You’ve heard of the Social Security crisis. And you’ve probably heard that the pensions promised to state employees are terribly underfunded. And maybe you’ve even heard that most Americans don’t have enough money in their 401(k)s.
Too often, these are three separate conversations. They shouldn’t be. We don’t just have a Social Security problem or a 401(k) problem. We have a retirement-security problem. And when we look at one or another piece in isolation — as most of the deficit-reduction proposals do — we run the risk of making it much worse. To be more specific, we run the risk of continuing the great risk shift of the last decades of the 20th century, in which uncertainty that was once borne by employers and the government has increasingly been shunted onto individuals.
Consider the 401(k). When Congress created the provision in , it didn’t realize it was going to transform the entire American pension system in less than a generation. But that’s what happened. Employers were quick to recognize that the new plans were a safer bet than the defined-contribution plans that had dominated until then. In the old world, employers had to worry about saving enough to pay for their workers’ retirement. In the new world, that responsibility fell on the workers themselves.
By 1995 there were more 401(k)-type plans than traditional defined-benefit plans. Now there are about twice as many. And as Robert Hiltonsmith, a policy analyst at the think tank Demos, documents in a new report, they’re not working out that well.
Retirement experts say average workers approaching retirement need about $250,000 in their 401(k)s to maintain their standard of living. They don’t have it. The number is closer to $98,000 — not much more than a third of the recommended amount.
That’s necessary context for the arguments over Social Security and state pensions. In both cases, most solutions don’t solve the problem as much as they solve one of the problems: the government’s balance sheet. But in doing so, they just shift the cost of retirement onto the individual. Already we’re seeing the consequences. On average, baby boomers can expect to subsist on an income of about 77 percent of what they earned in their peak working years. For Gen Xers, it’s 65 percent. And for the generation after that?
The deficit-reduction plans under consideration accelerate this decline. Under current law, a medium-income worker (someone making about $43,000 a year) is projected to get about $15,000 a year in Social Security benefits in 2050. Under the Simpson-Bowles plan, he or she will get about $12,700. That’s not nothing, but it’s not much. Social Security is not currently a generous program — it’s actually among the least generous offered by any developed nation — and in making it less generous, we raise the question of what seniors with insufficient retirement savings are supposed to do.
The great hope is that they’ll work longer. But that’s not always up to them. Age discrimination is rampant. Employers know that younger workers are often more productive, and always cheaper, so they may push out older workers or refuse to hire them. And once older workers are unemployed, it’s particularly hard for them to find new jobs. This has been a major problem in the current recession, which has seen a startling rise in long-term unemployment among older workers.
There are policy solutions that might work, but they require looking at retirement security as a whole, not just as a subcategory of deficit reduction. Increasing benefits for low-income seniors while reducing benefits for high-income seniors probably makes sense. Hiltonsmith supports an expanded version of the 401(k) called Guaranteed Retirement Accounts, in which contributions from employees, employers, and the government would be mandatory.
And it’s more than just pensions: if we want seniors to work longer, we have to think harder about why so many of them don’t. Age discrimination is often part of it, and so is physical exhaustion among those with manual jobs. Many experts suggest that the retirement norm — where you go from working one day to not working the next — could be replaced by pulling back to more flexible, part-time arrangements.
What we’ve seen with 401(k)s is that shifting risk is not the same as eliminating it. Fewer employers now need to worry about pension costs, but more workers need to worry about retirement security. Congress should do more than simply add to their concerns.
(c) 2010, Newsweek Inc. All rights reserved.
Truthout Is Preparing to Meet Trump’s Agenda With Resistance at Every Turn
Dear Truthout Community,
If you feel rage, despondency, confusion and deep fear today, you are not alone. We’re feeling it too. We are heartsick. Facing down Trump’s fascist agenda, we are desperately worried about the most vulnerable people among us, including our loved ones and everyone in the Truthout community, and our minds are racing a million miles a minute to try to map out all that needs to be done.
We must give ourselves space to grieve and feel our fear, feel our rage, and keep in the forefront of our mind the stark truth that millions of real human lives are on the line. And simultaneously, we’ve got to get to work, take stock of our resources, and prepare to throw ourselves full force into the movement.
Journalism is a linchpin of that movement. Even as we are reeling, we’re summoning up all the energy we can to face down what’s coming, because we know that one of the sharpest weapons against fascism is publishing the truth.
There are many terrifying planks to the Trump agenda, and we plan to devote ourselves to reporting thoroughly on each one and, crucially, covering the movements resisting them. We also recognize that Trump is a dire threat to journalism itself, and that we must take this seriously from the outset.
After the election, the four of us sat down to have some hard but necessary conversations about Truthout under a Trump presidency. How would we defend our publication from an avalanche of far right lawsuits that seek to bankrupt us? How would we keep our reporters safe if they need to cover outbreaks of political violence, or if they are targeted by authorities? How will we urgently produce the practical analysis, tools and movement coverage that you need right now — breaking through our normal routines to meet a terrifying moment in ways that best serve you?
It will be a tough, scary four years to produce social justice-driven journalism. We need to deliver news, strategy, liberatory ideas, tools and movement-sparking solutions with a force that we never have had to before. And at the same time, we desperately need to protect our ability to do so.
We know this is such a painful moment and donations may understandably be the last thing on your mind. But we must ask for your support, which is needed in a new and urgent way.
We promise we will kick into an even higher gear to give you truthful news that cuts against the disinformation and vitriol and hate and violence. We promise to publish analyses that will serve the needs of the movements we all rely on to survive the next four years, and even build for the future. We promise to be responsive, to recognize you as members of our community with a vital stake and voice in this work.
Please dig deep if you can, but a donation of any amount will be a truly meaningful and tangible action in this cataclysmic historical moment.
We’re with you. Let’s do all we can to move forward together.
With love, rage, and solidarity,
Maya, Negin, Saima, and Ziggy