Our Broken Pensions System

Our Broken Pensions System December 19, 2013

Massachusetts Senator Elizabeth Warren:

“There is a $6.6 trillion gap between what Americans under 65 are currently saving and what they will need to maintain their current standard of living when they hit retirement. $6.6 trillion — and that assumes Social Security benefits aren’t cut. Make no mistake: This is a crisis.”

According to Forbes magazine:

“Our national demographics, coupled with indisputable, glaringly insufficient retirement savings and human physiology, suggest that a catastrophic outcome for at least a significant percentage of our elderly population is inevitable. With the average 401(k) balance for 65 year olds estimated at $25,000 by independent experts — $100,000 if you believe the retirement planning industry — the decades many elders will spend in forced or elected ‘retirement’ will be grim.”

It is time to acknowledge the obvious: Private, individual tax-deferred retirement savings are a failure — a noble one, perhaps, but they were sold as a replacement for defined-benefit pensions that brought a dignified retirement to an entire generation of American workers from the 1940s all the way up to and into the 1980s.

Let me show you something. This is a graph of the Dow Jones Industrial Average from the late 19th century until 2009. Focus particularly on that big dip after October 1929:

800px-DJIA_historical_graphNotice that the Dow Jones does not again reach its 1929 peak for about 25 years.

Now, imagine that you are 64 years old on Oct. 1, 1929, and had just about reached the point where your investments would provide you with a comfortable retirement. Four years later, your stocks are worth 1/10th of what they were in 1929, you are three years into retirement and those savings are dwindling away to nothing. You just have to wait another 22 years or so (when you’re 89) to get the retirement you were counting on.

Leaving retirees at the mercy of Wall Street seems the height of cruelty.

There needs to be a new deal (as it were) between capital and labor: We workers will give our best efforts and the best years of our lives, and capital will use part of the profits we provide them through our labor to provide us with an adequate retirement in return.

That seems a fair deal: both parties have rights, and both parties have responsibilities. This used to be seen as one of those “of course” things that barely merited discussion.

Putting more spending power into the hands of retirees would be a good thing for capital as well — more spending power equals more sales for American companies. And it would be good for the workers who would produce the things those retirees would buy.

It is ludicrous that in a country as wealthy as the United States, the possibility of cutting Social Security benefits comes up so regularly. We should be talking about making Social Security more generous, not less. Expanded benefits could be financed by eliminating the cap on the amount of income subject to the Social Security tax, perhaps supplemented with a Financial Transaction Tax, as has been proposed by former Labor Secretary Robert Reich and others.

Those who make a career of serving our country in the armed forces know that they are earning a nice retirement as they do so. Men and women who serve 20 years can retire with half the rate of pay they were earning at the point they retired, for life — and if active-duty people get a raise, so do retirees. Those who serve 30 years receive 75 percent of their rate at retirement, and the few who actually put in 40 years of service receive their full pay at retirement for the rest of their lives.

These facts raise few eyebrows among taxpayers. People who wear the uniforms of our armed forces put their lives, bodies and sanity at risk for our nation, and providing a comfortable retirement for them and their families seems only fair.

It is time we recognize that ordinary, non-military American workers also serve our country — sometimes in a very literal way, as in the case of wait staff. But what about the nurses who deliver our babies and care for us when we get sick, the people who stock the shelves in our supermarkets, the mechanics who fix our cars, the carpenters who build our homes and schools, the iron workers who construct safe bridges for us to cross? Is it too much to ask that they, too, should have the kind of retirement we give our military? Large American corporations have the means to provide this to their workers; they do not yet have a mandate to do so.

I believe providing a guaranteed income upon retirement is a responsibility of, and should be a legal requirement for, every sizeable corporation in America, and there should be government support to smaller companies so that they can do the same with their employees.

During this holiday season, it is appropriate that we reflect on the many blessings we have in our lives, and turn our thoughts to providence. It is good that we do so — but I invite you also to give a thought this season to how we might work together to thank one another for giving the best years of our lives serving one another in our economic needs.

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  • Neither a sociologist nor an economist and not having studied this much, avocationally, the overall standard of living (not guaged merely in inflation-adjusted dollar-denominated metrics) seems to have markedly improved since 1929. Strictly anecdotally and intuitively, then, I wonder how much of this retirement shortfall results from an imprudent reallocation of resources from savings as diverted to conspicuous over-consumption, further aggravated by unnecessary debt.

    It is true that my parents’ generation enjoyed defined benefit plans but neither they nor myself have new vehicles at age 16, nor did we acquire dream homes before starter homes and on and on with cell phones, computers, gaming systems, gym memberships, etc It’s not just the working poor but middle and upper income people suffering from “affluenza” who are faced with retirement shortfalls.

    Our constitution doesn’t prescribe equal outcomes or define rights in terms of quality of life entitlements. Let’s be clear, statist solutions are often necessitated because we have otherwise failed morally and charitably and and socially and financially. So, in order to preserve the public order and prevent a descent into poverty-driven crime and chaos, we must introduce coercive, paternalist strategies. To characterize coercive political solutions as charity when they have otherwise often been necessitated precisely because our noncoerced, voluntary charitable efforts via nongovernmental entities have come up short, while our consumeristic and materialistic urges are too long practiced seems to misname the reality.

    I’m not at all suggesting that we shouldn’t establish or even strengthen the social safety net, only recognizing that it has been aptly named insofar as it provides a social security (purposeful pun in play) not just for its recipients but for those who’d otherwise have to reckon with the insecurity and chaos that would ensue in its absence. Charity, otherwise, is something we don’t do enough of, nongovernmentally, thru our churches and community organizations, even in our homes and extended families. The need for coercive redistribution results when noncoercive redistribution has failed. The tension between subsidiary and corporate entities that plays out in the subsidiarity principle includes noncoercive corporate entities in our social, economic, cultural and religious life dimensions, all which should enjoy a certain primacy over coercive, statist, governmental solutions.

    It is a whole separate conversation, though, as to how we might better balance capital, labor, management and other resources. That involves complex human realities with way overdetermined circumstances that too often get facilely characterized along ideological lines. Some focus too much on the golden eggs while others focus too much on the goose. A more delicate balance must be struck when transferring wealth, especially from my stock portfolio to someone else’s defined “entitlement” plan, or I will divest, taking a few goose feathers with me in the process. I’m not so sure there is as much foie gras as some suggest, so the solutions will have to be multi-pronged and the sacrifice widely-shared.

    Again, something must be done. I’m just arguing vocabulary and nomenclature. I’m not dualistically suggesting that a charitable impetus cannot influence our political solutions whatsoever, but am saying its quasi-charitable, denatured, a less robust charitable urge, like the one practiced by Robin Hood and his merry band, with whom I will happily take up and, like Friar Tuck, raise a glass of cheer, on 15 April.