by Karen Telleen-Lawton, Noozhawk Columnist (read the original in Noozhawk by clicking here)
$6.8 trillion. That’s the amount we Americans have underfunded our retirements, according to a 2013 analysis by the National Institute on Retirement Security.
It leaves little doubt that many current and future retirees won’t have enough to support the lifestyle they expect.
The burgeoning gig economy may be exacerbating the retirement savings conundrum. Aps like TaskRabbit, Thumbtack, Postmates, HomeExchange, Airbnb, Handy, Lyft, Juno and others allow us to work outside the traditional corporate structure.
We are sometimes employees, sometimes independent, and often contractors, hiring ourselves out as fixers, sitters, walkers, designers, organizers and managers. Giggers enjoy independence but may face irregular income and a dearth of benefits.
Diane Mulcahy is a senior analyst at the Kauffman Foundation. “To succeed in the Gig Economy, we need to create a financially flexible life of lower fixed costs, higher savings, and much less debt,” she has written in her book The Gig Economy.
She believes gig workers should plan not to retire, and sees prospects for aging millennials in app-based hosting and dog-sitting.
Giggers and other workers already can set up independent retirement programs like IRAs, but only 10 percent take advantage of the opportunity.
To rectify this, California Senate President Pro Tem Kevin de Leon, D.-LA, authored a 2012 bill establishing a state retirement savings program.
“Nearly 50 percent of middle-income workers are at real risk of sliding into poverty when they can no longer work,” he said.
The state Legislature passed the law creating the California Secure Choice Retirement Savings Trust.
This first step sent the program on its way to market analysis study, federal approval, and back to the California Legislature before the law could go into effect. Supporters hope it will come into effect in 2019.
The complex path to approval, made more difficult with the current administration, belies the simplicity of the proposed legislation.
As currently configured, workers would make automatic contributions of 2-5 percent to an account in their name, or they could opt out completely and have no deductions.
Employers would be required to collect these contributions and pass them along to the state. The program would be overseen by the California Treasurer’s office, but managed by outside firms. Unlike 401(k)s, employers could not contribute company funds.
A key point of contention is the question of whether employees who enroll in the program are doing so on a “completely voluntary” basis.
If the automatic opt-in feature were not deemed “completely voluntary,” then the Department of Labor could find that the accounts fall under the complex ERISA (Employee Retirement Income Security Act) rules, increasing their difficulty for businesses to manage.
But the automatic sign-up feature is essential. According to Vanguard, a financial services corporation, workers are more than twice as likely to save for retirement if they are signed up automatically.
“From a behavioral economics perspective, it is absolutely preferred that it be strictly automatic with an opt-out [feature],” a Vanguard spokesperson said. “People tend not to undo the default.”
Objections come from securities industry and financial markets associations. These Wall Street trade groups assert that the plans will provide unfair competition, since they are designed to get around the ERISA requirements.
Most of us prefer to live independently in our old age, without going to live with the kids. Given that, we need to make it as easy as possible to save during our working years.
The California Secure Choice will reduce our state’s share of the $6.8 trillion. It is a win-win goal from either side of the proverbial aisle.
Karen Telleen-Lawton, Noozhawk Columnist
Karen Telleen-Lawton is an eco-writer, sharing information and insights about economics and ecology, finances and the environment. Having recently retired from financial planning and advising, she spends more time exploring the outdoors — and reading and writing about it. The opinions expressed are her own.