Today the Bureau of Labor Statistics reported a 3.2% unemployment rate for workers age 55 and older in September, a rate unchanged from August. While this aggregate number is low, the reality is that many older workers have low-paying jobs that don’t provide retirement savings coverage.
It’s no surprise that older workers have little retirement savings ($12,000 on average). This is despite the $180 billion in tax breaks a year to encourage people to save for retirement. That’s because these tax breaks are highly regressive, giving 66% of the benefits to those in the top 20% of the income distribution – who are likely to save without incentives — while the 35% of near-retirees without retirement plans get nothing.
Rather than address the unfairness and inefficiency of retirement savings tax breaks, the majority party in Congress announced a tax reform plan designed to generate revenue to pay for tax breaks for the wealthy. Reports suggest the needed revenue could come from taxing 401(k) dollars on contribution rather than at withdrawal in retirement, funding current tax breaks by shifting retirement subsidies to the future.
Tax incentives are a key driver of retirement plan coverage and adequacy. In the midst of a retirement crisis, changing the timing of retirement tax breaks does nothing to increase coverage or make the distribution of incentives more equitable.
To encourage retirement savings, Congress needs to give all workers access to coverage and provide fair and effective tax incentives. Guaranteed Retirement Accounts (GRAs) do both. GRAs provide accounts to all workers as a supplement to an expanded Social Security program and replace regressive retirement subsidies with universal tax credits of $600 a year. This ensures that even low earners benefit from federal tax incentives to save for retirement.
SCEPA’s Retirement Equity Lab (ReLab), led by economist and retirement expert Teresa Ghilarducci, researches the retirement crisis that exposes millions of American workers to downward mobility in retirement.
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