage that’s attached to our state — an albatross — as if somehow people didn’t earn those pensions and as if somehow they are bloated and outsized, when in fact they’re underfunded because the state didn’t make its obligatory payments while workers never failed to contribute.
The average retired teacher in Illinois gets a $50,000 pension annually. And that’s all they get, no Social Security. What’s more, because there’s a higher concentration of public workers like teachers, police officers, firefighters, and other public employees in less-populated areas — where kids still need to get taught, fires still need to get put out, streets still need to get plowed — and there are fewer people to do it in rural regions, those public pensions turn out to be the economic lifeblood for rural communities. They enable retirees to stay in their homes, pay local property taxes, and drive the local economy, as shown in a study published just last month by the National Institute on Retirement Security.
Pensions are tied to the stock market, because that’s where much of the fund is invested to appreciate over time. When stocks drop, investors inevitably counsel to stay the course, wait for a correction and the inevitable appreciation over time. So why is it that when pension funds drop in a crisis the chorus immediately begins to get pensions out of the market and remove them entirely?
Is it actually the potential power of these funds — if they were perhaps coordinated to, say, effect policy change such as an investment in clean energy over fossil fuels — that makes conservatives so afraid of them and so eager for their dissolution? There’s always been a suspicion of working people pooling their money to move markets or effect change, reflected in reactionary movements from the Taft-Hartley Act in the ‘40s to the Janus decision by the U.S. Supreme Court not two years ago.
At the same time, as much as pensions fuel the economy at the local level, they do the same on the larger level on Wall Street. These funds generate massive transactions and huge management fees. How is it Republicans in Congress can support $4 trillion in federal funds to backstop liquidity in banks and the markets, and then not support the pension funds that are also generating income in the same markets?
As for states, it’s somewhat ironic, as one respondent pointed out on the Capitol Fax thread on he debate, that Illinois is a donor state, having contributed $4.7 more in federal taxes than it got back in 2017, while Haley’s own South Carolina is a dependent state, getting back $25.1 billion more than it puts in. Gov. Pritzker made the same point Monday during his daily coronavirus briefing.
As for Kentucky, when McConnell raised the issue of resisting a federal bailout, suggesting states be allowed to go bankrupt, budget maven Amanda Kauss responded on Twitter: “Has anyone told him Kentucky’s pension system is like 13 percent funded? (Illinois’s state systems are at about 40 percent.)”
Kass also echoed Gov. Pritzker last week in pointing out that bankruptcy is no magic wand to make debt go away. Pritzker specifically cited the contract clause, as courts have repeatedly ruled that public pensions are contracts, promises that the state is obliged to keep. Meaning any bankruptcy judge would almost certainly hold the state liable to make those pension payments as a first matter of course.
David Frum, a former speechwriter for President George W. Bush who has become a fierce Trump and McConnell critic, wrote in The Atlantic last week that McConnell’s bid to allow state bankruptcy is actually about minority Republican government attempting to rein in blue states like Illinois and keep them as donor states, basically milked as cash cows.
But that’s just more fuel for the debate. What we seek to make clear is that public pensions aren’t just some ball and chain attached to the state’s ankle, but are in fact a lifeline for retired public workers, and a key source of the economic vitality of areas across the state. They’e not some albatross we should seek to shake off. They represent nothing less than the commitment to those workers that they’ll get to live out a decent life — one they’ve been promised by the state’s government and its citizens.
For most Americans these days, timing is everything when it comes to retirement.
At the moment, it looks like those who recently retired or who are on the cusp of retirement may have picked a bad time to be born. For them, the steep drop in the investment markets caused by the coronavirus pandemic came at just the wrong moment.
History tells us that the markets will recover and that cycles of ups and downs are inevitable. But under a retirement-security system that relies upon individual accounts – 401(k)s – many of those whose retirement coincides with a down cycle will not be around long enough for their savings to fully recover.
There is a way to flatten to curve. They’re called pensions – collective retirement savings systems into which workers of all ages and their employers contribute and which have professionally managed, diversified investments. They are built to withstand the extremes of economic cycles.
Those who receive pension benefits during down times receive no less income. Those who receive benefits during boom times receive no bonus. That’s what flattens the curve.
Regrettably, fewer than 5 percent of private-sector workers today are able to participate in a pension fund.
In the wake of this latest market spiral, one might expect to see renewed public discourse about our national failing to address retirement security. Instead, what we’ve seen so far is a new round of alarmist attacks on public sector pensions.
It is true that public-employee pension funds, including CalPERS and CalSTRS in California, have seen the point-in-time value of their investments decline. Especially given the uncertainty about the ultimate course of this pandemic and its effect on the economy, it is far too soon to tell how deep and long-lasting the effects on markets will be. But the expectation that investments will experience times of negative returns is inherently built into fund planning.
Unlike personal accounts in which short-term timing is everything, what matters for pension funds is the long term. Over the last 10 years, CalPERS’ annual returns have averaged 9.1 percent. Over the last 30 years, it’s been 8.1 percent – and, remember, that 30-year period includes the disastrous financial meltdown of 2008, during which the S&P 500 fell by 44 percent over two years.
For critics to try to sound an alarm about the stability of pension funds based on one or two months of data is not just foolish, it’s irresponsible.
Those critics have been careful to avoid mentioning the significant steps that were taken after the Great Recession to further fortify the pension system: for all employees hired since 2013 benefit formulas have been reduced, retirement ages increased and pensionable compensation capped. In addition, most public servants must pay at least half of the monthly contributions needed to fund their pensions.
Further, the pension funds have also reduced their assumed annual rate of return to guard against overly optimistic projections.
Also ignored by the critics is the fact that the economic benefits of California’s pension funds will be especially valuable as the state recovers from an anticipated recession.
During the fiscal year that ended in 2018, a recent study showed that CalPERS retirees – who, on average, receive about $3,000 a month –collectively generated $23.5 billion in economic activity in California, supporting 137,000 jobs. An earlier study by CalSTRS found that its benefits generate $11 billion in annual economic activity, supporting 92,000 jobs.
That economic driver will continue to provide a boost to California’s economy, especially in smaller communities where the relative impacts are most substantial.