Five retirement questions with Sen. Ron Wyden
U.S. Sen. Ron Wyden, D-Ore., the chairman of the Senate Committee on Finance, recently held hearings on the "retirement crisis" facing the nation. Paste BN retirement columnist Rodney Brooks talked to the senator about why he is worried about the ability of Americans to save for a successful retirement and what he plans to do about it. The answers have been edited for clarity and length.
Q: Senator Wyden, why did you call the hearing on the challenges of saving for retirement?
A: Something is out of whack when you look at the retirement savings rate in our country. The American taxpayer puts out $140 billion each year to subsidize retirement accounts, yet you still have millions of Americans nearing retirement with little or nothing saved.
I reached the judgment that despite the best of intentions, the incentives of savings in the tax code do not seem to be getting to the people that need them the most. I want to create discussion on a bipartisan basis, to see what Congress could do to encourage savings.
You've got, according to the General Accounting Office, 9,000 Americans who have more than $5 million apiece in their IRAs. We want people to be successful, but the IRA was intended for the typical person. The typical person is light years away from saving that amount.
Q: How big is the problem?
A: Let's take one step back. First, the enormity of the problem ought to be a wake-up call for policymakers. One out of 6 Oregonians in the 35-to-65 age group has less than $5,000 in savings. That's consistent with the national trend. Millions are recovering from the Great Recession, and workers are changing jobs or working part time. Many Americans are not prepared for retirement, usually due to limited resources or a lack of a way to save.
Also, we have gone away from defined benefit retirement plans (traditional pensions) to defined contribution plans, like 401(k). Still, 50% of workers are employed by an employer who doesn't sponsor a retirement plan.
Q: What's next for the finance committee?
A: The most important thing is that the tax code gives everybody in America a chance to get ahead. This is not class warfare. ... One way is to save more.
We want to look systematically through incentives and look at ways to help typical Americans prepare for retirement, not just the affluent Americans.
Q: Do you have some examples of how to do this?
A: My state has been involved in the auto-enrollment IRA program that would help workers who don't have access to an employer-sponsored plan. I would like to see if we can promote these. It seems to be popular. It's not mandatory, so employees can opt out. This auto-enrollment approach could be an important first step towards helping those who need savings for their future. (This program would be available to anyone employed in Oregon, full- or part-time, who doesn't have access to an employer-sponsored retirement plan. Contributions would be automatically deducted from workers' paychecks at a minimum starting percentage, though employees could opt out. The plan would not require employer contributions, but would require employers to provide a payroll deduction opportunity.)
The Leave It to Beaver idea of a worker spending 40 years with a company and retiring with a pension and a watch went out with black-and-white television.
Q: So, is there really a retirement crisis?
A: I have a town hall meeting in every one of my counties every year. You see the palpable fear on their faces, because they don't have something socked away, and they are worried they will get wiped out if there is a national disaster or if they get laid off. It is a palpable fear, when people are working hard trying to get ahead, that government doesn't realize how serious it is.
We tried to deliver a wake-up call. If steps aren't taken to make (saving) easier, this country will find a lot of people hurting, and there will be real consequences. People will lose homes. Families will have hard times getting by.
These are not people looking at vacation homes and sports cars. They are looking for opportunity after they work hard to have a dignified retirement. We have to change our savings polices or many won't have that.