Rally Around Retirement Security!
We talk this week with a 5th generation Wisconsinite, small business owner, proud Green Bay Packers shareholder, and financial expert from Eau Claire, WI – state treasurer Sarah Godlewski.
When we last spoke, the Treasurer was on a mission to understand retirement and financial security in the state. We tracked her down to hear the results, and the Task Force’s recommendations.
Always a person of action, the Treasurer gives us – and you – the scoop, here.
Treasurer Sarah Godlewski, thank you so much for joining us again. When we spoke in July, you were spearheading the effort to study retirement security in Wisconsin. Tell us what you found.
Well, we found that it's a bigger problem than people realize. There's a couple of interesting facts. The first is if we do nothing -- if the state of Wisconsin decides that they will just let the status quo continue -- we will see over 400,000 Wisconsin seniors in poverty by 2030.
That's a really alarming number. These are our neighbors, our friends, our parents, that will be struggling to pay their bills. We’ve already been hearing stories about seniors who are not taking their prescription drugs every day. Not because they don't want to, but because they're worried about affordability.
When we took it one step further, we found out that 88% of Wisconsinites are actually worried that they have not saved enough. So we've got to step up and do something.
What’s your sense of where this is coming from?
When we look at our retirement system, it's complicated. Right now it's not just one or two, but in fact three income streams people are supposed to have in order to feel secure when they retire. One is Social Security, and we know people can't live on Social Security alone. Here in Wisconsin, the average check people are getting is about $1,200 a month. That's the first leg.
The second leg is access to a plan at work. And do people have a plan at work? We know in Wisconsin we are looking at almost a million Wisconsinites that do not have access. The third leg is personal savings. And we know that Wisconsinites just don't have good savings. We're looking at median retirement savings of about $12,000 for Wisconsin workers. That’s not going to cover much of a retirement.
The system has to change. And that is quite clear because not only is it the right thing to do for our people, it's also the fiscally responsible thing to do. If we don't do anything, not only are you going to see those 400,000 Wisconsin seniors living in poverty, that poverty comes at a cost to the state of an additional $3.5 billion by 2030. So smart investments today will allow us to be proactive and enable a better outcome. Not only because it's good for our people, because it's also good for our state financially.
Terrific, fiscally sound thinking! You met with the Governor and issued your Report and Recommendations this February. What did your Task Force recommend?
So, we took a very holistic approach with our recommendations. We wanted to think about retirement security from start to finish and across a range of themes we were hearing.
SHORTCUT: THE FIVE RECOMMENDATIONS IN A NUTSHELL
1. Incentivize auto-enrollment best practices to boost participation in workplace retirement plans by engaging employers to provide employees with the choice to opt-out versus opt-in.
2. Create a state-facilitated, privately-managed auto-IRA program that provides a simple, easy, plug-and-play retirement account for employees of employers not currently offering one.
3. Develop an emergency savings “pocket” to ensure that employees have a rainy-day fund, protecting retirement savings so they are invested for the long-term.
4. Launch a 401(K)ids program that would create an investment account for every child born in Wisconsin, setting them up with a wealth-building tool for future financial security.
5. Construct an e-commerce web platform that serves as a centralized place for Wisconsinites to easily identify options available to save for retirement and other purposes, while also learning more about creating good financial habits and strengthening overall financial well-being.
This is very comprehensive, practical, and forward-looking. How did you come to these recommendations?
The first theme we heard in our study work was participation. We know that when people have a plan at work, they’re not always participating. Even when their employers match their contributions! We heard that during the employee onboarding process there are enough steps that sometimes people forget to sign up for the 401(k). Or decisions about how much to save and which funds to pick can be overwhelming, so they delay.
So, one of our first recommendations out of the gate is incentivizing Wisconsin employers to automatically enroll employees in the plans they already offer. We know people are 15 times more likely to participate if they have access to a plan at work. And if you automatically enroll them, 90% will start saving -- those two are game changers.
That’s a great start.
Yes (smile). The second big thing was access. Many Wisconsinites – over one million of us – don’t have access to a plan at work. It’s a big reason for our shortfall in retirement savings participation. When we talked to our small business owners, they said, look, it's not that they don't want to offer a plan. It's that form them it's either too complicated, too costly, or too time consuming when small businesses need all the time and resources that they can get. They did say if there was a public option, not only would that be providing retirement security for people, but it would help them be more competitive.
Through that lens, we recommend WisconsinSaves, a state facilitated Auto IRA program. This would be available through and for businesses that don’t currently offer plans. It would give employees retirement accounts into which they can save by payroll deduction, with the benefit of automatic enrollment and opt out. WisconsinSaves would be operated as a public private partnership with the state engaging professional investment firms and a program administrator to serve employers and employees. That was ko the second recommendation.
And number three?
The third recommendation came out of COVID. We know right now that many people withdrew or borrowed money from their retirement savings over the last year, because it was oftentimes the only savings that they had to weather the storm financially. So we built an emergency savings pocket into WisconsinSaves. We also recommended a similar pocket be built into our state employees retirement plan.
In both cases, this pocket would allow you to build up emergency savings alongside your retirement savings, up to say, a thousand dollars, to use when your car breaks down or your roof is leaking. If you need the money, it would be available and replenished from your future savings. With this pocket you would avoid those expensive fines that are associated with pulling money out of your retirement account early.
We are rounding the corner on your very thoughtful approach.
We are! The fourth theme comes from something we kept hearing over and over, which is, “I wish I had started saving earlier”. That was true whether we were talking to farmers or folks in cities. Parents are worried about their kids who don’t have access or may not have started saving for other reasons.
401(K)ids is our retirement account at birth. The idea is that every child born in the state of Wisconsin would get a retirement account seeded with a small amount of money. It then harnesses the power of compound interest. Think about it: if we seed this account with $500 the day a Wisconsinite is born, it could be worth over $40,000 the day that Wisconsinite turns 65. That’s going to be a game changer for many families. (Editor’s note: pack your things, Honey, we’re moving to Wisconsin!)
We know you’ve got one more great recommendation up your sleeve.
We do. The final one recommendation creates a one-stop-shop e-commerce portal. Something that we kept hearing from Wisconsinites is, “Retirement is complicated. I don't know where to go.” We also heard from employers who said, “I don't know who to trust, what vendors will actually work with me.”
This portal would be a one-stop shop where people could have a trusted source for information and services. And it would include resources with regards to financial security and financial education. It would be powerful and simplifying to have this available to both Wisconsinites and to the small business community.
You and the Task Force have worked hard to get to this point. What happens next?
What is really great about the work of this group is that this was a bipartisan task force providing bipartisan, pragmatic solutions.
Part of the pragmatic piece is that there's not a large price tag associated with these initiatives. These are sustainable concepts we can get started on as they are approved. We’re currently working with the Governor, as well as through our committee chairs on best approach. And we have partners on the ground that are engaging with everyday Wisconsinites to keep them informed and involved.
There is a lot of interest. Between the partnership with the Governor and the Legislature and the work of small businesses and citizens, we hope to see this become a reality. For folks who want to become involved, my office is always open.
This pandemic has been wicked hard. Tell us about your silver linings over the last year.
I'll take it two ways. For me personally, the silver lining is how resilient we are as a country and as people. We've seen not just a pandemic, but an economic crisis and a social justice crisis. I respect how people are willing to come together and provide support, whether it is local restaurants delivering food for frontline workers, or people buying gift cards because they love their local barbershop and they just want to do everything they can to keep small businesses open. It all matters. And to me it goes back to the American spirit that we really care and are willing to come together and roll up our sleeves and uphold the ideals of this country. This spirit is what I’m seeing every day in the community.
As Treasurer, we were halfway through the Task Force work when COVID hit. And we weren't sure how retirement security was going to fit into the forward-going conversation. We were talking about food assistance and jobs and people being able to stay in their homes. Maybe surprisingly, or maybe not, something that became clear was that retirement security is more central than ever to financial well-being.
We heard people say, “Now more than ever, I'm realizing how important this is. Because, if I didn't have my retirement account, I wouldn't have been able to make it because I used some of it to help pay my bills.” We heard other folks say, “Look, I'm even more worried now because I don't have anything.” And to me, it just shined a bright light on this work.
You all are picking up the mantle from another prominent Wisconsinite.
I will just say we have a retirement security legacy here in Wisconsin that started with the work of Edwin Witte in the 1930s. University of Wisconsin Professor Witte was the “father of Social Security”, which really led the way to greater retirement security for Americans across the 20th century. When we look at what's next, Wisconsin wants to be continuing that legacy. And that's exactly what this report is set to do.
That is awesome. What a lovely way to close. Thank you Treasurer Sarah! For more - connect on social: @WITreasurer and @SarahforWI, and directly with the Treasurer and her team via email here. See the Wisconsin Retirement Security Resource page here. October 2021 update: The Treasurer’s office now has a terrific web site where you can get direct updates.
This piece was featured in March 25, 2021 edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here.
