Tell public employees: choose to save!

• Author: Esser, Jeffrey L.

America's national savings rate is one of the lowest among the advanced, industrialized economies: 3.8 percent of disposable income and 7.1 percent of total income. Looking ahead into the next century, the stress on the country's pension and Social Security systems will continue due to the impending retirement of the Baby Boom generation. The demographics are awesome and frightening. By 2030, the number of Americans receiving retirement benefits will be 70 million. That equates to 20 percent of the population as compared to 13 percent today. If changes are not implemented immediately, both behavioral and structural, the strain on the Social Security system will continue to he immense. The Social Security system will not be able to meet the needs of the increasing retiree population. With the age for benefits going up to 66, then 67, and likely higher, early retirement will be possible for only a few Americans.

Fortunately, the public sector has done a better job than the private sector in providing retirement benefits to all employees. Most public employees are covered by a well-funded retirement system. In many cases this includes a mandatory defined benefit or defined contribution plan. In addition, most public agencies offer their employees the opportunity to save even more through voluntary tax-deferred savings programs such as 457 deferred compensation and 403(b) supplemental retirement plans for educational personnel.

However, many public employees do not take advantage of these plans. In fact, only 25 to 30 percent of public employees actually participate in voluntary deferred compensation arrangements. As a result, millions of public employees are relying entirely on their employer's retirement plan and Social Security to carry them through their golden years.

These public employees are sitting on a stool with only two legs.

Many others will change employers before vesting, or once vested, will withdraw funds and lose benefit entitlement. Also, most will not establish an IRA.

These public employees are sitting on a stool with only one leg.

As financial planners can attest, the single most important factor that determines whether a worker will be financially independent during retirement is whether he or she voluntarily saves during his or her working years. (For the top 20 percent of today's retirees by income, those with more than about $30,000 in total annual income, over one quarter comes from their savings, and another quarter...