You will be hard-pressed to find anyone who doesn’t think the United States is not making much headway in solving its retirement crisis.
“Americans and policymakers are starting to understand that the nation is not on solid footing,” said Greg Smith, president and chairman of the National Institute on Retirement Security at the NIRS conference in Washington, D.C., this week. “They are not positioned to be self-sufficient in their retirement years.”
So while numerous bills have been introduced in Congress in the past year to take a stab at fixing the retirement crisis and President Barack Obama introduced a new savings vehicle – the myRA – during his State of the Union address in January. most industry experts are looking to individual states to make the most impact, said Nancy LeaMond, AARP executive vice president.
“Given the political climate here in Washington, we are looking to the states where there is real opportunity to get something done and come up with common sense solutions to help Americans save, take control of their future and live independently where they want to live in their retirement years,” she said.
AARP devised a market-based approach to saving it calls the Work and Save Plan, which is all about choice. It is up to employees how much they want to contribute to their accounts and both equities and mutual funds are available in them, she said. Participants can contribute to the plans tax free and they are portable when a person wants to change jobs.
“We need a broader comprehensive approach,” LeaMond said. “Our plan is one step but it isn’t the entire solution. We can’t wait for one solution or one sector to meet the need. We need all ideas on the table.”
NIRS released a report this week called “Financial Security Scorecard: A State-by-State Analysis of Economic Pressures Facing Future Retirees.” It concurred with LeaMond’s assessment that change in the retirement arena will come at the state level.
“States already manage long-term care programs for the elderly through Medicaid. Concerned about the impact of future elder poverty on state and local budgets and their local economies, a number of states are exploring the creation of low-cost and low-risk retirement savings plans for private sector workers who lack access to pensions or 401(k)s on the job. Some states have developed programs to help older workers find work,” the report stated.
The report looked at the factors that contribute to a secure retirement in all 50 states and the District of Columbia, including potential retirement income, major retiree costs, such as housing and health care for older households, and labor market conditions for older workers.
It found that all states have room for improvement, no matter where they rank. No state ranks in the top group of states on all eight scorecard variables. For every state, at least one indicator of potential retirement income is lower, one measure of retiree costs is higher or one labor market variable is worse than in at least one other state.
The data underlying the scorecard indicate key areas of trouble that affect most or all states, the report found. For example, the highest ranked state for workplace retirement plan participation in 2012 had only 54 percent of private employees participating in a pension or 401(k).
In addition, the number of states with more than 30 percent of older households experiencing a housing cost burden increased from 14 in 2000 to 31 in 2012.
The study also found that older workers suffered more from higher unemployment and lower wages in lower-ranked states in 2012 than they did in earlier years. Recessions can have a serious long-term effect on the economic security of the aging population that has a limited window to accumulate additional resources for retirement.
Wyoming got the highest score of 9, which means it had the best performance in 2012 relative to other states. California, Florida and South Carolina ranked lowest with a 3. Most of the states scored in the 4 to 6 range.
And just because Wyoming scored high overall doesn’t mean it scored well in all areas that were studied, said Christian Weller, scorecard lead author and a professor at the University of Massachusetts Boston.
States received high scores in retirement income if their average defined contribution account balances and retirement account balances were relatively high and marginal tax rates were relatively low. South Dakota scored the highest in this category with a ranking of 9, followed by Alaska, Illinois, Pennsylvania, Washington and Wyoming with an 8.
States received a high score in the Retiree costs section if Medicare out-of-pocket costs were relatively low, Medicaid generosity was relatively high and housing cost burden was relatively high among older adults.
North Dakota and Wyoming topped the chart for retiree cost scores with a 9, followed by Alaska, Arkansas, Iowa, Minnesota and Montana with a score of 8.
States received a high score in the labor market section if older adult unemployment rates were relatively low and if earnings were relatively high. Alaska, North Dakota and West Virginia scored a 9 in this category, followed by Minnesota, New Hampshire, Vermont and Wyoming with a score of 8.
Overall, Wyoming was the only state to score a ranking of 9. Alaska, Minnesota and North Dakota had scores of 8. All four states had relatively strong labor markets and fairly low retiree costs, while their retirement income scores were somewhat lower.
California, as one of the worst-performing states, had a lower potential future retirement income score of 2, which was lower than all other states except one but scores among the four states with the highest retiree costs. It received a middle score of 5 on labor market conditions for older workers.
Based on 2012 data, increasing retirement savings participation rates and lowering health care and housing costs for retirees to match other states could be a higher priority for California than improving labor market conditions for older workers, although work in that area remains too, the report found.
NIRS concluded that states with low scores overall likely need to address policies to improve all three areas studied to significantly improve the financial security of their aging populations.