Everyone knows (or should know) that Social Security will be forced to cut benefits in 2035 or earlier, if nothing is done about the solvency of this fund. Politicians, seeking to keep being re-elected, have done nothing about this problem, and each year, the solutions become more limited. Back when they began increasing the age to claim it, they should have continued to increase it slowly, including the early claim age of 62. But they didn’t.
Pensions
Few receive them anymore, except all government employees. Many government workers can take them very early and have ways to game the system to collect far more. No one every considers raising the age, nor pegging the benefit to a lower amount. And, of course, those funds never run dry, as we, the taxpayer, have to come up with the money.
I had a pension for a few years with Bank of America, way back, but they bought us all out for a small amount and shifted us to 401Ks. While that seemed fine then, the taxation after you retire makes those less useful. They are also subject to market fluctuation and vulnerable to the lack of knowledge most of us have on investing. And no one is forced to invest in a 401K, so many people fail to save. Sadly, most people don’t have enough in savings to retire.
BlackRock CEO, Larry Fink warned his staff last year, “Nearly half of Americans aged 55-65 reported not having a single dollar saved in personal retirement accounts. Nothing in a pension. Zero in an IRA or 401K.”
We live too long now which makes pensions unworkable. What else can we do?
The Retirement Savings for Americans Act (RSAA)
A bipartisan, bicameral bill would give access to retirement savings plan to any working person with a Social Security number if they don’t have one through their employer. Using the model of the Thrift Savings Plan that federal employees enjoy, everyone is automatically enrolled, the money is portable, the investments are simple and low-fee and it offers up to a 5% matching contribution in the form of a refundable tax credit for low- and moderate-income employees.
This would be a good start, but it fails to help those already retired and those close to retirement.
What Else?
The problem comes down to politics. Democrats want to save Social Security by raising taxes, but that isn’t popular and isn’t likely to succeed. On the Right, the Heritage Foundation believes that the full retirement age should be raised, which would cut benefits by 10-25%. That is also unpopular.
It turns out that those 50 years or older have a voting turnout rate of over 70%; those under 30 turnout less than 50% of the time and are becoming a smaller percent of the population. Politicians need to be concerned about this, but they still need to tackle the problem. Letting Social Security cut benefits in 2035 without a plan will leave a lot of people destitute.
I wonder if they have test-marketed a plan to give lesser amounts to those who have a top-notch retirement; those who don’t need it as much. It wouldn’t be a popular option, but it would probably be the right thing to do. This is why we need term limits. If you aren’t making a career of politics, you may be willing to do the right thing.
I’d previously mentioned using the money in the fund to buy people in or near retirement an annuity, thus creating for them a form of pension. Other countries have had some success with this approach. That should be considered, if we have companies willing to support this approach.
Any thoughts? Please post them as comments on my blog.
