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May 22, 2013
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The crucially important but largely missing context of today's debate
over so-called “entitlement reform” (read: slashing Social Security
benefits and shifting more healthcare costs onto seniors) is that we
stand at the early stages of what's shaping up to be a massively painful
retirement crisis.
And while there has been a longterm project
among granny-bashing “entitlement reformers” to fuel a sort of
intergenerational class warfare by accusing "greedy geezers" of hurting
young people's prospects, the reality is that this growing retirement
crisis is hurting not only older workers and retirees, but also the
newest entrants into the workforce, a generation of young Americans
whose prospects are far bleaker than those enjoyed by their parents.
If
you're nearing retirement age – or have a parent or grandparent nearing
retirement age – you're no doubt aware of how 40 years of stagnant
middle-class wages and the disastrous shift from traditional pensions to
401(k)-type plans has made a dignified retirement all but impossible
for all but the very well-to-do. According to the Bureau of Labor
Statistics, the share of private sector workers responsible for their
own retirement savings increased nearly four-fold between 1980 and 2008 (
PDF).
This trend has been an integral part of what Yale political scientist Jacob Hacker called the “
great risk-shift,”
in which the burden of paying for education, healthcare and retirement
has been increasingly shifted from corporations and the government onto
the backs of individuals and families. This graphic from the
Center for Budget and Policy Priorities tells the tale:
Wall
Street, and its allies in Washington, swore that this transition to
private accounts would harness the awesome power of the market to make
us all wealthy in our golden years. In Forbes, Edward Seidle
writes,
“as a former mutual fund legal counsel, when I recall some of the
outrageous sales materials the industry came up with to peddle funds to
workers, particularly in the 1980s, it’s almost laughable—if the results
weren’t so tragic.”
There was the “Dial Your Own
Return” cardboard wheel of fortune that showed investors which mutual
funds they should select for any given level of return. Looking for 12%?
Load up on our government plus or option income funds! It was that easy
to get the level of income needed in retirement, investors were told.
Like
so many promises of the vaunted “new economy” popularized by Ronald
Reagan and supported by both parties since, this was a scam with
disastrous consequences. According to Teresa Ghilarducci, a professor of
economics at the New School for Social Research, “seventy-five percent
of Americans nearing retirement age in 2010 had
less than $30,000
in their retirement accounts.” She adds: “The specter of downward
mobility in retirement is a looming reality for both middle- and
higher-income workers. Almost half of middle-class workers, 49 percent,
will be poor or near poor in retirement, living on a food budget of
about $5 a day.”
Today, two-thirds of retirees rely on Social
Security for more than half of their retirement income, and for more
than a third, those benefits
make up at least 90 percent of their income. The
average benefit in 2012 was just $14,760,
and while talk of decreasing the cost-of-living adjustment has been all
the rage in Washington, the reality, according to the Congressional
Budget Office, is that the cost of living for seniors
has increased faster than Social Security benefits, meaning that their real value has been falling even as people increasingly rely on them to get by.
How
does this hurt younger workers? As it becomes more and more difficult
to retire after busting one's ass in the American workforce for 40
years, an increasing number of older people have no choice but to remain
in the workforce. Some work part-time; because of age discrimination,
others take whatever jobs they can get, even if they're wildly
overqualified. According to the
Social Security Administration, “the labor force participation rates of men and women aged 62–79 have notably increased since the mid-1990s.”
Consider
two pictures that are worth a thousand words; they show the share of
the younger and older populations in the workforce, beginning about a
decade after the transition to worker-owned retirement accounts began in
earnest. As you can see, regardless of the ups and downs of the
business cycle, the trend has been more workers aged 55 and over in the
workforce and fewer working people under the age of 25 (The decline in
labor force participation for 20- to 24-year-olds also correlates with
an increasing share of young people getting a bachelor's degree, so this isn't a trend that can be attributed to a single cause.)
This shows the participation rate for workers over 55 (note that this can't be explained by more women entering the workforce;
that shift was already largely baked into the cake by the time these data begin):
And this shows the participation rate for those aged 20 to 24:
Today,
the unemployment rate stands at 7.5 percent, but almost 23 percent of
18- and 19 year-olds and more than 13 percent of 20- to 24-year-olds who
want to work can't land a job. (The unemployment rate for those aged 55
and up is 5.5 percent.)
Again, this is the context that's largely
missing from our endless debates about fiscal policy. It points to a
rather obvious conclusion: we should be increasing Social Security
benefits, decreasing the out-of-pocket healthcare costs seniors have to
shoulder, and lowering the minimum age for retirement. In short, we
should be focusing on policies that make it possible for older workers
who have put in their time to kick back and let some younger workers
find jobs. It wouldn't be a magic bullet for young people; it wouldn't
deflate the student debt bubble or address our crushing level of income
inequality, but it would be a darn good start.
Last month, the New America Foundation's Michael Lind, Joshua Freedman and Steven Hill offered a
proposal
that would go a long way toward achieving that goal. They envisioned an
expanded Social Security program supplemented by a flat benefit that
isn't tied to earnings or funded through payroll taxes, and argued that
shifting a greater share of the costs of retirement onto Social Security
would make tax-subsidized employer plans less crucial to Americans'
retirement security. University of Texas economist James Galbraith has
similarly argued for
lowering the age of eligibility for Social Security and Medicare, at least until the employment picture improves.
But
aren't these programs already costing too much? And aren't we already
taxed to death, as the Tea Partiers claim? No: that's ideologically
informed mythology. Prior to the Wall Street crash, we had
the fourth lowest tax burden
in the Organization for Economic Cooperation and Development (OECD).
And while the average “replacement rate” for public pensions – the share
of a workers' income covered by retirement benefits – is 57 percent, we
cover just 39 percent, on average, in the United States (
XLS). Americans have some of the stingiest retirement benefits in the developed world.
As
for the politics, it almost goes without saying that at a time when it
requires 60 votes in the Senate to name a post office after a war hero
-- and when the House has essentially given up on legislating in the
public interest – policies that help real people suffering real pain in
this economy are nonstarters.
But one can be certain it won't
remain that way. Because we're just at the beginning of this crisis, and
with each cohort of Americans reaching retirement age, fewer will have
pensions and more will have experienced the great middle-class squeeze
than the cohort before it. So it will get worse before it gets better,
but eventually our elites will have no choice but to finally recognize
the severity of the crisis their neoliberal clap-trap has created.
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