Editorial: Retirement savings lag

Governor Janet Mills recently announced AARP Maine has designated the Pine Tree State as Age-Friendly because her administration committed to building livable communities “to make Maine a better place to live across generations.” Let’s help the state and AARP Maine move beyond kitschy designations by finding ways to bolster savings of working Mainers.

A sufficient stream of income for retirement is a fundamental necessity for people to enjoy a decent age-friendly life. If you are over 65, enjoy good health and have ample means Maine is a delightful and uniquely satisfying community for living out a full and satisfying retirement.

If, however, you suffer from poor health, lack wealth and accumulated savings and are not fortunate enough to enjoy the blessings and support of a caring family network then facing the day-to-day challenges of retirement can be tough.

Maine’s retirement-age population is projected to increase by 30 percent in the next 12 years. The amount of personal savings set aside for retirement has been in decline for years. Today, for one in three Mainers over the age of 65, Social Security is their only source of income.

The fiscal impact on federal and state government budgets to fund the public assistance safety net for lower income retirees is alarming. Retirement-age Mainers lacking savings, pensions or earned income from employment face the prospect of relying on a broad range of programs, primarily Medicare, Medicaid, Social Security Disability, SNAP (formerly food stamps), TANF (cash assistance) and energy, home heating and housing assistance.

It is estimated that the impact on state taxpayers to fund the Maine portion of public assistance for the low-income retirement-age population will increase from $28 million to $61 million by 2032.

Encouraging data from a 2017 study by Philip Trostel at the University of Maine indicates that if the current decline of savings simply levels off among people of pre-retirement age the future taxpayer burden is reduced. And every $1,000 of additional retirement income resulting from a higher savings rate reduces the draw on public funded programs significantly.

Governor Mills has directed members of her cabinet to work with AARP Maine to craft an age-friendly action plan.

One area of focus should be: Why have working-age people reduced their level of savings?

A study by the Federal Reserve Bank of Boston tells us that voluntary worker participation in employer sponsored 401(K) retirement plans among lower-income people is much less than their higher-income co-workers. Many workers in this category lack sufficient tenure and hours to be eligible for participation. Other contributing factors that help explain low participation include high discount rates, insufficient tax incentives and poor financial literacy. Some people simply don’t have the wiggle room in their budgets to contribute to retirement accounts.

One ambitious proposed solution in the Federal Reserve Bank of Boston report would require all employers not offering a defined-benefit pension to offer a defined-contribution pension such as a universal individual retirement account (IRA) with mandatory enrollment of all eligible employees. The plan would include an automatic escalation in the savings rate to help ensure participants are putting enough aside for their future retirement.

Reforms can strengthen savings rates and lower taxpayer burden. Now that’s age-friendly.

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