By Ian Bowles and Peter Meade
The Boston Globe

FOR TOO LONG, the debate about retirement savings has been reserved for Congress and federal agencies. Efforts to save, shore up, and lock away Social Security have monopolized the discussion. Little mentioned has been the rapid transformation over the last decade of the very nature of retirement savings in America. Even less has been said about what states can do to address challenges to our retirement system.

A new MassINC report, "The Graying of Massachusetts: Aging, the New Rules of Retirement, and the Changing Workforce," reveals a remarkable fact: Since 1992, the percentage of Americans covered by traditional pensions has dropped from 40 percent to 20 percent, while the percentage with tax-deferred accounts -- such as a 401(k) -- has jumped from 38 percent to 58 percent.

In just one decade, the rules of retirement have changed radically. A majority of employees with a retirement plan are now responsible for depositing their own dollars into investment vehicles they select, assuming the risks and rewards of those decisions, often with little or no guidance from financial professionals. In short, this is not your father's pension, which was a pure benefit from an employer who set aside money beyond a worker's salary and assumed the responsibility for managing it and guaranteeing a defined future benefit.

While these changes haven't resulted in a drop in the overall availability of retirement plans for workers, one-quarter of those offered a 401(k) style option don't take it. Those who do make mistakes and poor choices every step of the way, according to Alicia Munnell, lead author of the report and Director of the Center for Retirement Research at Boston College. "That means fewer dollars and less security in retirement," she explained.

Our already aging population in Massachusetts -- we are the 12th oldest state in the country -- will balloon in the next few years as almost 2 million baby boomers begin to retire. We know they haven't saved enough. Savings rates remain at historic lows. Average 401(k) balances for those approaching retirement is a modest $55,000. Even greater challenges remain: One in three Massachusetts workers has no access to any form of retirement plan.

Complicating an already complicated picture is a significant change to the Social Security system: The age at which Americans can access full benefits has been increased from 65 to age 67. Social Security remains the primary source of retirement income for workers, which means upcoming retirees will have to delay leaving the work force or face a sharper drop in benefits than their older peers, who have been retiring in their early 60s for the past 20 years.

The fact that older workers will have to stay on the job longer presents challenges and opportunities for the state's labor market. While the number of older Bay Staters is projected to increase during the coming years, the number of prime age workers (those between the ages of 25 and 44) is expected to decline between now and 2025, leaving a potential labor shortage. Older workers looking to make money in retirement could fill this gap.

These findings are a wake-up call for Massachusetts. The impact of the new rules of retirement will be felt most acutely in our cities and towns so we should start a debate about what these trends mean for us and what we can do about them.

A few ideas: To increase access to retirement savings accounts, both the private and public sectors could explore removing reasons not to create such plans: Utilizing the purchasing power of business associations and state government's own 457 plan (similar to a 401(k) tax-deferral plan) could make plans cheaper for small businesses; to increase employee participation in existing retirement plans, the private sector could begin a renewed push for work-based financial education; and to ready our older workers to stay in the labor market longer, the state's work force development system could place a new focus on the challenges facing this age group.

These ideas are just the beginning. We need a statewide conversation that calls on every sector to respond creatively to the demographic and policy challenges facing our state. The clock is ticking, and Massachusetts is not getting any younger.

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