Retirement

The Politics

Retirement security should be like a sturdy stool supported by three strong legs—Social Security, employee retirement benefits, and personal savings. But all of these legs are now shaky. Social Security is continually under attack by conservatives. Few com¬panies provide guaranteed pensions anymore. Nowadays, instead of pensions, companies offer 401(k) retirement plans—which cost companies less and were devastated by the stock market crash that accompanied the current recession. Simultaneously, personal savings are down. In recent years, Americans actually spent more than they earned—something that last occurred during the Great Depression.

The Facts

Social Security is the cornerstone of retirement in America. More than 49 million Americans receive Social Security benefits, including more than 90 percent of the elderly. Social Security provides 73 percent of the typical retiree’s income, compared with 17 percent from pensions and 10 percent from savings and other sources. [Economic Policy Institute] Without Social Security, more than 35 percent of Americans ages 65 and older would live in poverty. [Center for Budget and Policy Priorities]

Americans are concerned that the Social Security system will not be able to pay full benefits throughout their retirement. Only 39 percent are “very” or “somewhat confident” in the Social Security system; 61 percent are not confident. [ABC News/Washington Post Poll]

However, the Social Security “crisis” is a right-wing myth. If there are no changes in the system, Social Security Trust Fund investments, held in the form of U.S. Treasury securities, are sufficient to pay full benefits until at least 2037, and even then the program would pay about 75 percent of benefits. [Social Security Administration] If the Trustees’ economic assumptions turn out to be a bit pessimistic (as they have been for decades), the program may require no adjustment at all. If the problems do develop, we can solve them by extending Social Security taxes to incomes over the payroll tax ceiling (currently $106,800). [National Academy of Social Insurance] In any case, the problem simply is not urgent.

The Social Security payroll tax will continue to collect more than the program pays out until at least 2017. The baby boom retirement is not a surprise. That’s why the Trust Fund was created, and why it’s been accumulating a surplus all these years. The federal government won’t even dip into the Trust Fund until 2017, not far from the original schedule. [Social Security Administration]

Companies have dismantled their pension plans. Many companies have eliminated pension plans or never offered them. Besides union employers, most companies have shifted to retirement savings plans such as 401(k)s for their workers—accounts that were devastated during the recent stock market crash. Worst of all, half of all workers have no retirement security plan other than Social Security. [Economic Policy Institute]

Few Americans are saving enough to provide for a secure retirement. Between mid-2005 and mid-2008, Americans saved less than 1 percent of their disposable personal income. In 2006, we had a negative savings rate for the first time since the Great Depression; on average, we spent $1.04 for every $1.00 earned. [U.S. Bureau of Economic Analysis]

Because of the recession, many Americans can’t afford to retire. Among Americans preparing for retirement (ages 55 to 64), median household wealth fell from $315,400 in 2004 to $159,800 in 2009. [Center for Economic and Policy Research] At the same time, the rate of bankruptcy among Americans ages 55 or older is rising faster than that of any other age group. [AARP]

For the first time in years, most Americans say they don’t have the money for a secure retirement. In 2002, 2003 and 2004, more than half of Americans—59 percent—said that when they retire they “will have enough money to live comfortably.” Today, only 41 percent say they will have enough; 52 percent say they will not. [Gallup Poll]

The Argument

All Americans should be able to retire with dignity at the end of a lifetime of work. Retirement security is fundamental to the American Dream. That’s why we need to protect Social Security, ensure that employee retirement benefits are improved, and encourage all Americans to save.

Social Security is not broken, so it would be wrong to cut benefits or increase average workers’ payroll taxes to “fix” it. The Trust Fund’s investments will guarantee that everyone is paid full benefits over the next three decades.

It is morally unconscionable to pretend the Social Security Trust Fund doesn’t exist. Many conservatives want to pretend the Treasury securities held by Social Security are valueless paper because they fear that repayment of these securities will be accomplished by taxing the rich. But that’s the only fair thing to do. American workers have paid this regressive payroll tax throughout their lives based on the promise that they’d get the money back in retirement. The tax was increased in 1983 with the understanding that a surplus would be built up and then paid down. A deal’s a deal. Wealthy Americans have gotten a tax break all along because they are exempt from the payroll tax for income earned over the ceiling, and they pay no Social Security tax at all on investment income. It’s time for them to pay their fair share.

We don’t have an entitlements crisis, we have a health care crisis. Many conservatives try to scare Americans by combining the projected long-term deficits of Social Security and Medicare. While Social Security’s problems are miniscule, Medicare is in terrible trouble because health care cost increases have far exceeded inflation. It’s a problem not only for Medicare but for all public and private health insurance. Rising health care costs cannot be controlled in a vacuum. The only solution is comprehensive, national health care reform.

The Right is Wrong

Opponents argue for an “ownership society” where people make their own decisions about how to save for their retirement. But in fact, an ownership society means you are on your own. It means a few winners, a lot of losers—millions of elderly Americans living in poverty. This would be a mockery of the American Dream.

Progressive Solutions

Make the economy work. Progressives must champion economic policies that benefit the many and not just the few. With full employment and rising wages, Americans could save more, workers could demand better retirement benefits from employers, and any Social Security shortfall could be eliminated.
Protect Social Security. We cannot allow conservatives to use the current recession as an excuse to cut benefits or increase payroll taxes on average Americans. If necessary, the payroll tax ceiling—currently $106,800—can be altered or eliminated.
Hold companies accountable for their existing pension obligations. Every company should provide a retirement program for its workers, supplemented with an employer contribution. And in any corporate program, frontline workers should be treated the same as company executives are treated.
Help Americans save. Congress should create a tax-free investment account—a universal 401(k) that everyone can use.

Polling

Most Americans are not confident that Social Security will pay the full benefits owed to them.
“How confident are you the Social Security system will be able to pay your full benefits throughout your retirement: very confident, somewhat confident, not so confident or not confident at all?”
11% Very confident
28% Somewhat confident
23% Not so confident
38% Not at all confident
ABC News/Washington Post Poll. Feb. 19-22, 2009.

Most Americans now think they won’t have enough money to retire in comfort.
“When you retire, do you think you will have enough money to live comfortably, or not?
............................ 2009 2008 2007 2004
Yes, enough.... 41% 46% 53% 59%
No, not enough 52% 44% 42% 35%
No opinion....... 8% 10% 5% 6%
Gallup Poll, April 20, 2009

Americans have increasingly lost confidence in their retirement plans.
“How much do you expect to rely on a 401(k), IRA, Keogh, or other retirement savings account when you retire?”
.....In 2001, 58% said this will be a “major source of income”
.....In 2009, 42% said this will be a “major source of income”
“How much do you expect to rely on a work-sponsored pension plan when you retire?
.....In 2001, 34% said this will be a “major source of income”
.....In 2009, 24% said this will be a “major source of income”
Gallup Poll, April 20, 2009

Americans overwhelmingly oppose Social Security privatization.
“As you may know, a proposal has been made that would allow workers to invest part of their Social Security taxes in the stock market or in bonds, while the rest of those taxes would remain in the Social Security system. Do you favor or oppose this proposal?”
36% favor
62% oppose
2% unsure
CNN/Opinion Research Corporation Poll, Oct. 3-5, 2008.

Stories

Anneliese Crosby, 46, who codes medical records at a private hospital in Manchester, N.H., is trying to get a government job for financial reasons—better pay, benefits and job security.... [Currently] her retirement depends mostly on contributions to her tax-deferred retirement account. “It’s scary. I feel like I need a second job or to be on the lookout for a new job,” she says. “I should put more in my retirement account, but I can’t afford it.” [USA Today, February 21, 2007]

Melissa Marcello, a 39-year-old waitress at a steakhouse in Orlando, Fla., expects to make as much as $40,000 this year, a little more than the national median for full-time workers. Even so, she says retirement is “not a thought in my head.” She automatically moves $100 into a mutual fund every month, making her thriftier than most Americans, but she still expects Social Security to be a major part of her retirement income. “I think it will be,” Ms. Marcello said. “I hope it will be. It will have to be there.” [New York Times, April 11,2006]

Other Good Resources

Ruy Teixeira, “What the Public Really Wants on Retirement and Social Security,” Center for American Progress. 14 January 2008

Teresa Ghilarducci, When I'm Sixty-Four: The Plot Against Pensions and the Plan to Save Them, Princeton University Press, June 2008

Future of Retirement, HSBC 2007, TheMatureMarket.com

Fiction on the Social Security Trust Fund, Truthout.org

To see the 2006 Senate vote on establishing private accounts, click here