Dorry Clay is used to going it alone. She lost her job in the recession, then bounced back by starting her own graphic design business, and even soldiered through cancer treatment. But now that she’s saddled with debt and faces a shaky economy as a self-employed worker, she worries that her biggest struggle will come after she stops working—in retirement. “Financial pressures and growing debt have made retirement savings more a pipe dream than American dream,” Clay recently said in testimony at a Connecticut legislative hearing. “I shouldn’t have to work until I am 70 because I can’t afford to retire.”
Some Connecticut lawmakers have woken up to the issue; the state just passed a law to begin creating a public retirement system for private-sector workers. It would offer a novel statewide retirement benefit, funded through employer and employee contributions, that would be managed by the state and cover workers universally, regardless of whether they work for a big corporation or for themselves.
At a time when some state governments are panicking over public-pension crises, the idea of the government starting up a new retirement fund for private-sector workers may seem reckless. But actually, it’s a remarkably prudent investment—because it costs society less in the long run to help young workers save up today for a dignified life in retirement than to deal with their potential destitution in old age.
Faced with alarming rates of elderly poverty, New York City is also exploring ways to build a public nest egg for private-sector workers, with a new advisory panel on retirement security just launched by City Comptroller Scott Stringer. According to research by the New School’s Schwartz Center for Economic Policy Analysis (SCEPA), many workers in the city are retiring to a precarious life just scraping by on social security and meager personal savings. Just 12 percent of New York metro area workers have a traditional pension plan (and those more generous benefits are far more prevalent among public-sector workers compared to private firms), 38 percent have a 401(k)-type savings scheme, and half have no work-based retirement plan at all.
Declining retirement-benefits coverage reflects overarching structural inequalities: black, Latino and Asian workers in New York City have lower retirement coverage rates compared to whites.
This trend portends massive economic deprivation for the aging population. While traditional pensions allow retirees to attain an income that’s about equivalent to their past earnings, non-pension workers, such as those with 401(k)s, generally see their income drop to about half of what they earned pre-retirement. Even those with hefty 401(k) accounts tend to contribute to inequality, wealthier people benefit more because they can save more, and in turn, get bigger tax breaks.