Americans can’t afford retirement. Here are 8 ways to fix it

After working for the past 26 years as a massage therapist, Deborah Haller is now 66 years old and wants to retire. That isn’t financially possible. “The cost of living is getting so high that there’s no way I’m going to be able to retire and afford rent without looking for aid,” she says.

Haller, a San Francisco native who now lives in the nearby city of Alameda, had different plans for her life; she and her long-term partner had previously bought a house for retirement in Arizona. But six years ago, just before they were going to move, he was diagnosed with cancer. He died a month later. Because they weren’t married, she wasn’t eligible for his social security checks, which were substantially larger than her own. She couldn’t afford the house by herself, and because of the state of the housing market at the time, she had to sell the home at a loss. Since his death, her rent has gone up by $700. “I worry about if something happens where I can’t do my job,” she says. She has only a relatively small amount of money saved in an IRA.

Her situation is common. Around half of Americans approaching retirement age have no retirement savings. For American workers as a whole, the median person also has nothing saved. “People generally are not on track,” says Dan Doonan, executive director of the nonprofit National Institute on Retirement Security. Even among those who do have some savings, it’s often not enough to last their expected lifetime.

The situation could be even worse for younger generations. Healthcare costs are increasing faster than wages. People are living longer. Without changes in policy, Social Security benefits will shrink. Climate change is introducing new risks: In many areas, there’s a greater chance that a flood or wildfire might force someone to suddenly move. The economic impact of climate chaos could also tank investments.

There is no single solution to the retirement crisis, but several changes could help–many of which will require businesses to act.

Pay workers more

First, workers need to make enough so that it’s possible to save. For those who reach retirement with little or no savings, or those who are working now but not putting money in a retirement account, the reason is often less about a lack of planning and more about a lack of extra cash. “The fact that wages have been so stagnant for the middle class has really impacted the ability of people to save,” says Kevin Prindiville, executive director of the nonprofit Justice in Aging. “There are huge numbers of Americans that are working but haven’t saved anything yet and don’t expect to be able to start saving anything for retirement because they simply don’t earn enough to save.” The situation is worse for women and people of color, who are more likely to earn less during their careers. There’s ample room for large companies to pay more: CEOs at S&P 500 firms now make an average of 361 times more than their average employee. In the 1950s, that ratio was 20 to 1. There’s little evidence that businesses are trying to change that, with one tech firm that cut CEO pay to give all workers a $70,000 minimum wage as an exception. But policy might help nudge more in that direction. One early example is a law in Portland, Oregon, that taxes companies with the biggest gap in pay between CEOs and employees.

A government-mandated retirement plan

Workers also need access to retirement plans. Only around two-thirds of private-sector workers have access to a pension or a retirement savings plan through work. Lower-income workers and people who work part-time are less likely to have the choice of a retirement plan. Access makes a difference; when workers have a plan at work, they’re 15 times more likely to save for retirement. New policy could require employers to offer a pension or 401(k), or require them to go a step further and contribute to that plan on behalf of the employee.

In a bill proposed by the senators Amy Klobuchar (D-MN) and Chris Coons (D-DE) in early April, businesses would need to pay at least 50¢ into an employee retirement plan for each hour worked, an amount that would rise with wage growth. (A companion bill soon followed in the House.) Companies would get a partial tax credit to help cover their costs, and the tax rate for corporations and the wealthiest households would increase to pay for the program. Workers would be automatically enrolled to contribute 4% of their own earnings, and those contributions would automatically rise. The first $2,500 would go to an accessible savings account, and the rest would go into a retirement account. Small businesses with 10 or fewer employees could opt out, but those workers could still get tax credits for retirement savings. It’s not clear yet whether the bill can succeed, though the policy came from the centrist think tank Third Way, the senators championing it pride themselves on bipartisanship, and the AARP, which has opposed any employee mandate plans in the past, is supporting it.

Split the responsibility between workers and employers

Some experts have proposed similar plans. One concept for “guaranteed retirement accounts” suggests that employers should put 1.5% of an employee’s salary into a pension plan managed by asset managers, and employees would contribute the same amount, getting paid an annuity on retirement. Low-wage workers would get a tax credit to pay for their contribution. It’s a concept that can get broad political support, says Teresa Ghilarducci, an economics professor who leads the Retirement Equity Lab at The New School and one of the people to propose the idea a decade ago.

“The Republicans that I’ve spoken to in the Senate say that it’s perfect because it holds up the value of personal responsibility, because the worker contributes, but also the employer,” she says. “So it recognizes a shared responsibility to save for retirement.” A 1.5% contribution is small compared to a country like Australia, where employers have to contribute 9.5% of someone’s salary into a mandatory retirement fund.

State-backed IRAs

Because small businesses often struggle to afford to offer standard retirement plans, a handful of states are also beginning to offer their own IRA plans as an alternative. In Oregon, a program that started in 2017 is now phasing in every employer in the state. Eventually, all businesses will either have to offer a standard retirement plan or sign up for the program, called Oregon Saves, which automatically enrolls workers in a 401(k). While workers already have the option to sign up for an IRA separately, a workplace plan–particularly one with auto-enrollment–makes it much more likely that they’ll actually participate. Illinois has a similar program, and another will begin in California this summer.

Expand Social Security

Social Security also needs to change. As it stands now, the trust fund for the program will run out in 16 years, leaving anyone who retires after 2035 with checks that only pay 80% of the total they should be getting. One current proposal to fund the program is a bill called the Social Security 2100 Act, which would gradually increase payroll taxes, and would apply the tax to earnings over $400,000 (right now, any earnings over $132,900 aren’t subject to the tax). Even now, the payments are low. They’re even lower for women, since women often take time off during their careers to care for children or elderly parents, and because they make smaller salaries in general. “We need to expand Social Security,” says Prindiville. “We need to particularly increase the minimum benefit level. We need to make modifications to the program so that caregivers get credits for time that they spend out of the paid workforce, so that work is still rewarded when they’re retired.”

Expand Medicare and Medicaid

Healthcare costs are another facet of financial insecurity. “Healthcare eats up a huge part of senior budgets,” he says. While Medicare helps, seniors still end up paying large bills. In the past year, older Americans took an estimated $22 billion out of their savings to pay for healthcare. 7.5 million say that they can’t afford to pay for a drug that their doctor has prescribed. Both Medicare and Medicaid should offer more help to more people, Prindiville says. That would mean updating eligibility limits. “One way to do this would be to increase the income and asset limits that states apply to their Medicaid programs. Another option would be to increase the income and asset limits that apply to programs that help people pay for their Medicare premiums, co-pays, and deductibles–programs like the Medicare Savings Program and the Low-Income Subsidy.” As millennial and gen-Z workers retire, they could face even higher healthcare costs.

Build affordable housing

Housing costs are another challenge. In the worst-case scenario, some older Americans can’t pay their rent or mortgage or are on the verge of that situation, like Deborah Haller. The fastest-growing segment of the homeless population is over the age of 50, and nearly half of those people are becoming homeless for the first time in their life. “These are folks who had worked their whole lives,” says Margot Kushel, a professor of medicine and director of the UCSF Center for Vulnerable Populations. “Many had been married or partnered. They had been in mainstream society but they had been poor.” Without much of a safety net, if something goes wrong–if someone gets sick and loses their job, or a spouse dies, for example–they can end up homeless. Any solutions for affordable housing, especially solutions targeted at seniors, are also critical for overall financial stability.

“Rent is the biggest problem I see, and it’s only going to get worse,” says Roslyn Begun, who is working as a pet sitter at the age of 72 because she needs the income to pay for her Bay Area apartment. “They’re building affordable housing, but it’s a joke.” Waitlists for affordable housing can take years. Still, some cities are beginning to slowly make progress. In New York City, where a survey in 2016 suggested that more than 200,000 seniors were on waitlists for affordable apartments, the city is now planning to build up to 1,000 units of low-income senior housing.

Create an Older Workers’ Bureau

As more people continue to work longer–sometimes because they love their work, but more often because they don’t have a choice–it’s also important to look at working conditions, Ghilarducci says. “We need to create an Older Workers’ Bureau in the Department of Labor to analyze the kinds of jobs that older workers have, and analyze them for the effect they may be having on health and well-being. There’s anecdotal evidence that the jobs that older people get are detrimental to their health.”

What are the chances these solutions will be implemented?

There’s some evidence that some of these changes could begin to happen. “I do see a growing recognition from policymakers that we have this big demographic shift happening in our country, and that one of the key challenges is ensuring economic security for older people,” says Prindiville. The bill introduced by Klobuchar and Coons is one example; there’s also movement in states like California, where the governor recently committed to developing a new masterplan for aging for the state. “People are really starting to see it. And so that gives me hope that we can do something about it.”