Retirement insights from a Colorado PERA perspective

Issues & Perspectives

Financial Security for Future Retirees

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Colorado Scores 6 out of 10 in National Survey

How do Coloradans feel about their retirement security? And how do we compare nationally?

Diane Oakley, Executive Director of the National Institute on Retirement Security (NIRS), was recently in Denver to deliver the findings of a survey on public opinion about retirement security nationally and in Colorado. The response to the question about feelings toward retirement security is a resounding sense that Coloradans are facing a retirement crisis. According to Oakley, the top financial worry for Americans is that they will outlive their savings in retirement.

The factors making it difficult for Coloradans to prepare for retirement include flat wages, long-term care, living longer, and fewer pensions (read how PERA’s hybrid defined benefit plan works for Colorado’s public employees). Respondents are also frustrated that policymakers do not understand the difficulties that workers face in preparing for retirement. To cope, Coloradans plan to cut spending and stay in their current jobs longer.

Not surprisingly, retirement accounts are concentrated among higher-income households, and young households are half as likely to have a defined benefit plan as near-retirees. While financial industry experts recommend that workers in their 40s have two to three times their annual salary saved in a retirement account, the average retirement account balance of $28,301 is well below half of the average earnings of Colorado workers.

The Colorado Financial Security Scorecard summarizes the economic outlook for retirement security in the state and gauges the state’s relative performance in three key areas: anticipated retirement income, major retirement costs like housing and health care, and labor market conditions for older workers.

Colorado’s above average score – 6 out of 10 – means that the state’s future retirees have a somewhat lower potential for financial insecurity compared to their peers in other states. However, with fewer than half of all Colorado workers even participating in a workplace retirement plan, many Coloradans face a high risk of living in poverty in their old age.

NIRS advocates for increasing retirement savings for all Americans, which will ultimately lead to a decrease in the need for elderly social services. According to NIRS, proposed models to increase retirement savings should expand coverage to all workers, use auto-enrollment features, and maximize tax benefits to increase retirement saving. See the NIRS data here.

Greg Smith, Colorado PERA’s CEO/Executive Director, currently serves as the Board Chair of NIRS.

Hybrid defined benefitPERA’s Defined Benefit (DB) Plan is “hybrid” in that it combines features of a traditional DB plan with some of the features of defined contribution (DC) plans, such as portability.Defined benefitAlso known as a pension, this is a type of pooled retirement plan in which the plan promises to pay a lifetime benefit to the employee at retirement. The plan manages investments on behalf of members, and the retirement benefit is based on factors such as age at retirement, years of employment and salary history.

Comments

  1. Larry King says:

    Please let retires know that if they have paid into social security during their career, they will receive about half of what they should have coming to them. SS penalizes them. How well I know, I receive only a portion of what I should get from SS. No one, neither SS or PERA warns you of this. Please let everyone know this!

    Larry King
    lnmking56@yahoo.com
    Bella Vista, Arkansas

  2. Beverly Cherry says:

    This is not the case in all state retirement plans. Washington does not penalize retirees by reducing SS. We need to get our state congress to change this.

  3. Ellen Gates says:

    It is not the state congress that can change the….The Windfall Elimination Provision (abbreviated WEP) is a statutory provision in United States law which affects benefits paid by the Social Security Administration under Title II of the Social Security Act.
    The state retirement system is not the one that penalizes, it is the Federal Government (SS).
    This is the Federal Government (Social Security) that will need to be changed. There is a House Bill (H.R. 711) that you can follow and if it gets enough support, hopefully it will pass.
    The Equal Treatment of Public Servants Act of 2015 (H.R. 711), introduced by Ways and Means Committee Chairman Kevin Brady (R-TX) and Rep. Richard Neal (D-MA), reforms the Social Security Act by replacing an unfair formula for calculating benefits – known as the Windfall Elimination Provision — with a new, fairer formula that treats teachers, police officers, firefighters, and other public servants like the rest of America’s workers.

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