Saving for Retirement: Anti-Poverty Measures for the Golden Years

Right now, the poverty rate for Americans age 65 or older is lower than the rest of the population, but that could change. A 2012 Employee Benefit Research Institute (EBRI) report studied poverty trends in age groups over 50 and found in 2009 about 11% of adults over the age of 65 were living in poverty. However, for Americans 85 and older the figure was almost 15%. According to the report’s author, Sudipto Banerjee.

As people age, personal savings and pension account balances deplete. The total Social Security benefit received by a family is reduced with the death of a spouse. These factors potentially lead to rising poverty at older ages. Also, as people age, their medical expenditure increases steadily.”

Americans are living longer, and it sometimes brings financial problems along with extra years. And younger generations saving for retirement may face additional complications.

Social Security income helps alleviate poverty among retired Americans, but does not eliminate it. In the past, financial experts referred to Social Security as part of a “three-legged stool.” The metaphor explains how Social Security alone will not be enough and individuals also need private savings and company contributions to make up the second and third leg of the stool.

Today we are more likely to hear financial experts talk about Social Security as a foundation, particularly because traditional pension plans are vanishing. But overall, the idea is the same; Americans need to be saving more on their own for retirement. Unfortunately, Americans are falling so far behind in retirement savings, some experts are calling it a crisis.

Saving for retirement has become complicated because

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Money Smart Week

America Saves, the organization that coordinates the annual America Saves Week , is working with Money Smart Week on a public awareness campaign that began April 5^th. Money Smart Week seeks to connect providers of financial education to consumers who want to better manage their personal finances.

The need to connect consumers with financial resources is clearly there, as Americans continue to face challenges saving money and paying bills even as the country continues a slow economic recovery. In February, Stephen Brobeck, Executive Director of the Consumer Federation of America, discussed the results of the America Saves’ annual survey saying,

Only about one-third of Americans are living within their means and think they are prepared for the long term financial future. One-third are living within their means but are often not prepared for this long term future. And one-third are struggling to live within their means.”

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The Seeds of Success: Children’s Savings Accounts and College Enrollment

I’m often inspired by the innovative ideas being developed to help low-income families meet both present and future needs.  One example I recently shared highlighted community gardens that provide fresh food to low-income neighborhoods in Tulsa.  Today, I’m drawing inspiration from the economic seeds being planted through San Francisco’s Kindergarten to College (K2C) program.

Launched in 2011 by the City and County of San Francisco, K2C is the first publicly funded, universal children’s savings account program in the country.  Operated through the city’s Office of Financial Empowerment (OFE), the program ensures every kindergarten student in the San Francisco Unified School District is automatically enrolled in a College Savings Account.  Accounts are seeded with $50 provided by the city-county government, with students enrolled in the National School Lunch Program receiving an additional $50.

Accounts are designed to make contributing as easy as possible by allowing relatives and extended family to deposit money by mail, online, or in person.  There is no minimum deposit amount required, so families can give what they can afford, when they can afford it.  Partnerships with local foundations, organizations and businesses also provide matching funds for promotions that encourage families to save regularly and speed the growth of account balances.

The program is still relatively new but the results so far are encouraging.  As of 2012, over

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America Saves Week: Time to Make a Plan

America Saves Week kicks off February 25.  This annual event offers people a chance to assess the status of their own saving and take financial action.  America Saves Week is coordinated by America Saves and the American Savings Education Council, and also includes hundreds of partners who promote the event across the country.  The theme this year encapsulates three essential steps: “Set a Goal. Make a Plan. Save Automatically.”  It is hoped that with practice individuals can turn these three actions into healthy financial habits.

Last summer, a survey by Bankrate.com reported that 22% of Americans have insufficient savings and 24% have no savings at all.  The situation in Oklahoma, as discussed in a previous post, is not any better with nearly 44% of residents living without sufficient savings to cover a job loss or other crisis. However, storing up assets for a rainy day is only one reason to save.  Putting money aside for vacations, education, retirement and large purchases are also examples of wise financial planning.  By saving money for large purchases, families can avoid paying high finance rates.  Saving money to invest in education can lessen the burden of future student debt.  And saving for vacations and retirement will lead to a higher quality of life.

While the positive aspects of savings are easy to understand, as the statistics point out, a significant number of the Americans still fail to take steps to build savings into their budget. 

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The 2013 Assets and Opportunity Scorecard for Oklahoma

CFED recently released their 2013 Assets and Opportunity Scorecard, subtitled Living on the Edge: Financial Security and Policies to Rebuild American Prosperity. It details how millions of Americans are still just getting by in the wake of the recession, and for Oklahoma the data highlights two or three real problem areas. However, before we take the plunge into a sea of disconcerting data, there are two bright spots. Oklahoma earned the second highest rank among the states in Early Childhood Education participation, an especially relevant figure since CAP Tulsa is an early childhood program provider. The state can also boast of a low unemployment rate, the fifth best in the country. However, the high marks do not carry over to other areas of the Scorecard.

The Assets and Opportunity Scorecard examines the financial security of Americans by assessing states based on 69 different outcome measures. The measures are grouped into five broader categories: 1) Financial Assets and Income, 2) Business and Jobs; 3) Housing and Homeownership; 4) Health Care; and 5) Education. Oklahoma’s general report card, shown below, reflects a mixture of good news and bad news:

• D – Financial Assets & Income
• B – Business & Jobs
• B – Housing & Homeownership
• D – Health Care
• C – Education

For more detail on all of Oklahoma’s results, you can click here. For now, to better understand what these grades mean, we will take a quick look at just two of Oklahoma’s problem areas: 1) Financial Assets and Income; and 2) Health Care.

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Oklahomans and Payday Loans

Last month, the Pew Charitable Trusts released Who Borrows, Where they Borrow and Why, the first in their Payday Lending in America series.  Their research gives us insight into behaviors and policies behind the use of payday loans, which we know are a costly alternative to traditional banking. Among five groups identified as highly likely to take out  payday loans are individuals earning less than $40,000 annually.

In the report and interactive features, Oklahoma clearly stands out with the highest usage rate in the nation for payday loans, at 13%.  Part of the problem for Oklahoma, as pointed out in the Pew report and numerous news articles, are the permissive laws regulating payday lenders.  The so-called “hybrid states,” which restrict storefront payday loan operators to lower limits on fees, all have usage rates significantly lower than Oklahoma. However, the best results are from states with the most restrictive laws, and therefore no storefront payday loan operators, some of which come in as low as 1%. 

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Household Net Worth: How Low-Income Families Weathered the Recession

Earlier this week the Federal Reserve (Fed) released the key findings of their most recent Survey of Consumer Finance.  The report, which occurs every three years, is a comprehensive survey of family finances, focusing on income, net worth, assets and liability.

When NPR’s Morning Edition, and other news sources, discussed the survey’s finding they focused on the hit to the middle class, however a deeper look at the report makes it clear the impact fell heavily on many low-income families. The survey reports the median net worth for the lowest quartile fell from $1,300 to zero during the period from 2007 to 2010.  The mean net worth for this same group also declined; falling “from negative $2,300 to negative $12,800.”

Still, the Fed’s report does show some lower income families managed to accumulate additional wealth during this period. 

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Guest Post: SaveUSA: Giving Tulsans an incentive to save all year long

Karissa Coltman, SaveUSA Research Coordinator and Tax Program Operations Specialist, is our May guest blogger.

In a tough economy where so many hard working families are barely making ends meet, it might seem strange to ask “What are you saving for?”.  Yet this is exactly the question asked of and answered by 702 families this year in Tulsa who enrolled in SaveUSA.  They have been given the opportunity to have 50 cents of each dollar they saved matched in a special savings incentive research study.  This savings incentive opportunity was offered at tax time to income eligible families in four cities across the country, including Tulsa, Oklahoma.

The program which is also offered in New York City, Newark, NJ, and San Antonio, TX, just completed its second tax time enrollment period where tax payers with dependants making $50,000 or less and tax payers with no dependents making $25,000 or less were given an opportunity to set aside a portion of their refund (a minimum of $200) into a special savings account with an opportunity to receive a 50 cent deposit matching each dollar they saved at tax time, up to $500, on February 1,2013.

Community Action Project of Tulsa County is one of the research sites tracking two randomly assigned sets of participants, a program group that had the opportunity to open the matched savings account, and a regular filers group that did not.  Researchers hope to determine over a 3 to 5 year period whether there is any significant difference between the program group with an incentive to save part of their refund and the regular filers group. The study is in its second of three programmatic years, and will follow participants for a total of five years to determine long term impact of an incentive to save.

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Guest Blog: The 2012 Assets and Opportunities Scorecard: Oklahoma Ranks 33rd for Financial Stability of Residents

As part of a new project at CAP, each month we will be featuring a guest blogger from across the agency.  Amy Amatucci, Senior Fund Development Specialist, is our sixth blogger.

Last month the Corporation for Enterprise Development (CFED) and OK Policy co-released the 2012 Assets and Opportunity Scorecard, which shows that more than one in four Oklahoma households are “asset poor.”  The report measures how residents in each of the 50 states and the District of Columbia rank in their ability to achieve financial security across 52 measures in five areas, including Financial Assets & Income, Businesses & Jobs, Housing & Homeownership, Health Care, and Education.

Asset poverty is an estimate of financial security that takes into account all of a family’s assets (e.g., house, car, checking and/or savings account) which would be used in the case of lost income. However, this is a conservative way to measure assets, since a home or car would be difficult to liquidate in an emergency. A more accurate measure of a family’s financial resources is “liquid asset poverty” which excludes those assets which are not easily converted into cash. So while 15.6% of Oklahoman residents are income poor, 27% are asset poor and, even more disturbing, 48% of Oklahomans are liquid asset poor.

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President Calls for Tax Savings Pioneered by CAP

I was pleased to see recent news that President Obama used his weekly address to announce new initiatives to promote savings. (White House, New York Times, New America Foundation). Among other ideas, he charged the IRS with implementing a checkbox on tax returns that would allow you to save a portion of your refund in savings bonds. Behavioral economics teaches us that making saving simpler and available at an opportune time will lead to more people saving. CAP worked with D2D Fund in a pilot to offer savings bonds through our free tax preparation program.

Additionally, the president is seeking new rules that would encourage employers to automatically enroll their workers in retirement plans unless employees opt out. As I’ve mentioned before, “opt out” rules increase take-up of positive behaviors dramatically without limiting one’s freedom or constraining their choices.

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Image used under Creative Commons license from Flickr user alancleaver_2000.

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