Social Security, Retirement Security

On October 13, 2011, we hosted an event focused on the retirement savings deficit and possible ways to address the ongoing problem of retirement income security in the U.S. The video webcast is available here. Speakers included Mark Iwry, from the U.S. Department of the Treasury, Michael Calabrese, from the New America Foundation, William Gale from the Retirement Security Project at Brookings Institution, Teresa Ghilarducci from the Schwartz Center for Economic Policy Analysis at The New School, and David Certner from AARP. There is broad-based agreement among the experts gathered that there is a retirement savings crisis and the discussion focused on the potential of the Obama Administration’s Auto-IRA proposal, which bolsters the current retirement landscape by opening up savings opportunities for many workers who don’t currently have access to employer-sponsored retirement accounts, 401(k)s, or pensions.

Five years ago Congress enacted modest improvements for employer-sponsored pension and 401(k) plans. Since President Bush signed the Pension Protection Act of 2006, little progress has been made in narrowing the nation’s retirement savings deficit. Most workers are simply not saving enough over their life course to supplement the meager benefits they will receive from Social Security.

Democrats and Republicans alike are failing to convince the American people that they have the answer to their country's problems. Underneath, however, lies a deeper intellectual confusion. The two most plausible visions developed by the US centre-left and centre-right – the "knowledge economy" and the "ownership society" – lie in tatters, leaving a void in America's discussion of its economic future.

This is by far the most jobless of recent recoveries. Allen Sinai, a man known for describing numbers carefully, already wrote in November 2009:

“Never has business shed so many workers so fast, so many people failed to find work who are looking for work, and so many dropped out of the labor force as in the current circumstance.”

By that time, the stock market was already recovering but payrolls were not. Sinai wrote:

The evolution of certain aspects of the American social contract has lagged behind that of other developed countries for decades, but the insecurity resulting from our lack of social protections has traditionally been offset by high employment levels, a stable middle class and widespread perceived opportunity for upward mobility. The value of this trade-off has been undermined, though, by unequal wage growth and polarization of the labor market into low and high skill jobs, with a decline of middle income jobs and the retirement and health benefits that accompanied them.

If Washington, D.C., were a sovereign country, much of its GDP would consist of exports of paper, in the form of plans for the future of Social Security. Whether offered by liberals or conservatives, almost all of the proposals for Social Security are doomed by political realities that the authors of these plans refuse to acknowledge. 

If there is one thing we know in "Budgetworld," it's that the largest entitlement programs have to be reformed. Social Security, Medicare and Medicaid are growing at unsustainable levels because of the aging population and growing health care costs.

Without changes, entitlements will squeeze out other spending priorities. They will push up tax rates, and they will create a drag on the economy. Basically, they will bust the budget.

The Great Recession has exposed numerous flaws in our social contract – weaknesses that existed prior to the economic downturn – highlighting the need for changes in our system. This series of policy briefs explores the stresses on our social contract, and the policy changes that must be made to mend it. The six-part series includes:

• Overview: The Great Recession exposes flaws in the American Social Contract.

State budgets are being squeezed by unprecedented amounts for the third year in a row as legislators are forced to close gaps of up to 50 percent of state spending.

As cuts to badly needed services and welfare programs continue, the slice of budgets going to public pensions looms larger. States' widespread underfunding during prosperous periods undermined public pensions even before today's massive budget shortfalls, and now the Great Recession's impact on tax revenues has made pension liabilities appear colossal.

For more and more Americans, the dream of a secure retirement has become increasingly threatened. The Great Recession has taken its toll on a retirement system which has been in place in the United States since WWII. Retirement was conceived as a "three-legged stool," with the three legs being Social Security, pensions and personal savings centered around homeownership.