By Eileen Ambrose, The Baltimore Sun
March 31, 2013
At an age when many workers are thinking about winding down their careers, Victoria Baldassano of Silver Spring says she can't afford to give retirement a thought.
The part-time English professor at Montgomery College said her income has been too low for too long to save for retirement, and she's carrying about $40,000 in credit card debt racked up to pay living expenses.
"It's an awkward situation to be in at 61," said Baldassano, who said she thinks more about day-to-day bills than retirement.
Baldassano's predicament is not unusual in Maryland, according to a union-sponsored study on the state's retirement readiness being released Tuesday by an economic think tank.
Maryland households for years have enjoyed the highest median income in the country. But the Schwartz Center for Economic Policy Analysis at the New School in New York found that about four out of 10 households in Maryland headed by someone ages 55 to 64 will have to live almost solely on Social Security in retirement or won't be able to afford to retire at all.
Not counting their home, these older households had less than $100,000 in assets in 2009 — not enough to finance a retirement that could last three decades.
This situation in such an affluent state "just puts an exclamation mark on the end of the sentence that all of America has a coming retirement crisis," said Teresa Ghilarducci, an author of the study and chair of the New School's economics department.
Nationwide, others are even worse off, with almost half of near-retirees expected to be unable to quit work or forced to live almost entirely on Social Security in old age.
But it isn't just older workers in Maryland whose retirements are in jeopardy. The study found that nearly half of Maryland workers — 1.25 million people ages 25 to 64 — do not participate in an employer-sponsored retirement plan, mostly because one isn't available to them.
The Schwartz Center has undertaken similar studies for other states at the request of public officials and others interested in establishing a retirement plan for private-sector workers without access to one at work. The Maryland study was conducted on behalf of the Service Employees International Union, which supports legislation to create such plans here.
A bill that would have done that failed in the House of Delegates this month, but similar legislation has been offered up in the state Senate.
The Schwartz study cited a few factors for the bleak outlook for retirement here: a drop in the number of employer-sponsored retirement plans; a shift away from traditional pensions that pay an income for life; and a lack of participation in retirement plans when workers do have them on the job.
The study reported that between 2000 and 2010, the percentage of Maryland workers who had access to an employer-sponsored retirement plan fell from 67 percent to 59 percent. The 8 percentage point drop is similar to decreases across the country, Ghilarducci said.
The decline coincides with a decrease in large employers, which typically offer more benefits, she said.
In Maryland, the sharpest decline in employees with a workplace plan — 16 percent over a decade — occurred among employers with 500 to 999 employees, the report found.
Workplace plans disappeared fastest in the entertainment and recreation services industry in Maryland, followed by construction.
And among age groups, workers ages 25 to 44 experienced a 13 percent decline in employer-sponsored plans, the largest decrease.
But vanishing workplace plans aren't the only danger to retirements. Workers also are harmed by a shift from traditional pensions to defined contribution plans, such as the 401(k), the report said. With defined contribution plans, the amount of money accrued depends on how much workers and employers contribute and how well investments perform.
Ghilarducci argued that these plans don't work because they are voluntary for both employers and workers.
Even if a company elects to offer a 401(k) and match workers' contributions, employees might not participate, she said. And when they do, they often don't contribute enough.
On top of Social Security, workers need to contribute 9 percent of income, including any employer match, in a 401(k) to maintain their standard of living in retirement, Ghilarducci said. Many workers end up setting aside much less.
"We are human beings, and there is a bias for present consumption versus future consumption," Ghilarducci said.
This doesn't bode well for younger workers, who are more likely to have a 401(k) than a traditional pension.
Daral Johnson, a security guard in Baltimore, says he thinks about retirement.
"Time goes fast. It seems like a year or two ago I was 23, and now I'm 28," he said.
Even so, Johnson doesn't participate in his employer's 401(k). He said his wages are too low to contribute to the plan on top of all his other financial responsibilities. Johnson, the father of a 2-year-old son, earns $10.25 an hour and works about 35 hours a week.
"I'm barely getting by right now," he said.
Another flaw of the 401(k) is that it's too easy for workers to dip into the account, Ghilarducci said.
Johnson, for instance, participated in a 401(k) at a previous job but pulled money out to pay rent.
Ultimately, the lack of retirement savings won't be just a problem for workers, Ghilarducci said. Mayors and governors in the coming years will have to figure out how to meet the needs of a significant elderly population with little means, she said.
The Schwartz study found that Marylanders near retirement had an average household net worth, including home equity, of $282,325 for singles and $687,027 for married couples. That counts some very rich households pulling up the averages, the report said.
Exclude home equity, and 15 percent of these older households have less than $10,000 in savings, investments and retirement accounts, the report said.
That includes Baldassano. "I have zero for retirement," she said.
It wasn't always that way. She had a pension and a defined contribution plan years ago when working for a business publishing company. But she switched to part-time work to raise a son with special needs and later to care for ailing parents. When she divorced in 2007, she said, she drained her retirement funds to buy out her ex-husband's share of their Silver Spring house.
Baldassano said she earns up to $27,000 as an adjunct professor, if she teaches year-round. That's not enough to save for retirement, and it's hard for her to envision a time when she'll be able to stop working, she said.
"I would like to be able to look down the road and see a point at which I could do that," she said. "Right now, it's not there."
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