Offering pension plans for Americans who don’t have them at work seen as way to deliver retirement security: TIME

Creating more pension plans for U.S. workers who lack them at work is seen as one of four key measures that can be taken to improve retirement security there, reports Time magazine.

Writer Thasunda Brown Duckett begins her article by suggesting that “a financially secure retirement should not be a dream but a right. Yet, 40 per cent of Americans are projected to run short of money in retirement.”

The system in place in past years, she continues, where most people had workplace pensions and Social Security as reliable sources of retirement income, has changed. “For most workers today, those reliable sources no longer exist or aren’t enough,” she contends.

“Even among those already in retirement, many have encountered financial challenges, especially amid recent high inflation, necessitating a return to work and a pause on their retirement dreams. Still others reach retirement age only to realize they have not saved enough to make ends meet,” she writes.

Further, she notes, “Our current retirement system focuses almost entirely on helping workers save for retirement; it does little to help retirees turn their savings into the income they need, or make sure that income will last as long as they live.”

So what can be done to help fix this situation, and to deliver better retirement security? Duckett offers up four solutions.

The first step is to increase worker access to pension plans.

“Almost half of private-sector workers—more than 55 million—do not have the option of an employer-sponsored retirement plan. That figure is even more alarming for small-business workers:  78 per cent of those who work for companies with less than 10 employees—roughly 20 million Americans—don’t have a workplace retirement plan option. The federal government and more states should create individual retirement accounts (IRA) for workers without employer plans available to them. To date, 19 states have enacted such IRA-for-all plans for private-sector workers, which would require employers that don’t offer retirement plans to allow their workers to be automatically enrolled in plans facilitated by their state.”

Step two, she continues, is automatically enrolling workers in pension plans.

“More employers should adopt auto-enrolment policies for their retirement savings plan to jump-start their employees’ retirement savings and make sure workers are participating in this essential benefit. They should also include measures that enable workers to grow their savings as they advance in their careers and allow them to seamlessly take those savings with them if they change jobs,” she writes.

The third step, Duckett continues, is to boost financial literacy when it comes to retirement savings.

“Every worker should also be provided with clear, simple information to compare savings and income options and make informed choices in order to reach their retirement goals. Employers should implement workplace financial education programs so that employees continue to learn and take action. When we know better, we do better,” she writes.

The final step is helping people with the tricky “decumulation” phase, where retirement savings is turned to retirement income. The goal is to draw down the savings without running out of money while you are still alive.

“We need to adjust our focus from simply helping people save to also making sure those savings last. Every worker should have access to low-cost investment options that provide ample retirement income,” she concludes.

This is a great article. Here in Canada, the Saskatchewan Pension Plan is an example of a pension plan that’s available for those who don’t have a pension at work. Other organizations, such as the College of Applied Arts & Technology Pension Plan, OPTrust, and Common Wealth, are now offering pension coverage to previously uncovered workers.

The idea of auto-enrolment – where you are automatically signed up for the company plan, with the right to opt out – seems preferable to waiting for people to opt in. This idea has been tried out in the U.K. and has boosted pension coverage, so maybe it needs to be seriously considered here.

Financial literacy, particularly around retirement savings, is very important. It is very hard, while working, to visualize how the money might work when you are retired. More information for pre-retirees can only help.

As for decumulation, again, our retirement system seems better at the accumulation phase than at the drawdown stage. People aren’t given guidelines on how to make their money last, and are left to their own devices on how to get there.

So, if you aren’t covered by a workplace plan, consider SPP, an open, voluntary defined contribution plan that currently delivers retirement security to more than 30,000 Canadians. Any Canadian with available registered retirement savings plan room can sign up.

Worried about running out of money in retirement? SPP allows you – without taking money out of the plan – to convert some or all of your savings into a lifetime monthly annuity payment. You will get a payment on the first of every month for the rest of your life.

Great news! SPP’s flexible Variable Benefit option is no longer limited to those members living within the borders of Saskatchewan. Now all retiring SPP members across the country can take advantage of this provision, which puts you in control of how much income you want to withdraw, and when you want to withdraw it. You can also transfer in additional savings from other unlocked registered sources. For full details see SaskPension.com.

Check out SPP today!

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Factor high healthcare costs into your retirement savings strategy: HOOPP

One of the biggest problems retirees can face is unexpected, major healthcare costs in retirement – and that possibility should be factored into retirement savings.

So says Darryl Mabini, Senior Director, Growth & Stakeholder Relations for the Healthcare of Ontario Pension Plan (HOOPP). HOOPP is a $77.8-billion public sector defined benefit pension plan serving healthcare workers in Ontario.

HOOPP recently produced a four-paper series called Retirement Security – Is it Attainable? One of the four papers, called Seniors and Poverty – Canada’s Next Crisis found that 12.5 per cent of Canadian seniors – and a startling 28 per cent of senior women – live in poverty.

A factor behind this, the series suggests, is the lack of good workplace pension plans (the defined benefit type, which provides pensions based on a percentage of your earnings, is rare outside the public sector) and inadequate personal retirement savings.

“People saving for retirement don’t factor in the healthcare costs when they get older,” explains Mabini. While Canadians are proud of their universal healthcare system, he notes, they “are not aware of what it doesn’t cover.”  Some long-term care costs are not covered by provincial plans and can cost thousands a month, he notes. Treating chronic diseases and illnesses can also be expensive in retirement, particularly if you don’t have health benefits, says Mabini.

So retirement income – having enough of it – is critical. “We found that about 40 per cent of Canadians are covered by a workplace pension plan. For the other 60 per cent, it is do-it-yourself; they are saving on their own,” Mabini says. But doing it on your own is hard – the savings are voluntary, not mandatory, and no one tells you how much you actually need to save to be able to afford retirement, he explains.

“Our research found that the amount people have saved is heavily impacted around age 85, once long-term care costs are factored in,” he says. Those who are age 85 and older are at risk for having insufficient income, and because of their longevity; it is usually women who come up short on retirement income, Mabini notes.

“The problem is that those without a good workplace pension plan tend not to save on their own,” he says. They think CPP and OAS will be sufficient, he adds. “The most you can get from CPP, and few get it, is about $12,000 a year at age 65. With OAS, it is about $8,000.” While $20,000 a year may sound OK for a retiree, it isn’t enough when facing long-term care costs of thousands a month, Mabini says.

If you don’t have money to cover healthcare costs, you have to depend on government income supplements and other programs which are not always readily available, he notes.

“There needs to be more education about the importance of retirement savings, and the risks of not having a workplace pension,” he says. “Saving on your own can work, but putting away two per cent of what you make is not adequate for some people. People need to realize the risk of senior poverty.” If you are saving on your own, Mabini recommends setting an income replacement target, making savings automatic and ideally mandatory, pooling, and having a way to turn those savings into a lifetime income string.

The full findings from HOOPP’s Retirement Security series can be found here.

We thank Darryl Mabini for speaking to Save with SPP. The Saskatchewan Pension Plan provides an excellent way to save for retirement if you don’t have a workplace plan, and it offers annuities to turn your savings into a lifetime pension. Find out more at www.saskpension.com.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22