Most Amer­i­cans bank on en­ti­tle­ments in golden years

The Washington Times Weekly - - National - BY PA­TRICE HILL

So­cial Se­cu­rity and Medi­care are emerg­ing once again as seem­ingly un­touch­able third rails of pol­i­tics de­spite their loom­ing in­sol­vency, and econ­o­mists say the rea­son is ob­vi­ous.

Sur­veys show that a ma­jor­ity of Amer­i­cans will rely solely or mostly on the pro­grams for sup­port in their re­tire­ment be­cause they have not saved ad­e­quately.

That was not the way it was sup­posed to be. So­cial Se­cu­rity orig­i­nally was in­tended as a sup­ple­ment to re­tire­ment in­come such as cor­po­rate pen­sions and per­sonal sav­ings — one leg of a so-called “three-legged stool” of re­tire­ment sup­port.

For most Amer­i­cans, how­ever, it’s the only leg of the stool left stand­ing be­cause of pal­try per­sonal sav­ings and de­pleted cor­po­rate pen­sion plans, prompt­ing peo­ple to re­flex­ively op­pose any changes in the so­cial pro­grams.

More than half of all work­ers in the United States have less than $25,000 in to­tal sav­ings and in­vest­ments, ac­cord­ing to Fed­eral Re­serve sur­veys, and the av­er­age bal­ance for some­one ap­proach­ing re­tire­ment was just $78,000. That amount leaves the av­er­age re­tiree with about $3,100 a year or a lit­tle more than $250 per month — not enough for even ba­sic ex­penses.

The av­er­age So­cial Se­cu­rity check, by con­trast, is about $1,200 a month.

“Most house­holds have no re­tire­ment plan other than So­cial Se­cu­rity, and the av­er­age Amer­i­can fam­ily has not saved enough to main­tain its stan­dard of liv­ing in re­tire­ment,” said David Wyss, chief econ­o­mist at Stan­dard & Poor’s Corp.

This is why the “rel­a­tively mi­nor tweaks,” such as nudg­ing up the re­tire­ment age, needed to make So­cial Se­cu­rity sol­vent, and the more ma­jor over­haul needed to re­store sol­vency to Medi­care have been so hard to ac­com­plish po­lit­i­cally, par­tic­u­larly when it in­volves ask­ing re­tirees to pay more for their health care, he said.

Es­ti­mates of the value of Medi­care ben­e­fits for re­tirees range from $7,000 to $11,000 a year on av­er­age.

“Shift­ing the costs onto the re­tiree seems a likely re­form,” said Mr. Wyss, “but un­for­tu­nately runs against the fact that re­tirees al­ready have too lit­tle to re­tire on now.

“So­ci­ety needs to make a choice about the cost and tim­ing of re­tire­ment as well as the ex­tent to which the pub­lic should be re­spon­si­ble for re­tiree in­come and health care,” he said.

But the pol­i­tics of So­cial Se­cu­rity and Medi­care are so touchy that he ex­pects Congress to keep avoid­ing the is­sue un­til a cri­sis oc­curs.

A sur­vey this year by MetLife found that nearly four in 10 Amer­i­can work­ers ex­pect to rely solely or mostly on So­cial Se­cu­rity in re­tire­ment, and an­other 30 per­cent ex­pect So­cial Secu- rity to be an im­por­tant source of re­tire­ment in­come.

Thir­teen per­cent of work­ing Amer­i­cans don’t think So­cial Se­cu­rity will be avail­able for them in re­tire­ment, though for the most part that has not prompted them to save more them­selves.

Baby boomers are in the worst shape, as they are now at or ap­proach­ing re­tire­ment age with­out ad­e­quate sav­ings.

The sur­vey found that more than 60 per­cent of boomers are be­hind sched­ule in sav­ing for re­tire­ment and nearly 70 per­cent


More than half of all work­ers in the United States have less than $25,000 in to­tal sav­ings and in­vest­ments, ac­cord­ing to Fed­eral Reser ve sur veys, and the av­er­age bal­ance for some­one ap­proach­ing re­tire­ment was just $78,000. That amount leaves the av­er­age re­tiree with about $3,100 a year or a lit­tle more than $250 per month — not enough for even ba­sic ex­penses. The av­er­age So­cial Se­cu­rity check, by con­trast, is about $1,200 a month.

are wor­ried about out­liv­ing their re­tire­ment sav­ings and not hav­ing enough money to cover med­i­cal costs in old age.

Younger gen­er­a­tions have mim­icked their par­ents’ pro­cras­ti­na­tion about sav­ings.

Nearly two-thirds in ev­ery age group ex­pect to have to work full time or part time to make ends meet af­ter they reach re­tire­ment age.

“It’s dis­tress­ing that this many work­ers are re­ly­ing heav­ily on So­cial Se­cu­rity,” said Pamela Vil­lar­real, a se­nior an­a­lyst at the


Pol­icy Na­tional Anal­y­sis.

While many Amer­i­cans think of So­cial Se­cu­rity as a kind of gi­ant trust fund that has set aside years of their So­cial Se­cu­rity con­tri­bu­tions for re­tire­ment, Ms. Vil­lar­real said, it is re­ally more like a “Ponzi scheme.”

Con­tri­bu­tions have been spent by the fed­eral gov­ern­ment, and the ben­e­fits pro­vided to re­tirees are paid out of cur­rent work­ers’ pay­roll taxes, not the re­tirees’ ear­lier con­tri­bu­tions.

While not sav­ing ad­e­quately has be­come a trade­mark of the Amer­i­can life­style, the hous­ing cri­sis made mat­ters worse, es­pe­cially for baby boomers ap­proach­ing re­tire­ment age.

Many peo­ple loaded up on debt through var­i­ous cre­ative mort­gage fi­nanc­ing schemes and now many live in houses with huge mort­gages that are worth more than their house.

“At a time when they should be free of sig­nif­i­cant fi­nan­cial bur­dens such as mort­gages, many pre-re­tire­ment house­holds still have high lev­els of debt,” Mr. Wyss said.

A re­cent sur­vey by the Amer­i­can In­sti­tute of Cer­ti­fied Pub­lic Ac­coun­tants found that 40 per­cent of Amer­i­cans be­lieve they will never be able to af­ford to re­tire — “and they’re prob­a­bly right,” said Mr. Wyss, who just an­nounced his own re­tire­ment from S&P and plans to teach col­lege cour­ses for a while be­fore full re­tire­ment.

An­other rea­son Amer­i­cans have come to de­pend so heav­ily on So­cial Se­cu­rity is that only about half of the nation’s work­ers even par­tic­i­pate in a re­tire­ment plan where they work, ac­cord­ing to a re­cent re­port by the Gov­ern­ment Accountability Of­fice.

Peo­ple work­ing for large busi­nesses are more likely to have a cor­po­rate pen­sion than the ma­jor­ity of Amer­i­cans who work for small busi­nesses or are self­em­ployed.

Only one-third of firms with fewer than 25 em­ploy­ees spon­sor re­tire­ment plans, com­pared with about 80 per­cent of firms with 100 or more em­ploy­ees.

More­over, the gen­er­ous tax in­cen­tives Congress has pro­vided for work­ers who par­tic­i­pate in 401(k) plans — the most com­mon cor­po­rate pen­sion ben­e­fit named af­ter the sec­tion of the tax code that make con­tri­bu­tions tax-ex­empt — are skewed to­ward higher-in­come work­ers who are in higher tax brack­ets and “do rel­a­tively lit­tle to help lower in­come work­ers save for re­tire­ment,” the GAO found.

The fi­nan­cial out­look is frag­ile even for those who have joined com­pany plans and man­aged to ac­cu­mu­late some re­tire­ment sav­ings.

Work­ers with heavy debts or lost jobs in­creas­ingly have tapped into their re­tire­ment sav­ings to meet ex­penses, de­plet­ing their nest eggs.

Many work­ers’ 401(k) plans got ham­mered dur­ing the fi­nan­cial cri­sis and are now di­min­ished in value. More­over, about a third of em­ploy­ers that of­fered a 401(k) have re­duced or elim­i­nated their con­tri­bu­tions dur­ing the fi­nan­cial cri­sis, though many are start­ing to re­store ben­e­fits.

“The re­cent re­ces­sion has had a huge im­pact on em­ploy­ees’ re­tire­ment pre­pared­ness,” said Liz David­son, chief ex­ec­u­tive of Fi­nan­cial Fi­nesse, a fi­nan­cial ed­u­ca­tion firm.

“Many em­ploy­ers were forced to freeze pen­sions, cut re­tire­ment-plan matches and re­duce raises and bonuses. This forced many em­ploy­ees to take loans and hard­ship with­drawals from their re­tire­ment plans.”

Ms. David­son and other fi­nan­cial ad­vis­ers typ­i­cally re­fer to the state of re­tire­ment pre­pared­ness in the United States as a “cri­sis” be­cause so many peo­ple have no other con­sis­tent source of in­come and sup­port other than So­cial Se­cu­rity and Medi­care.


Con­stant cam­paign is­sue: A se­nior cit­i­zen leans on his cane as he watches a protest against pri­va­tiz­ing So­cial Se­cu­rity out­side of the Repub­li­can Na­tional Com­mit­tee Head­quar­ters in Wash­ing­ton D.C. in Au­gust, 2008.

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