D. Dowd Muska


Seniors: From Easy Street to the Poorhouse?

June 23, 2016

It’s bad enough that “entitlements” for the elderly are bankrupting the country. Do they have to inadequately preserve seniors’ quality of life, too?

As the nation ages -- more than 14 percent of the population is over 65, and the elderly will outnumber those younger than 18 by 2033 -- more voices are warning about an impending crisis of retirees with dangerously weak financial resources. The Bipartisan Policy Center (BPC) has weighed in on the matter, with a new report by its Commission on Retirement Security and Personal Savings, “Securing Our Financial Future.”

There’s legitimate cause for concern, the BPC wrote, because multiple “measures indicate that a large proportion of American workers will experience a lower standard of living in retirement. Some older individuals who might face financial hardship have been poor throughout their working lives, but many who have been solidly middle class are similarly unprepared.”

In theory, retirees are supposed to pay their bills with the “three-legged stool” of Social Security, a work-related pension, and personal savings. Social Security replaces just over 40 percent of retirees’ wages/salaries. A defined-benefit or defined-contribution pension kicks in some more. And an decent number of bucks squirreled away, drawing interest over the years, completes the troika.

As the BPC noted, currently, fewer than half of private-sector workers participate in an employer-sponsored pension plan. Just over a third don’t have the option, and 17 percent have access, but chose not to participate. “As a result, for too many workers, the pension leg of the retirement security stool is either too short or simply does not exist.”

However tempting it is to slam businesses that don’t offer their workers a pension, the center makes the sensible argument that “retirement plans are complicated and burdensome to administer.” Regulations and costs aren’t trivial. “An employer must select from a variety of plan designs; document the plan; hire a trustee; establish a recordkeeping system; and accept a degree of fiduciary responsibility, which means the employer must act prudently and in the sole interest of participants. In addition, employers are responsible for negotiating and controlling the fees associated with their employees’ accounts.”

Mired in a weak economy, and confronted with a relentless assault of federal micromanagement (Exhibit A: Obamacare), it’s little wonder why so many businesses eschew pensions in their compensation packages. But for many workers -- particularly those with modest incomes -- even when a pension is offered, it makes sense to opt out. The Government Accountability Office recently explained that the “fairness” of both Social Security and the tax code play roles: “[T]he U.S. income tax rate increases as a household’s taxable income rises, so the tax advantages of contributing to a [defined-contribution] plan -- increased tax savings -- are greater for high-income than low-income households. The progressive structure of Social Security benefits also reduces the incentive … to participate … . For instance, Social Security replaces a higher percentage of earnings for low-earners than high-earners, which may make … participation seem less urgent for low-income households.”

Americans who plan to work ‘til the day they drop -- to them, retirement sounds boring as hell -- are a rare breed. In recent decades, despite much longer lives, Americans have been retiring younger. And “early claimers” of Social Security, now a staggering three-quarters of the whole, are voluntarily reducing their monthly checks by a sizable amount.

What’s worse, the BPC’s figures on the “increasing indebtedness among older Americans” expose “a unique threat to retirement security.” While 38 percent of households headed by a senior citizen had red ink in 1989, the share is 55 percent today.

So where’s the money going to come from, to clothe and house and feed and transport and entertain America’s expanding army of oldsters? D.C.? Please. With no revenue boosts and/or means testing, Social Security will need to impose benefit cuts starting in 2034. Can state and local governments step up? Uh, no. They’re drowning in unfunded liabilities of their own -- primarily driven by ludicrously generous retirement payouts for “public” employees.

It’s a long shot, but maybe we’ll learn, once again, to take care of each other. Kids, grandkids, and great-grandkids will sacrifice considerable amounts of their own time and money, giving back to the people who gave so much to them. Instead of denigrating multigenerational living, perhaps the arrangement will again become the norm. In time, we might reach a level of maturity that recognizes the inability of government’s magic money tree to solve the challenges of a rapidly graying society.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

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