The Progressive Ensign

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Category: Retirement

57M Gig Economy Workers Hit Benefit Limits

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

Image: thcceomagazine.com

Gig workers create millions of dollars of goods and services for the U.S. economy yet remain frustrated at not picking off a benefits stream for themselves. While, gig economy workers enjoy ‘lifestyle benefits’ they are lacking in good health insurance, retirement plans, stock options and addons like commute cost compensation, discounts at restaurants, staff lunches, evening taxi service, onsite laundry and company cafeteria.  Income is irregular and unpredictable for contractors whether the gig is a project or a longer term assignment with an agency.

In Silicon Valley and many high growth regions jobs in security, food concession, facilities management, IT, accounting, travel, web design, and HR have been outsourced, contracted or shifted to independent contractor roles working in their home. While independent contractors have autonomy and work flexibility they are missing key benefits.  Contingent workers like Uber drivers using the Uber app to find riders and handle billing are essentially working for the company yet not enjoying full time worker benefits.

So, how widespread in our economy is the contractor workforce?  Gallup completed a recent survey and found about 36 % of the workforce is engaged in some type of gig work.

Sources: Gallup, The Wall Street Journal, The Daily Shot – 9/5/18

Seven percent of workers had one traditional job and a gig job while 3 % had two gig type jobs for a total of 10 % with two jobs.  Workers in the bottom 80 % in income have seen their wages actually decline over the past 10 years. So, it is no surprise they need to hold at least two jobs to maintain their standard of living.  The number of workers holding multiple jobs has skyrocketed in the past few years.

Sources: Deutsche Bank, The Wall Street Journal, The Daily Shot – 9/5/18

Note the high during the Great Recession of multiple job holders, and yet today in a strong economy we see a similar peak in workers with multiple jobs.  Is this economy really working for the majority of the labor force?

Next Steps:

The economy has not ‘lifted all boats’, we know that the top 10 % in income received 90 % of the income gains since 2008.  The most recent Tax Bill from Congress benefited the top 1 % and corporations to the tune of a $1 trillion deficit to be paid by all taxpayers who are seeing their incomes and benefits decline.  The gig economy has been a mechanism for corporate executives and their wealthy shareholders to cut costs, pass along retirement benefits responsibility to employees and shut many workers out of profit sharing programs.

We have proposed in previous posts that in addition to raising worker wages, gig economy works would be well served if they received health insurance from birth, a retirement program in tandem with Social Security at the time of a worker’s first job and other income protections.

It is time we recognize that the gig economy is here to stay, it is a key component of the dynamism and flexibility in the workforce to drive growth and innovation – we need to plan for the just needs of workers to make the economy work for all.

Seniors Feeling Financial Crunch – Increased Bankruptcies and Pension Overpayment Collections

Image: debt.org

Researchers tracking the financial blight of seniors report that seniors over age 65 are 3 times more likely to file for bankruptcy. Seniors are caught by reduced pensions, co pays on their children’s student loans, spiraling medical costs and lost wealth from the Great Recession.

Sources: Consumer Bankruptcy Project, The New York Times – 8/3/18

The post – Baby Boomer generation is feeling squeezed too as their bankruptcy filings are up over 66 % for the 55 to 64 year old group. Many Baby Boomers just beginning their retirement or in the their last years of savings were hit hard by the Great Recession, wiping out 401k investments in stocks and losing home equity wealth too. In all households lost $14 trillion in wealth, most of the income and asset recovery of the past 10 years has gone to the top 10 % in income.

The Consumer Bankruptcy Project is an ongoing effort led by Professor Thorne, University of Idaho; Professor Lawless; Pamela Foohey, a law professor at Indiana University; and Katherine Porter, a law professor at the University of California, Irvine. Their universities fund the project as they review court documents and send out questionnaires to retirees.

Social Security has not been able to fill the gap.  Nor was Social Security designed to be the sole source of income for seniors – it was setup to supplement pensions and savings.  Over the past 30 years corporations have shifted from defined benefit (pension direct payment) plans to defined contribution plans like 401k where the worker makes the majority for the contributions and the employer is off the hook to make direct fixed payments. Yet, today for 33 % of retirees receiving Social Security it provides 90 % of their income.  Medicare and drug costs cut into their Social Security checks:

Sources: The Kaiser Family Foundation, The New York Times – 8/3/18

Health care spending for the average retiree is increasing every year beyond Social Security income and drugs become more expensive, some with standard prices of $70 per dose gauged up in price to $1700 per dose.

Adding insult to injury firms like  AT & T are contracting with collection agencies to claw back overpayments to pensioners.  The firms make up the calculation tables and send out the checks now they blame the pensioner, who has already spent the money.  It is important if the retiree receives a statement of planned disbursements to send back incorrect checks, however in most cases the checks were sent over some years until the error was found and the retiree had no idea that there was an overpayment.

Next Steps:

The perfect financial storm for retirees comes down to the basic fact that corporations shifted their responsibility for pensions onto workers helping the financial services industry sell more financial products to an naïve and financial challenged workers.  Professional financial managers were replaced by amateur workers doing their best to invest their 401k plans and save for the future.  For the bottom 80 % income the last 30 years their wages have been stagnant with increasing educational costs for their children and increasing medical costs for themselves. The federal government has been of little help, not indexing Social Security payments to the actual costs seniors incur for increasing medical and health services costs.

  1. Pension Claw backs – this makes no moral sense, many retirees have spent 20 or 30 years of their lives for the business, the business made the mistake they need to take care of it. In AT & T’s case they spend billions on stock buy backs to make their executives and shareholders rich, they could take a fraction those funds and take care of their seniors and fund their pension liabilities appropriately.
  2. Retirement Income – in previous posts we have recommended that instead of an incredible mess of 401k accounts, financial houses and amateur investment management by workers, a guaranteed retirement program be implemented starting at the time a person begins work and receives his Social Security card. Worker savings toward retirement would be transferred into this one account for a lifetime, with Social Security contributions by the federal government, and savings by the worker.  A portion would be guaranteed by the federal government and professionally managed as a defined benefit plan. Workers could opt for professional management of all their funds as well.
  3. Medical Costs – as we have recommended health insurance should be run by one entity the present Medicare operation for all Americans from the time of birth. Medicare already has a formulary for drugs, and should be authorized to negotiate drug costs for all patients. Standard compensation for procedures and quality of care implemented for Obamacare should be extended. Drug companies will no longer be able to buy back their stock, but instead will be required to spend those funds to bring drug costs down, or reduce costs in other ways.  Direct prescription drug advertising should be outlawed to save the over $1 billion spent a year in wasted advertising and spend the funds on price reductions.

15 Million Retiring Americans Face A Declining Standard of Living

Photo: pbs.org

The grand plan by financial services companies thirty years ago was to have Baby Boomers invest in 401k matching plans offered by their employer to build a secure retirement nest egg.  The 401k plan funds would be invested in the stock market. Companies would eliminate their defined benefit pension plans thereby reducing their retiree costs and transfer the savings responsibility onto the worker. The reality is that worker saving just never happened.  Since 1970, 90 % of pensions have been replaced by 401k or IRA plans. Unfortunately, many Americans raided these plans to pay for living expenses during the Great Recession

A Wall Street Journal analysis showed that 40 % of all households headed by people aged 59 -70 lack sufficient financial resources to maintain their standard of living during retirement. The situation is due in part to lack of saving in 401k plans and general savings.

Sources: Center for Retirement Research at Boston College, The Wall Street Journal – 6/22/18

Adding to the savings challenge, over the past 10 years incomes have stagnated making it extremely difficult for workers to put away more money into their 401k or savings plans.

Sources: Urban Institute analysis of Census Bureau data, The Wall Street Journal – 6/22/18

Consumer debt has soared for auto and student loans, further squeezing their ability to save. The combination of being left on their own to manage their retirement savings, limited matching from corporations not matching pension income streams and debt means that households are not saving enough to maintain their standard of living.

Sources: Center for Retirement Research at Boston College, The Wall Street Journal – 6/22/18

The situation defaults to retirees relying on government sources completely for retirement income, working longer than they had planned or gaining assistance from children.  While, funding help from children may work for temporary bridge loans, ongoing assistance will hurt their children’s ability to save as well, causing a snowballing effect on future saving.

Next Steps:

 From our previous analysis on the retirement crisis:

 Our politicians have designed a failure prone retirement system allowing corporations off the hook providing full defined benefit pension programs with professional management. Instead, 401k employee and employer match defined contribution programs were created where the individual is responsible for investing retirement funds safely. The present retirement program is a patchwork of 401ks, IRAs, Roth IRAs and SEP programs for small business. “

We continue to see many retirees at or below the poverty level:

“Today, Social Security only provides a $12,000 a year benefit to the average retiree. Yet, Social Security provides 80 % of the benefits that 40 % all retired people depend on.  A Retirement Savings Account would have as a core principle that the combination of Social Security and worker’s savings provide at least a guaranteed income at the poverty level at age 65.”

Social Security income is particularly difficult for women who made less income working. In 2014 women received on average $4,500 less per year than men in retirement.

Our recommendation is for a single Retirement Savings Account:

“Funds deposited by workers into their Retirement Savings Account would be tax deferred up to $40,000 per year until age 65 similar to a traditional 401k today.  Most workers will see a lower tax rate at retirement as this provision allows for lowering the cost of saving for retirement during high salary tax years. Corporations contributing to a workers’ Retirement Savings Account would be allowed up to a 50 % corporate tax deduction on the matching dollar amount to incent companies to contribute.

There would be no cap on total funds added to the Retirement Account by a worker.  Workers would be allowed to obtain a medical or education loan with their retirement account as collateral but only up to 10 % of the value, which if defaulted and not paid back, would be paid back on a pro-rated basis by a Social Security deduction beginning at age 65.

This Retirement Savings Account proposal meets 12 core principle requirements by the Retirement USA, a Washington D.C retirement advocacy group including: universal coverage, secure retirement, adequate income, shared responsibility, required contributions, pooled assets, payouts at retirement, lifetime payouts, portable benefits, voluntary savings, efficient and transparent administration and effective oversight.”

The crisis for our retirees continues to worsen as Congress does nothing to look at the root causes of the income challenge. We need to develop innovative solutions to make the golden years for our senior citizens secure now.

Golden Years In Financial Jeopardy, Guaranteed Retirement Program Needed

The View:

Researchers estimate that 4.3 million seniors are living in poverty or near poverty today.  The number of seniors in poverty is expected to soar by 146 % between 2013 and 2022.  Millions of Americans between age 50 and 65 lost their home equity and savings in the Great Recession.  They were not made whole then while bailouts were provided to banks and investment houses. The loss of retirement savings and limited social security income results in dire financial straits for many seniors. Retirees are squeezed between student debt (taken on for children and grandchildren), auto loans, medical costs other debt and their fixed income.  The patchwork of 401k, IRAs, Roth IRAs, and SEP programs is total inadequate to provide a foundation for a secure financial future for retirement.  The Solution is to setup a Retirement Savings Account that includes Social Security when first entering the workforce, with professional management of retirement funds in secure investments guaranteeing  adequate income to be above the federal poverty level at age 65.  Two-thirds of the funds and Social Security would go toward the poverty threshold providing retirees with an option of investing the other 34 % themselves.

The Story:

“The idea of our financial future being secure was an illusion!”   Bob declared, an Amazon Campforce worker about the loss of his home and savings in the 2008 Great Recession. Bob owned a home with good equity and held hundreds of thousands in retirement accounts – in one year it was all gone. The sad reality is that for most seniors today, their financial future being secure is still an illusion.

Over 10 million people many in their 50s and 60s lost their homes, and home equity totaling $3.3 trillion in the Great Recession of 2008 – 2009.  The National Association of Realtors estimates that only 33% of those who lost homes were able to come back into the housing market due to poor credit, lack of financing or the fear of another crash.  Retirees lost over $1.4 trillion in the last two quarters of 2008 alone or 25 % of their investments. Professor Teresa Ghilarducci of the New School for Social Research predicts that of the 18 million Americans aged between 55 and 64 years old in 2012 by retirement age 4.3 million will live in poverty or near poverty. She estimates that between 2013 and 2022 the number of people in this group will soar by 146 %.

Yet, banks and investment houses that traded derivatives based on mortgages in 2008 that lost billions of dollars were made whole in the federal TARP bailout program.  At the time of bank bailouts many people were holding underwater mortgages and were not made whole by write downs on the principal loans with their banks. On group is illustrative of their plight, senior ‘nomads’ houseless roving in RVs from job to job wherever they can find work. Some lost professional jobs during the recession and were not hired back due to lack of new skills or jobs being downsized.

In her book, Nomadland, author Jessica Bruder offers a definitive narrative of the predicament of work campers and their nomadic life. Few of these people chose this life – they are the consequential damage of the financial crisis who have been left out of the growing economy in the past eight years where 90 % of income growth accrued to the top 1 %. Feeling hopeless to change their circumstance, many see no way out but to move from job to job.  Some are more hopeful that if they work hard enough they can buy a home again – however in an economy that drives wealth to the top this is a challenging dream. Seniors in urban areas who are homeless, living in shelters or living in crowded multi-family apartments are in a similar financial condition – they just don’t live a nomad life.

Corporations see an opportunity to gain access to an inexpensive, mobile labor by setting up work camp programs like Amazon’s Camperforce. The company needs a large seasonal workforce to achieve 4th quarter sales goals totaling 33% of its yearly revenue. Amazon offers Camperforce members paid RV campsites near locations like their warehouses, where during the holidays they pull items from shelves and pack shipping boxes. Bonuses of $125 are offered for referrals.  This is part time work paying $11.75 @hr, plus overtime, $1.00 @hr completion bonus with no 401k, health care, or security of a full time job. Below is a company website promotion focused on warehouse work in Kentucky and Tennessee that looks like a summer camp:

Source: Amazon – 11/30/17

Yet, Bruder discovered in interviews with Camperforce workers the job experience was far from a summer camp. They work in tough conditions lifting heavy packages, walking miles each day on the warehouse floor with limited breaks. Besides warehouse work, nomad workers seek jobs in agriculture; harvesting sugar beets, flipping burgers at spring training baseball games or other seasonal work.  They are living on less than $1000 per month, with some locations having no hot showers or hygiene conveniences. Bruder found many women working long past retirement as in the past had left the workforce causing income gaps, had lower pay than men and little leftover for retirement savings.

In the future the number of seasonal jobs will decline as Amazon has installed over 40,000 warehouse robots in 2016 to do picking and packing with plans to install thousands more in the next 5 years.

Amazon reported in 2014 they had over 2,000 Camperforce members, since then it has grown fast to an estimated at 4,000 the result of hard driving company recruitment programs.

In agriculture there were 3 million migrant workers in the US in 2009, with 20% being seniors or about 600,000 both foreign born and domestic. Domestic workers make up 28 % of the migrant force so in terms of those affected by domestic retirement programs it is estimated to be 168,000, now likely to be much larger group.

These mobile seniors are just the tip of a huge population under stress from the losses of the Great Recession

How many seniors are under financial stress?

In our economy there are still 1.5 million more people working part – time for economic reasons than before the Great Recession, the majority are older workers:

Sources: Federal Reserve Bank – St. Louis, The Wall Street Journal, The Daily Shot – 8/14/17

Seniors are taking on more debt for children and grandchildren. Last August, the Federal Reserve reports Parent Plus loans soared to 2 million borrowers in 2015 compared to 1 million in 2003 between ages 50 and 64.  There were another 200,000 borrowers over age 64 for similar loans in 2015. The Federal Reserve Bank of New York estimates that Americans over age 60 had a 9 times increase in student debt between 2004 and 2014 to $58 billion.

Source: Federal Reserve Bank – New York – 6/30/15

The Consumer Financial Protection Bureau estimates that 40 % of Americans over age 60 have student debt loads so severe they skipped necessary healthcare. Health care costs continue to grow at a 6.5 % rate according to Price Waterhouse Coopers for 2017, 6 times the rate of inflation at 1.4 %.  For older Americans on fixed incomes medical costs are a major component of their expenses with soaring medical costs creating a stressful squeeze on their fixed income budgets.

The financial reality for seniors aged 67 is growing worse as their total debt grew by 169 % between 2003 and 2015, they did not receive the uplift in incomes from the growing economy that the top 1% enjoyed.

Sources: New York Federal Reserve Credit Panel, Equifax – 2/12/16

Only 25 % of the increase in senior debt is due to an aging Baby Boomer population. Below is a debt load per capita versus 30 year olds:

Sources: New York Federal Reserve Credit Panel, Equifax, Census Bureau – 2/12/16

The Federal Reserve reported last August that seniors are taking on even more debt. Americans aged 60 and older held 22.5% of total household debt in the fourth quarter of 2016, almost double the debt load of 12.6% in 2003.

The high debt load for those nearing retirement age results from limited participation in savings for retirement. Only 33 % of Americans today are participating in employer 401K plans and on average Americans have only $5,000 saved for retirement, according to the Federal Reserve

The Solution:

Our politicians have designed a failure prone retirement system allowing corporations off the hook providing full defined benefit pension programs with professional management. Instead, 401k employee and employer match defined contribution programs were created where the individual is responsible for investing retirement funds safely. The present retirement program is a patchwork of 401ks, IRAs, Roth IRAs and SEP programs for small business. This mishmash of plans was engineered by the financial services industry to meet their sales and profit goals, yet is missing the continuity, security and financial safeguards that retirement programs demand.  The loss of trillions of dollars in the Great Recession clearly demonstrate the failure of the present retirement system which has left millions in poverty or near poverty in their golden years.

Today, Social Security only provides a $12,000 a year benefit to the average retiree. Yet, Social Security provides 80 % of the benefits that 40 % all retired people depend on.  A Retirement Savings Account would have as a core principle that the combination of Social Security and worker’s savings provide at least a guaranteed income at the poverty level at age 65.

Beginning with first day of a worker’s first job when they receive a Social Security number they would open a Retirement Savings Account.  The worker contributes to the account no matter which employer they are working for the rest of their life until retirement.  The Retirement Savings account could be administered by contract to the federal government by a financial services corporation, with the core savings invested by a professional in core income producing and safe investments – Treasuries and federally backed agency issues. Up to 66 % of their retirement funding would be in secured investments with employer matching funds being deposited into the account.  If some Americans elect, they can have the remaining 34 % invested in secure defined benefit investments with a guaranteed rate of return at retirement age.  Other workers may elect to invest 34 % of their funds in other financial instruments – yet 66 % of their retirement investments would be secured with Social Security making up the majority of the core guaranteed funds.

Funds deposited by workers into their Retirement Savings Account would be tax deferred up to $40,000 per year until age 65 similar to a traditional 401k today.  Most workers will see a lower tax rate at retirement as this provision allows for lowering the cost of saving for retirement during high salary tax years. Corporations contributing to a workers’ Retirement Savings Account would be allowed up to a 50 % corporate tax deduction on the matching dollar amount to incent companies to contribute.

There would be no cap on total funds added to the Retirement Account by a worker.  Workers would be allowed to obtain a medical or education loan with their retirement account as collateral but only up to 10 % of the value, which if defaulted and not paid back, would be paid back on a pro-rated basis by a Social Security deduction beginning at age 65.

This Retirement Savings Account proposal meets 12 core principle requirements by the Retirement USA, a Washington D.C retirement advocacy group including: universal coverage, secure retirement, adequate income, shared responsibility, required contributions, pooled assets, payouts at retirement, lifetime payouts, portable benefits, voluntary savings, efficient and transparent administration and effective oversight.

Note: References for this post can be found in the Research tab under Retirement.

 

 

 

 

 

 

 

 

 

 

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