Tim Egan has been working since he was 14. He’s now 56 and
has spent most of his career as a restaurant manager. He has virtually nothing
saved for retirement and, until last month, never had a 401(k) account. Egan’s
story isn’t unusual among the legions of Americans who work part time, switch
jobs frequently or earn their livings at small companies, which generated
two-thirds of all new jobs last year. Even as people live longer and must save
more for old age than prior generations, most can not depend on any help from
employers. Almost half of U.S. workers didn’t have a company-sponsored
retirement plan in 2013, compared with 39 percent in 1999, according to an
analysis of Census Bureau data by the Schwartz Center for Economic Policy
Analysis at the New School for Social Research in New York.
The lack of plans is fueling a retirement-savings crisis.
Few workers save anything outside of employer-sponsored plans. Only 8 percent
of taxpayers eligible to set aside money in an IRA or Roth IRA did so in 2010,
according to the IRS. Low-income
Americans have long relied mostly on Social Security. Now middle-class
professionals and managers are increasingly doing the same. But the average
Social Security benefit -- $15,700 a year -- doesn’t come close to replacing
the earnings of those with mid-five and six-figure salaries.
Those most vulnerable include both millennials at startups
and managers in their 40s and 50s who’ve gone from corporate jobs with benefits
to small businesses without them. Some 58 percent of the 68 million
wage-and-salary workers without a company-sponsored retirement plan in 2013
worked for a business with fewer than 100 employees, according to the Employee
Benefit Research Institute.
With 10,000 baby boomers turning 65 each day, concerns are
mounting about how to fix a system that excludes so many. There are plenty of
ideas but little consensus among government officials, business executives,
economists and others.
Small companies are among the most resistant. Many aren’t
convinced it’s their responsibility to help employees save for retirement. And
owners often balk at the costs and complications of offering a 401(k), even
without a matching contribution. Only 45 percent of companies with fewer than
100 employees had 401(k)s in March, according to the Bureau Labor of
Statistics.
Joel Freimuth, former chief executive officer of
Chicago-based Blue Pearl Consulting, has advised about 500 small manufacturing
and medical technology businesses. Only about 10 percent have a 401(k) plan.
The vast majority fail to see that such a benefit helps retain talent and
reduces recruitment and training costs. Freimuth’s own company offered a 401(k)
plan with matching funds to its 25 employees before he sold it to Immediate
Solutions, a medical technology startup in New Jersey.
Plenty of Options
Financial-services industry executives say employees still
have plenty of options. Yet even the most disciplined savers can come up short
without the boost of a company match. Employees can stash as much as $5,500
annually in an IRA and an additional $1,000 if they’re 50 or older. A worker
who consistently saves $2,500 between the ages of 25 and 65 and earns 4 percent
annually would accumulate about $247,000 upon retirement, according to EBRI.
Those savings will provide only about $10,000 a year, assuming seniors withdraw
4 percent annually, the amount financial planners recommend to ensure the money
doesn’t run out.
To address the retirement-savings crisis, President Barack
Obama last year announced a plan to create “My Retirement Accounts,” or MyRA’s,
that would allow those without 401(k)s to direct part of their pay into
accounts that invest in government bonds. Progress on that proposal has been
slow.
Three states -- Washington, Illinois and Oregon -- have
approved laws to create IRAs that would automatically deduct 3 percent from
employee paychecks, although none is expected to begin withdrawing money until
2017. Similar laws have been introduced in about 20 other states with
Democratic-controlled legislatures, including California and New Jersey.
Generous Plan
Those changes will come on the late side for Egan and the
millions more like him. Earlier this year, fed up with his job in New York and
his lack of benefits, he moved back to Minneapolis and landed as a manager at
Smashburger, a chain with more than 300 company-operated and franchise outlets
nationwide -- and a generous 401(k) plan for corporate employees.
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