Questions linger for candidates on retirement issues

Gail MarksJarvis
Chicago Tribune

There’s been barely a word from presidential candidates Hillary Clinton and Donald Trump about some important issues that will affect your pocketbook.

One major hushed topic: a looming retirement crisis with 74 million baby boomers retiring, Social Security in sorry shape and half of people near retirement with only $104,000 or less in retirement savings. According to the U.S. Government Accountability Office, a person with $104,000 would be able to devote about $350 a month toward everything from food to electricity in retirement.

Both Clinton and Trump have said they are committed to making sure Social Security remains there for you, but questions remain: What form? Who will pay more than they now imagine, or get more or less than they now imagine? These are explosive political issues wrought with potential jealousies between income classes, genders and generations.

Retirement concerns aren’t going away as Social Security approaches insolvency and people live to 90 or older. At some point, the president and Congress will likely be forced into Band-Aids or solutions, whether they’ve warned you in advance or not. So before the election, learn about the issues. As a starting point, the Commission on Retirement Security and Personal Savings for the Bipartisan Policy Center provides an overview. The retirement solutions it covers are no secret to anyone in national politics, so they shouldn’t be to you either.

Social Security cuts and increases: Proposed changes range from limiting benefits for spouses who are part of a “high-earning” couple, to requiring employers to make workers aware that if they work past age 62 they will get more Social Security benefits monthly.

Major questions include who should pay more into Social Security, and who should get increases or cuts in benefits.

The bipartisan commission recommends that lower-earning workers — who are at the greatest risk of poverty in old age — get a bump. It has focused on people who “struggle to maintain consistent employment” during their pre-retirement years. It recommends that starting in 2022, the retirement age to get full Social Security benefits would gradually increase to 69, and that the payroll tax rate employers and employees pay toward Social Security increases for each from 6.2 percent of pay to 6.7 percent. By 2026, self-employed people would be taxed at 13.4 percent rather than 12.4 percent.

“As Americans live longer, Social Security cannot afford to provide the current trajectory of benefits for an ever-increasing number of years without either reducing annual benefits or increasing total program costs at a rate exceeding growth in worker earnings,” the commission said. It suggests people with the highest incomes contribute more. So the cap on paying into Social Security would be lifted from the current $118,500 in income to $195,000 by 2020 and continue upward based on the nation’s average wage growth.

Getting more people to save more: Only about half of workers have 401(k) plans, and those without them tend to skip saving for retirement. The Employee Benefit Research Institute calculated that 56 percent of moderate-income Gen Xers without workplace retirement savings plans will run short of money in retirement. The generation roughly includes people ages 35-52.

Small businesses often don’t provide 401(k)s because they inflict costs, paperwork and legal requirements. The commission attempts to make the process easier by allowing small companies to band together to offer low-cost options through what it calls Retirement Security Plans.

Since most people save too little even when provided a retirement savings plan at work, the commission recommends employers take at least 3 percent of each employees’ pay every payday and route it into a retirement plan. Then, over time, increase the contributions to at least 8 percent of pay and as much as 15 percent. Think tanks have shown that people need to save at least 10 percent of their pay — starting on a first job — to accumulate adequate savings for retirement.

Meanwhile, higher-income workers would face limits on what they could shelter from taxes in retirement savings accounts.

More certain retirement spending money: When people retire, they often fail to realize what they will need and then run far short of money. These days, 31 percent of women and 20 percent of men live to age 90. The commission proposes that 401(k) plans start giving employees the option of converting a portion of savings to an annuity when they retire so they will receive monthly checks with certainty.

Gail MarksJarvis is a personal finance columnist for the Chicago Tribune and author of “Saving for Retirement Without Living Like a Pauper or Winning the Lottery.”