Young people more likely to retire in poverty, according to study

Approximately half of California workers will retire in or near poverty, according to a study published Monday by the UC Berkeley Center for Labor Research and Education.

The study details the fiscal consequences of the decline in secure retirement plans offered by California employers. In the past, many employers offered defined benefit pension plans, which guarantee monthly payments based on salary before retirement and length of time employed. Now, most California employers either offer 401K accounts, which force employees to invest for themselves, or do not offer any sort of retirement plan.

Nari Rhee, associate academic specialist at the labor center and editor of the study, said that money in 401Ks is at risk if the market does not do well or if a person invests poorly.

“We’re not all Warren Buffett,” she said. “We don’t all have the skills to game the system. If the market doesn’t do well, or if you make a bad decision about how to invest, there’s no security in terms of having any money for retirement.”

Workers can also invest in private individual retirement accounts, but Rhee warned against these types of accounts because they often charge exorbitant hidden fees and still involve a certain amount of risk.

Since only 40 percent of workers currently have retirement plans, one-third of workers between the ages of 45 and 64 will be in poverty after retiring,  according to Rhee. However, she said that 55 percent of workers aged 25 to 44 will not have enough money to survive after they retire since they will be relying mostly on social security to make up for unpredictable 401Ks.

“It’s especially scary for young people,” Rhee said. “People should start saving basically as soon as they start working. Employers should be helping workers save, and right now most employers aren’t.”

State Senator Kevin de Leon, D-Los Angeles, is working on a bill that takes its cues from Rhee’s research, according to his chief of staff, Dan Reeves.

The bill suggests that all workers not offered a retirement plan from their employers pay into government-sponsored individual retirement accounts. Rhee said she hopes that the bill will be amended to include more protections for the workers’ investments.

Nancy Hwa, communications director for the Pension Rights Center, said that her organization was not surprised by the study’s findings since the country was in a retirement crisis even before the recession.

“The federal legislature is trying to make 401Ks more like traditional retirement plans, but we don’t think that’ll fix things in the long run,” Hwa said.

Rhee singled out women, labor unions, young workers and consumers as the groups most affected by the lack of retirement options.

“I’m optimistic because there’s a lot of room for the state to do something that can really, really help workers, but I think it’s going to take workers asking for it,” she said.