The fact that New Yorkers, like many across the country, are facing a potential retirement savings crisis should come as no surprise. And yet, a report released on May 20 by AARP, “High Anxiety: Gen X and Boomers Struggle with Stress, Savings and Security,” contains a startling analysis of the looming challenges that threaten the financial security of millions of New Yorkers.
The study, commissioned by AARP to gauge the confidence and financial preparedness of New Yorkers from the Generation X (ages 35-50) and baby boomer (ages 51-69) generations, found that both groups face significant challenges in the lead-up to retirement, with the younger generation reporting markedly higher levels of financial anxiety.
The study’s findings paint a grim picture. With the average retirement savings account balance for working-age New Yorkers hovering around $3,000, and 3.6 million New Yorkers lacking access to a workplace retirement plan, AARP representatives stressed the need for statewide action.
While unveiling the report’s findings at an Albany event, co-hosted by City & State, Beth Finkel, state director of AARP New York, outlined the worrisome financial state of Gen Xers specifically, as well as the importance of finding a statewide solution to their generation’s “crisis.”
“As the first members of Gen X turn 50 this year, many have not built retirement savings,” Finkel said. “They are sandwiched between paying for their children’s education and caring for their aging parents.”
If left unaddressed, Finkel argued, the financial struggles of many Gen Xers could have a significant long-term impact on the fiscal health of the state. Among the report’s findings was that 66 percent of Generation X respondents said they plan to retire outside of New York, a veritable “Genexodus” if it comes to pass.
“It is vital that our elected leaders address this issue,” Finkel warned. “An uncertain future for Gen X will mean an uncertain future for New York State.”
Mary Beth Labate, the state budget director, offered the Cuomo administration’s perspective on retirement savings for residents.
Tracing the root causes of the crisis, Labate cited the 54 percent drop in median net worth caused by the Great Recession and the steady decline in union affiliation as contributing factors to increased economic anxiety.
“Eighty-two percent of union members have traditional pensions, compared to 22 percent of non-union members, so this drop has had a significant impact on overall retirement savings,” Labate said.
She pointed to items from this year’s budget, such as an allocation of $5 million for emergency home repairs, as well as the state’s No Wrong Door initiative, which connects seniors to a host of services, as actions taken by the state to confront the challenges facing New York seniors. However, Labate conceded that true progress could only come with the implementation of incentives for middle- and low-income New Yorkers to save more for retirement through increased access to workplace retirement plans.
Labate outlined four key components—increased availability of such plans, auto-enrollment, auto-investment and auto-escalation, or increases in deductions linked to increases in pay—as essential to any statewide solution.
“We must set up people to have a vibrant life in retirement,” Labate added.
On a panel that followed Labate’s remarks, representatives from AARP, the National Institute on Retirement Security and New York and Illinois state governments echoed Labate’s vision for increased access to retirement plans.
Julian Federle, chief policy and programs officer for the Illinois state treasurer, described his state’s success in passing the Secure Choice Savings Program Act, a state-mandated retirement savings plan for employers with 25 or more employees. The Illinois law impacts businesses that are more than two years old and currently offer no retirement plan for employees.
“It is a mandatory program, but there is an opt-out provision,” Federle said. “In fact, auto-enrollment is critical to the success of the program.”
The Secure Choice Act’s investment vehicle is similar to a traditional Roth IRA. And like a 529 plan, the state-run earnings incentives program that has become a popular way for families to save for their children’s college education, the vehicle’s funds are independent from the state Treasury, ensuring that they cannot be used in the case of a budget shortfall. The law also establishes a seven-person board, with appointees from the governor, treasurer and comptroller, who will handle all fiduciary duties of management.
“We wanted to eliminate the concern that the employer could be blamed in the case of a bad investment,” Federle explained.
Sarah Mysiewicz Gill, senior legislative representative for AARP, praised Illinois’ efforts and offered Washington State as another potential model for New York.
In contrast to Illinois’ creation of a new investment vehicle, Washington has established a marketplace where people can browse state-vetted retirement plans. This “portal model,” Gill argued, is advantageous in that it ensures that retirement savings programs are sufficiently transparent.
“This really helps small businesses compare apples to apples, which has been a big problem in this process thus far,” Gill said.
Regardless of the specific approach taken by individual states, Gill argued that states must act to increase access to retirement savings plans.
“This is a bipartisan issue that knows no boundaries. Financial institutions have come to the table. Labor unions have come to the table. There is broad support for action,” Gill said.