Unless Social Security Is Expanded with Increased Funding, We Face An Unprecedented Crisis of Millions of Baby Boomers In Poverty
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Baker described four ways Congress has chipped away at Social Security benefits, now averaging $1,261 a month for an individual before taxes and other expenses, such as Medicare premiums. Congress has delayed cost-of-living increases. It set those increases below the real inflation rate. It raised income taxes on Social Security and raised the age when full retirement benefits can start. It did other things too, such as cutting benefits to students who lose a parent while they are in college.
Which Trillions Matter More?
These past cuts did not happen in a vacuum, and they are not the only deeply troubling trends that have added up to a nationwide economic crisis.
Congress made Social Security 25 percent less generous than it was in 1983, Baker said. But the housing market’s recent collapse and uneven recovery wiped out the retirement savings for most Americans, he said, because home values have fallen by an average of 40 percent for all but the top fifth of income earners. In other words, most people have lost their life savings in the real estate market crash. “Their average equity is what they owe for the rest of their mortgages,” Baker said, “meaning if they paid off their loans they’d be left with nothing to live on but their Social Security.”
But housing market collapse wasn’t the worst economic hit foisted on Americans by Wall Street. Starting in the 1980s, investment firms pushed business owners to drop employee pensions—where retirees are paid most of their salaries—and instead drove employees into managing their own retirement savings, a lower cost to businesses. At the same time that trend began, wages for workers, not their productivity, started going flat—which is where they’ve been for decades.
From a retirement security perspective, Americans were told to become their own money managers, even as they had less money to manage. Wall Street, which collects fees on the estimated $100 billion a year placed in retirement accounts, created a bonanza for itself based on deluding the public that their IRAs and 401 Ks would adequately provide for their retirements.
The experts all told those at the Capitol Hill briefing that replacing pensions with investment accounts, for all but the wealthiest Americans, would not keep people from sliding down the economic ladder and becoming much poorer as they get old. Historically, sizeable numbers of Americans never had pensions. But the percentage of people with secure retirements has plunged.
“In 1979, about 38 percent of workers had pensions—a future check replacing most of an income. Today that’s about 15 percent,” said Diane Oakley, executive director of the National Institute on Retirement Security. “Today… we have the lowest level of coverage in our workforce by any type of retirement plan [pensions, IRAs, 401ks, etc.]. We’re down to 52 percent of the workforce being covered.”
Most Americans “have put away zero,” Oakley said, “and when we look at the people who have saved, they’ve saved about $13,000.” Young people haven’t saved much either, she noted, because many are paying high-interest student loans and entry-level wages are stagnant. For people approaching retirement, investment advisors say they need many times their annual salary, but “when we look at people who have four or more times their salary, we’ve only got 8.3 percent of those people within 10 years of retirement.”
Wall Street titans, led by billionaire Pete Peterson—whose fortune, from capital gains, is not taxed for Social Security—have mounted a massive campaign claiming that the $17 trillion federal debt is the worst problem facing the country. They claim the only way to solve it is to cut future entitlements like Social Security. House Republicans and Obama have bought into this view, by proposing to trim future Social Security cost of living increases by using a metric called the chained consumer priced index (CPI).