How America's Retirement Crisis Is Crushing the Hopes of a Generation of Young People
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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.