Traditional retirement savings strategies are fast becoming a thing of the past – social security is just about all we’ve got
It’s time to discuss raising social security payments.
What? Aren’t the talking heads in Washington trying to cut social security?
Right you are. Their idea is that social security is running out of money, and that unless we raise the age of eligibility, cut benefits, or preferably both, the system will collapse on itself. This is the philosophy that is quite au courant among many serious, thinking people. No less than Barack Obama recently proposed adjusting the formula for calculating the cost of living increases to social security in a way that would decrease the social security tab.
And yet. And yet. A growing number of people studying the issue of social security and our retirement finances have come to exactly the opposite conclusion: we need to actually increase our payments to the elderly.
Let me explain.
Tonight, PBS is airing Frontline’s The Retirement Gamble, a look at how self-funded retirement planning schemes – also known as 401(k)s – are about to turn into a financial debacle for all too many soon-to-retire American men and women.
I haven’t yet seen The Retirement Gamble, even though the producers interviewed me. However, I can make a good guess about some of the issues the program will discuss.
The vast majority of us have nowhere near enough funds saved for retirement. The numbers vary, but just about no one thinks the median household has more than $100,000 on hand – and that’s if you’ve been a faithful investor, saving at the high end.
Retirement expert Teresa Ghilarducci claims the number in our vaults is closer to $30,000 for most of us – even those of us whose expenses would make it difficult to live on $30,000 for one year, much less for the remainder of our lives.
As for other traditional retirement savings strategies? Pensions, unless you work for the government, are rapidly becoming a thing of the past. As for that old idea that you could use your house as an automatic savings scheme – well, good luck with that one. The housing bust ruined that plan.
So, here we are: social security is just about all we’ve got. And that’s not much. The average monthly check recipients receive? Try $1,262. Imagine that already modest number after you subtract your rent or a mortgage, food bills and gas bills – not to mention giving up all hope of ever helping your children or grandchildren with a few dollars for school or holidays.
This is a national crisis, because of the size of the boomer generation now headed toward retirement.
Not surprisingly, when it comes to international rankings, the United States barely creeps into the top 20 nations as ranked based on the retirement security – or insecurity – they offer up. Yes, we’re number 19! Slovenia and Slovakia do it better when it comes to giving our elderly a retirement with some measure of dignity.
Ladies and gentlemen, we are in deep, deep trouble. And that’s before anyone cuts social security. So what do we do?
The blogosphere is on it, even if Washington isn’t. Duncan Black, who blogs under the name Atrios at the blog Estachon, recently called for a 20% immediate increase in social security payments. In an op-ed published in USA Today he wrote, “We should be worried that large numbers of people nearing retirement will be unable to keep their homes or continue to pay their rent.”
Or, as one person interviewed for Frontline will say in tonight’s show, “If I have to downsize to living in a tent, I will.”
Right. Sleeping bags for seniors. I can see the fundraising campaign now: glamorous donors in tuxes noshing on rubber chicken and iced tea for our nation’s senior survivalists of finance.
The New America Foundation, a non-partisan thinktank, also has a plan to stop the soon-to-be-retired from thinking they will be camping outside of Leisure World instead of living within it. It contains a number of details, but perhaps the most important is that it would add a government-provided stipend to current benefits for all beneficiaries.
Finally, there is the wonky solution. The government does measure the cost of living for the elderly; they call it CPI-E, which stands for “consumer price index-elderly.” This price-tracking measure, kept by the Bureau of Labor Statistics, measures how inflation impacts seniors.
Here’s one growing idea: why not connect social security payments to that? If we already know how much food and supplies cost seniors, why not connect their retirement payments to that very convenient measurement?
Forget that benefit cut President Obama’s promoting. CPI-E would give seniors a greater cost of living index than they currently receive, thanks to the fact that they spend more on medical expenses and housing than the general population.
There is only one problem with all these ideas for boosting social security: they would need to be paid for with tax increases. Tax increases are obviously not going to make it through this Congress. That means I just made you read an entire blog post about various plans that are very unlikely to happen.
So why did I bother? Well, the public – that’s us – itself is not opposed to paying more to support social security, something you would be hard pressed to know if your main method of tracking the debate is via CNBC or Fox News. A survey by the National Academy of Social Insurance found at least some tax hikes were okay with more than 80% of the people they asked.
Something else worth noting: right now, any income over $113,000 a year doesn’t contribute to social security. Eliminating that payroll tax cap would eliminate the vast majority of the supposed social security funding deficit.
So after you watch that Frontline special tonight, let’s all talk about giving grandma and grandpa a raise. If nothing else, maybe we’ll move up a few notches in the international retirement rankings while we keep them off the streets.