Thought Leadership Thursday
Expanding Long-Term Savings Opportunities
Thought Leadership Thursday Article
Among the new daily challenges we are facing in our states, long term policy objectives are continuing along their paths. I have been planning to write a Thought Leader Thursday column about secure savings since January — and now here we are in July — with a new set of programs and policies to implement, loan funds to manage, and a renewed sense of urgency to address racial and economic disparities head on.
On June 13, the Colorado General Assembly passed SB20-200: Implementation of the Colorado Secure Savings Program. Over the next 24 months, the Board and staff in the Colorado Department of the Treasury will work to build a program that provides access to retirement savings for all Coloradans.
Promoting, encouraging, and establishing structures that allow for retirement savings is one of our most important roles as State Treasurers. The implementation of state facilitated retirement programs is expanding, and many of you are somewhere in this process — from the study phase to the program rollout phase.
As we continue to be the leaders in this conversation about retirement savings, it is critical that we include economic justice as a key part of that conversation. We have the opportunity to encourage and promote more equitable financial opportunities for all people in our states. States, in partnership with the private sector, can provide an easy, accessible, portable way to save, allowing individuals to live a life of dignity and security for themselves and their families.
In Colorado, only 38% of workers without retirement savings can come up with $2,000 on short notice. A Colorado Secure Savings program will be the first opportunity many workers have to create significant assets. Currently, one of the only tools available to these same workers (34% of uncovered workers) appears to be unconventional, high-interest credit sources like pawn shops and payday lenders. Preventing the exploitation of people in their most desperate moments of financial hardship is a question of economic justice.
When a worker in a low-wage job retires at age 65 (assuming Social Security’s Full Retirement Age for these workers is age 67), Social Security will replace 43% of his or her pre-retirement earnings. Standard benchmarks indicate that workers in low-wage jobs need between 75 - 90% of previous earnings to maintain their standard of living. Working to close this gap so all people can retire with dignity is a question of economic justice.
Not only does this retirement gap affect individuals and families, it also has a large impact on the state's budget. In Colorado, elderly households are projected to increase by 50% in the next 15 years. The combined budget and revenue impacts to the state due to insufficient retirement savings is an estimated cumulative fiscal impact of almost $10 billion between 2021 and 2035. The state would save almost $9 billion over the fifteen-year period if retirees had sufficient savings.
Our research identified five barriers to long-term savings for Coloradans. Planning Barriers: challenges that prevent people from understanding their needs and developing a plan for retirement saving. Execution Barriers: challenges in taking advantage of the long-term beneficial effects of saving over one’s earnings lifetime. Systemic Barriers: challenges in opening a retirement account. Resource Barriers: lacking specific skills or income to effectively save money. Persistence Barriers: an inability to maintain long-term gains due to a lack of consistent saving and/or prematurely withdrawing money from retirement savings for other purposes.
These challenges are not unique to Colorado and it is the promise of creating solutions to these problems that we strive for as Treasurers. While we don’t know what lies ahead in the next weeks, months, and years, we do know that building long-term savings, empowering people to grow those savings, and offering targeted and real-time financial education are important steps to take now as we look toward economic recovery, and as we begin to address the many social and economic justice issues we face.
Treasurer Dave Young