Editorial: Retirement Income; Case for Increasing Social Security

As budget negotiations grind on inconclusively in Washington, let us make the case for deficit reduction — by increasing Social Security benefits.

The deficit we have in mind is the growing gap between what millions of Americans need for retirement income and what they will have available when the time comes.

How and when did this deficit arise? Retirement income has traditionally been compared to a three-legged stool supported by Social Security, employer-based pensions and individual savings.

And for many years, that formula held. In 1980, 40 percent of private sector workers had traditional defined-benefit pensions that guaranteed a dependable monthly payment. And middle class families saved about 10 percent of their take-home pay against the day when they stopped working. And, of course, Social Security, along with Medicare, provided not only an essential hedge against poverty in old age but also combined with other sources of income to provide a dignified and comfortable retirement for millions.

That was then. The picture is quite different now. Two legs of the retirement stool have collapsed. Employers have largely abdicated their role in supporting their workers’ retirement. Now, only an estimated 15 to 18 percent of private sector workers have a traditional pension, having been shuffled off into defined-contribution plans such as 401(k)s.

At least three major problems plague these plans, in which something like 42 percent of workers now participate. One is that they are subject to the ups and downs of the market, which is not exactly a prescription for providing stable retirement income. The second is that they are massively underfunded. Ezra Klein of The Washington Post recently noted that 75 percent of workers nearing retirement age in 2010 had less than $30,000 in their 401(k). And an estimated 44 million workers don’t even have access to these types of plans through their employer.

Individual savings have also taken a hit. Klein reports that about a third of households don’t have a savings account and more than 40 percent would not be able to cover basic expenses if they lost their job.

What accounts for this sorry situation? Some will tell you that the current generation of workers simply lacks the character, fortitude and discipline of their parents. There may be something to this, but not much. What’s really at work is the economic vise that in recent decades has been squeezing middle class and working families between stagnating wages and skyrocketing costs for housing, college tuition, health care and other essentials.

That leaves Social Security as the remaining strong leg of the stool. Sen. Elizabeth Warren, D-Mass., in a speech on the Senate floor recently, noted that two-thirds of seniors rely on it for the majority of their income in retirement and that for 14 million retirees, Social Security is what keeps them out of poverty. Given the trends, that dependence stands to be much greater in the future.

In this context, the current drive in Washington to cut Social Security as part of an overall deficit reduction plan is woefully wrongheaded. Warren notes that Social Security has been wildly successful: It currently has a $2.7 trillion surplus; if nothing is done, it will be able to pay full benefits for 20 years and continue to pay 77 percent of scheduled benefits after that. She argues, correctly we think, that modest adjustments to the program would keep it solvent for many years, and even allow for expanded benefits, something a few senators, including Bernie Sanders of Vermont, are advocating.

That’s certainly not the only thing that needs to be done to help middle- and working class people look forward to a secure retirement. But it’s a great place to start.