Cutting Social Security will not fix the national debt
After President Obama's debt commission, Social Security is becoming a popular target for fiscal hawks. But Social Security will never add a dime to the debt, and Washington ought to be paying more attention to an actual crisis: the retirement income deficit.
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And these benefits amount to subsistence payments: $14,000 for the typical retiree. That’s less than a full-time minimum wage worker earns flipping hamburgers.Skip to next paragraph
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Deficit commission lives on
These figures didn’t seem to have much sway over the president’s deficit commission. Even though the commission proposal failed to attain the supermajority support needed to go to Congress for an immediate vote, key members of both houses are already promising to advance its agenda next year.
This commission proposal recommends a range of substantial cuts to Social Security. These include reductions in cost-of-living adjustments, increases in both the normal and early retirement ages to 69 and 64 respectively, and draconian changes in the benefit formula. Today’s retirees will see their benefits reduced just as cuts in Medicare take effect. And, as for tomorrow’s retirees – who are just toddlers today – they will be living on Social Security benefits that will be cut by as much as 41 percent. So much for the contention by the commission’s co-chairs that they are doing this for their grandchildren.
These commissioners and legislators may think that phasing in Social Security cuts will somehow result in young people saving more for retirement on their own, but that is unrealistically optimistic given the facts we know today. Half of today’s private-sector workers have no retirement plan at work. That means they will be left to live on only the minimal payments of Social Security. Those with true pensions – ones that are employer-paid and that promise a stream of guaranteed benefits – are a dwindling breed. In 1980, two out of three American workers participated in traditional pension plans with guaranteed, lifetime benefits. Now, it’s one out of five and falling as employers cancel these plans, rescinding long-standing promises to workers and increasingly turn to do-it-yourself 401(k) plans.
But 401(k) plans are failing to close the Retirement Income Deficit. Even before the stock market drop, half of all households with 401(k) and other retirement savings plans had less than $45,000 in their accounts. For those approaching retirement, the median account balance was just $98,000 – not much to retire on.
A new approach
It is hard to believe that things will get better for future generations when employers have made it clear that they don’t want the responsibility of contributing to retirement plans and do-it-yourself savings approaches have not worked.
Instead of building on the flawed commission recommendations, Congress should take a fresh, hard look at these issues with public input and open debate.
What we need is comprehensive retirement policy that protects future generations of retirees. In addition to doing everything possible to protect and strengthen Social Security, policymakers should create a 21st-century pension system on top of Social Security – one that has shared responsibility of employers, employees, and the government.
Karen Friedman is the Executive Vice President of the Pension Rights Center, a consumer rights organization that is coordinating Retirement USA, a new campaign to promote the creation of a new universal, secure, and adequate pension system on top of Social Security.