When I read this type of story I can’t decide whether it represents naïvety or stupidity. This proposal is virtually the same as the Obama era myRA which was a flop because of lack of participation.
People don’t save for retirement for two reasons #1 they are irresponsible and live for today ignoring the future and #2 very few workers simply cannot save. Adding yet another savings scheme won’t change either of those factors. Only 33% of Americans have a IRA despite easy access.
Mayor Burgess’ proposal is necessary and a step forward, although it is insufficient. His proposal will mandate that all private sector business that do not offer employees a savings vehicle for retirement must participate in a “secure choice” plan that will enable all employees to save from their own paychecks. It does not mandate (or actually allow) any employer contributions in these savings vehicles.
Burgess’s proposal is the first such program at the city level, similar to the plan enacted in California. It would create a Seattle Retirement Savings Plan (SRSP), through which employees would contribute to a retirement plan similar to a 401(k). The savings would be in low-risk investments, such as US Treasury bonds. As the program matures, employees would be able to contribute to a select choice of retirement savings options, at their discretion.
Their accounts would be portable within the city of Seattle, meaning that if they switch jobs, they would not have to start saving over again. Employees could choose to opt out.
If take-up in the Seattle program is good, we can expect up to 50,000 new savings accounts. That’s up to 50,000 people who haven’t been had access to the 401(k)s many of us take for granted. But without employer contributions, it lets employers off the hook and continues a tiered system of benefits between white-and blue-collar workers.
If we are serious about retirement, we need a retirement savings program with accounts that are completely portable, transparent, with low administrative costs, progressive in benefits and covering all workers. We have that now: Social Security. But at current levels, it just doesn’t provide enough income for retirees. The average Social Security benefit for retired workers in our state hovers around $1,000 a month. Try keeping your head above water on that.
In order to have a SS benefit of $1,000 a month in 2018 your income at age 67 would be no more than $30,000 a year which means you have been a low-income person all your life and giving you another retirement savings vehicle is not going to change that.
Investing in Treasury bonds from the beginning, especially for younger workers, is foolish and the likely result is that workers never change the initial investment. This greatly hampering their ability to accumulate retirement assets.
If local politicians want to help they should assure their schools contain good common sense education on money matters, saving and investing.