As Washington turns in the coming weeks from the presidential election to the long-term debt issues facing the nation, the discussions will center on whether the country can afford programs such as Social Security and Medicare in their current form.
So far, these debates have focused little on how potential cuts in federal benefits may affect retirement for younger generations of workers who already are seeing employers shrink their safety nets.
The confluence of events is creating a dichotomy in the nation’s workforce and a massive burden for the country that will not be fully evident until the next generation approaches retirement.
“We have a looming retirement-income crisis in this country,” said Diane Oakley, executive director of the National Institute on Retirement Security. “The problem is we won’t see the ultimate brunt of it until 30 years down the road when it is too late to do something about it.”
Young workers are having little or no say in any of this, but the changes will affect them most.
“How the hell do I get ahead?” said Sandra Conchar, 27, director of community relations at Potomac Pizza, a local restaurant chain. “And retirement? Oh, God.”
Blue-chip corporate giants such as IBM and Verizon are among those that have closed their traditional pension plans to new workers in order to limit future liabilities. Meanwhile, public workers in states from Rhode Island to California have seen pension promises scaled back as governments struggle to reduce debt.
As it is, most workers are vastly underprepared for retirement. Although coverage is near universal among the small minority of workers employed in the public sector, just over two in five private-sector workers between ages 25 and 64 are covered by pensions or 401(k)-type retirement plans in their current jobs, according to Boston College’s Center for Retirement Research. On average, workers in their prime working years have a retirement funding gap of $90,000 per household, the center has found.
The share of workers covered by traditional pensions has been dwindling since the 1980s, and now the plans are a cherished rarity for young workers.
Adding to the challenge, the recession forced many young workers to launch their careers later, which reduces their earnings — and their ability to save for retirement — in ways many are unlikely to overcome, analysts say.
Even as the labor market slowly improves, the prospects for young workers remain difficult. More than half of recent high school graduates are underemployed, as are nearly one in five recent college graduates, according to the Economic Policy Institute.
Young workers “are starting later and more precariously than before,” said John Schmitt, a senior economist at the Center for Economic and Policy Research. “Imagine you are postponing your career three or four or five years, then afterward you spend 10 years drifting in and out of low-paying jobs without benefits. It could be that you are, relative to someone a generation older than you are, 10 or 15 years late pulling yourself together for retirement.”
Financial planners have long compared retirement security to a three-legged stool supported by Social Security, personal savings and employee pensions. But that stool, never sturdy for many Americans, has grown even more unsteady in recent years.
As employers shy away from the financial risk of funding their workers’ retirements, the share of private-sector workers with pensions that pay a guaranteed benefit has been in sharp decline.
Fewer than one in three workers had defined-benefit coverage in 2010, down from 44 percent in 1995 and 88 percent in 1983, according to the Center for Retirement Research.
In addition, one-fifth of the workers in private-sector pensions and 10 percent in public-sector plans have had their benefits frozen, meaning their benefits are no longer growing or their plans are no longer accepting enrollees, or both.
The changes already are hitting retirees. Just 42 percent of people 60 and older had income from a traditional pension plan in 2010, down from over half in 2003.
“We expect that number will continue to fall,” Oakley said.
With traditional pensions in decline, workers are being forced to rely more heavily on 401(k)s and similar retirement savings vehicles. But these have proved inadequate given the erratic investment market returns of the past decade and an income squeeze that has made it difficult for many workers to save.
More recently, rock-bottom interest rates have made it harder to build wealth, a reality that has put added financial pressure on employers who continue to offer traditional pensions funds. Those low rates also have forced employers who have kept their defined-
benefit pensions intact to dig deeper to fund them to comply with accounting rules.
This is all compounded by the fact that many Americans do not put aside enough money to begin with. The Federal Reserve says that in 2010 the typical household headed by people between ages 55 and 64 had just $120,000 saved in retirement accounts.
Not long ago, many Americans were able to tap their home equity or other savings to cushion their retirements. But the recession wiped away 40 percent of Americans’ wealth, severely crimping that option even as people need more money to sustain their standard of living.
The mounting challenge has left many young workers anxious about their futures and eager for some of the guarantees that were more common in years past.
The percentage of workers under 40 who said their retirement program was an important factor in accepting their jobs more than doubled between 2009 and 2011, going from 28 percent to 63 percent, according to a survey this year by Towers Watson, a human resources consultant.
For others, the opportunity to earn a pension seems to be slipping far from reach.
Conchar has yet to find the career path she has been seeking since graduating from George Mason University in 2008. After scrambling to find a decent job, Conchar has spent nearly two years at Potomac Pizza, where she runs promotions, organizes events and does some bookkeeping.
“This is a great job, but it is not what I thought I would be doing and not where I thought I would be at this point in my life,” she said.
A generation earlier, her mother had no such worries — her path to a good job and an early retirement was paved with certainty.
‘A new world’
After earning a two-year degree in construction management, Karen Conchar was hired by the Virginia Department of Transportation. Later, she was scooped up by the fast-growing Fairfax County government, where she worked for 28 years, mostly overseeing capital projects. She retired this year at 54 and is collecting a good pension guaranteed to last the rest of her life.
For her, long careers and good pensions were a family tradition. Her father worked as a computer specialist at NASA, and his government pension allowed him to settle into a leisurely retirement in a home adjacent to a golf course in Kinston, N.C. Her grandfather also had retired with a nice pension after a civilian career with the Navy Department.
She found the same after graduating from Northern Virginia Community College in 1979. She stepped right into her chosen field with VDOT, starting in a job that involved inspecting concrete and other materials used on road projects.
“At the time they were doing a massive hiring for all of the road improvements that were going on,” she said. “They hired 180 people in six months. The training classes were being held in the auditorium of Oakton Elementary School.”
Five years later, Fairfax County lured her away with a construction-management job that nearly doubled her salary. The job also came with the type of generous retirement plan that many employers now find unsustainable. The pension she started collecting this year is equal to 64 percent of her final salary, or about $60,000 a year. Her 62-year-old husband, a retired government worker, is also receiving a comfortable pension.
Karen Conchar has her challenges, including a home on a five-acre horse farm that is worth less than she owes for it. Still, she is basically set financially. Her main worry is whether her only daughter will ever be able to say the same.
“It’s a new world, and it’s sad,” she said. “I really feel bad for my daughter’s generation.”
For Sandra, the biggest hurdle may be having to adjust her expectations downward after always envisioning having more than her parents.
“My idea of the American dream was to be above average,” she said. “I didn’t want to be just average.”
She wanted a big home, a vibrant career, horses to ride in her free time and a comfortable retirement. But, so far, things have not gone as planned.
Her job at Potomac Pizza pays just enough to keep her in the one-bedroom she shares with her boyfriend in Woodley Park. But she lives check to check, unable to save anything for the future. She relies on her parents to help her pay down her $47,000 in college debt.
And it’s not just her. “I’ve got friends with double majors and master’s degrees who are working as bartenders,” she said. “When I think of that, I count myself as lucky.”
Recently, she decided that she will try to go to law school to bolster her credentials, in hopes of finding the kind of fulfilling career that will keep her financially secure through her working years and beyond.
“I can’t lose faith,” Conchar said, “ even if I feel like the rug is being completely ripped out from under my generation.”