Social Security as solution, not problem

April 3, 2013

Social Security is not the problem – it is the solution.

Washington is filled with talk of a looming “retirement crisis.” The discussion focuses on funding Social Security and usually includes calls to cut benefits – either by changing payout formulas or raising the retirement age.

But the real problem is not the long-term solvency of Social Security. Rather, it is the fact that millions of Americans are facing an insecure and underfunded retirement.

The best way to address this retirement issue would not be to cut Social Security but to expand it, as Michael Lind, Steven Hill, Robert Hiltonsmith and I argue in a new paper released Wednesday. By increasing the public portion of the American retirement system, we can spend the same or less on retirement as a share of the economy while making the system as a whole much more progressive and stable.

We propose a two-part, or “double-decker,” plan to expand Social Security. In addition to maintaining the current Social Security program, we would add a universal flat benefit for all older Americans. This benefit could be set at a level to meet the goal of replacing 60 percent of income for a middle-income earner in combination with the existing Social Security program.

Social Security is already far more important to retirees than many understand. The poorest 40 percent of elderly earners get about 84 percent of their income from Social Security. Those in the middle-income quintile (40th to 60th percentile) rely on Social Security for almost two-thirds of their income.

Under the current system, Social Security will likely replace about 40 percent of an average worker’s lifetime income during retirement. Experts often estimate individuals will need at least 70 percent of their earnings to maintain a similar standard of living in retirement. So Social Security alone is too low. But if Social Security is expanded to replace 60 percent of an average worker’s income, as we propose, it would provide a sturdier foundation for retirement – especially for middle- and lower-income Americans.

Designed as a supplement t0 other retirement income, Social Security has become the primary retirement security program for the majority of workers. We need to expand it to make up for where other retirement supports have fallen short.

For much of the last generation, employer defined-benefit pensions guaranteed a stable source of elderly income. Workers, who often spent entire careers at the same firm, could rely on the employer defined-benefit pension. In 1980, about 40 percent of private-sector workers had a defined-benefit pension from their employer, including 84 percent for workers in large companies.

Since the mid-1980s, however, defined-benefit pensions have steeply declined. Fewer than 15 percent of all private-sector workers, and 32 percent of those in large companies, have these pensions today – a 62 percent drop.

Defined-benefit pensions were far from perfect. They were not portable between jobs, and they place excessive retirement risks on businesses trying to remain competitive. But their replacements, the 401(k) and other tax-favored private accounts, have been far worse.

The 401(k)’s rise tracks the decline of the defined-benefit pension. From 1980 to today, the 401(k) grew from covering only 17 percent of the private workforce to 42 percent. Though more portable, the 401(k) has shifted risks onto individuals and failed to provide retirement security for anyone except the affluent.

Workers are not saving enough in 401(k)s, and what little they do save is subject to market volatility. The 2008 financial crash illustrated the problems: Individuals lost $2.8 trillion in value of their 401(k)s or individual retirement accounts.

Without sufficient additional liquid savings, many workers have been forced to draw from their 401(k)s to pay for contingencies during their working years. Almost 40 percent of employee contributions to 401(k)s were withdrawn in 2010, moves that came with significant early withdrawal penalties. Even worse, high account fees, along with management companies that do not act in individuals’ best interest, have imposed additional costs on individuals’ retirement security.

What is left in the wake of vanishing defined-benefit pensions, costly and risky 401(k)s, and insufficient additional private savings? Social Security. To adequately meet the needs of retirees, we need to expand Social Security.

Expanding Social Security may seem like an expensive proposition – but only if we ignore the costs of the private programs we currently have. Social Security is one of the most efficient programs, with low administrative costs. Tax-favored private savings programs also chiefly benefit the affluent few who can afford to accumulate large amounts of money in tax-deferred savings accounts.

We estimate that the expansion of Social Security that we propose could result in spending that is similar to – and possibly less than – that of the current system as a share of the economy.

All attempts to fix retirement security through private means have failed spectacularly and have only made the problems worse. Social Security, however, has remained popular and successful, keeping millions of elderly Americans out of poverty and ensuring a decent retirement for all workers.

We should expand on this success, not cut it.

The full paper, “Expanded Social Security: A Plan to Increase Retirement Security for All Americans,” can be found here.


PHOTO (Top): Undated handout photo show counterfeit Social Security cards that were confiscated by Immigration and Customs Enforcement (ICE) agents during worksite investigations in San Diego, California. REUTERS/ICE/Handout

PHOTO (Insert): President Franklin D. Roosevelt signs Social Security Act, on 14 August 1935. Standing with Roosevelt are Rep. Robert Doughton (D-N.C.); unknown person in shadow; Sen. Robert Wagner (D-N.Y.); Rep. John Dingell (D-Mich.); Rep. Joshua Twing Brooks (D-Pa.); Labor Secretary Frances Perkins; Sen. Pat Harrison (D-Miss.); and Rep. David Lewis (D-Md.). CREDIT: Social Security Administration/history





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For the millions of us who had pension plans frozen or eliminated in the middle of our working lives, who experienced layoffs and outsourcing at what should have been the start of our peak earnings, and have struggled with 1099 independent contractor jobs replacing jobs as permanent employees, Social Security will be the main difference between abject poverty in old age and maintaining some semblance of a decent life.

I know too many who, with only a decade or so left in their expected working lives, have had to cash in retirement savings not for lavish toys or vacations as some would have you believe, but to keep their house – often housing multiple generations due to the economic downturn. With stagnant or lower wages, increased costs to buy insurance without the big company group policy discounts, and increased costs for food, housing, utilities, and transportation how can even middle class families save enough for retirement? When you are paid less but everything costs more, it is tough to save any money much less the amounts needed for retirement. Couple that with the non-existent interest rates on accounts – how can you possibly grow your money unless you have millions to invest? If SS is not saved, there will be millions of retirees descending into poverty when they can no longer work. These will be people who paid into the system their entire working lives and who will have nothing to lose, not a good combination. The richest nation on earth can do far far better for its citizens! ALL of it’s citizens, not just the top 5%.

Posted by MidwestVoice | Report as abusive

I and my wife each receive Social Security. This is perhaps 80% of our income. We would greatly benefit from what you propose, and in a perfect world I could support your suggestions.

But we do not live in a perfect world. America is living on it’s credit card. We have younger generations concerned, with good reason, that the Social Security program they must contribute to today will not be there for them when THEY need it.

I think we need to focus on the possible and not the “ideal” at this time. Congress needs to forget about a cost saving “Chained Index” and implement and maintain “cost of living” adjustments that specifically consider how retired people spend their money.

We don’t typically buy homes, cars, boats, etc. in the same mix or proportions those younger. We buy mostly medical services, medicines, food, fuel (cars and heating), electricity, phone and TV. The price of these things has risen MUCH faster than the consumer price index.

If equity and not economy remain the intent, one size does not fit all. Fix THAT and perhaps America can still provide Social Security benefits to current and future generations.

Posted by OneOfTheSheep | Report as abusive

The Plutocracy will fight this. They have no interest in the general welfare provisions of the Constitution.

Posted by ptiffany | Report as abusive

SS is already broke. They are stealing from my paycheck in order to pay for the retirees of today. You can not fix/reform a ponzi scheme. Sorry but this journalist is clueless.

Posted by AJ876 | Report as abusive

The author of this article – and anyone who is actually suggesting an expansion of one of the most wasteful, unjust and criminal programs in the history of the world: the public retirement program – is simply nuts, or too dumb to calculate. Every Western country with a similar scheme as Social Security is facing unfunded liabilities which simply cannot be paid off in an environment of chronic public debt and hampered economy – hampered by heavy taxation and heavy regulations by the government, as well as with the burden of public spending.
There is a lot of literature on this subject, I recommend the latest David Stockman book. The author of this article has proven to be a hack or an ignoramus at best, and should immediately school himself in real-world economics. As for social security, it should be phased out as soon as possible. The great economist George Reisman laid out the phase-out plan some time ago, it is available on the internet.

Posted by KelThuz | Report as abusive

It is normal with an inevitable general modest decline in the standard of living ( which often goes under euphemistic labels like “sustainability”) that people would be inclined to have government step in to fill the gap – unfortunately, history shows that only accelerates the decline. As for the “general welfare” phrase in the Constitution’s hortatory preamble – that is introductory language which then goes on to list the specific means as how that will be achieved – it is not a general grant of power to do anything.

Posted by SayHey | Report as abusive

@ SayHey —

The last time this nation suffered from an ” inevitable general modest decline in the standard of living” was
during the Great Depression, which, incidentally, the real reason why Social Security exists.

Let me spell it out for you. It exists SOLELY as a result of past and probable future wealthy greed and excess.

It is structured as social insurance — stress on the word insurance — which makes it different than most other social welfare programs because it pays a benefit under certain predefined conditions to those who have paid into it.

The reason Social Security is failing today is that the government has been totally unable to keep its greedy hands off of such a large sum of money.

Thus, it has become a slush fund for excessive military (i..e the Military-Industrial Complex) and for social programs like Johnson’s Great Society in which he commingled (i.e. mixed together) the Social Security trust fund and the general fund so the government would look better financially and he wouldn’t have to raise taxes in the midst of his “guns and butter” program, which meant expansion of the Vietnam War without increasing taxes.

Having “government step in to fill the gap” in this case means the government was doing things any professional fund manager would go to jail for (think Madoff on steroids).

It is, in fact, the wealthy-controlled government that is TOTALLY responsible for destroying Social Security.

Speaking of which, EXACTLY which parts of the US Constitution do you think are superfluous and could be done away with?

By the way, Social Security has been held by the US Supreme Court as property and thus protected against unlawful seizure.

Maybe we should start seizing the property of the wealthy class instead. After all, that is what is likely to happen after the government spends their way through Social Security and still is trillions short to feed the Military-Industrial Complex.

Just as Eisenhower said, “it’s the Military-Industrial Complex, stupid!” Except, we weren’t paying attention either then or now.

Posted by PseudoTurtle | Report as abusive

@ KelThuz —

Oh, please! Not another Hayed hack.

It is the free market — “one of the most wasteful, unjust and criminal programs in the history of the world” — that is the problem.

What we are practicing today isn’t even the form of capitalism advocated by Adam Smith in his Wealth of Nations, but a perverted form of it driven by the wealthy neocons who are running this government.

In fact, Adam Smith warned us of EXACTLY the same type of people we have running this government today.

I used to include the quote from the Wealth of Nations to prove my point, but found that people like you are too stupid and ill-educated to understand my point.

Posted by PseudoTurtle | Report as abusive

Hey PseudoTurtle,

You make a credible argument on some things, so I cease to fundamentally question your intelligence. I know not whatever it is in your past that poisons your perspective of those Americans whose success puts them in our top financial tier.

Such categorical distain only makes sense when what people say is clearly contrary to what they do or how they live like “all you can eat” Christians who pick and choose from the buffet of the Bible…those that “talk the talk but don’t “walk the walk”. You tilt against windmills that only exist in your mind.

Bill Gates’ fortune contains a few bucks of mine. I don’t begrudge him that. Same for Apple and Steve Jobs (many, many more bucks!). I think the “salary” of many sports figures inflated, but to me that is more an indictment of their fans’ priorities than those people’s “take home.

On the other hand, you are right about our “banksters” and insurance companies and any and all that seek to control the segment of the market their products are in who are obviously practicing “vulture capitalism. I blame them less that those we employ to contain or correct such excess. Using the “broad black brush” on successful businesses instead of inefficient or incompetent government is both short sighted and misleading.

You are a citizen and product of perhaps the most successful economic system of a major, influential nation ever. The “average American had the best standard of living in the world before WW II even through the “Great Depression, and the increase of that standard to date is unprecedented (if not always steady or even).

Other country have sent teams to study the “American miracle” again and again…what magic is it that makes our people work harder, longer and more efficiently? The elixir, for all who can and will open their eyes, is capitalism, which allows “we, the people” to keep a motivating portion of the “extra” each subscribing citizen invests for the improvement of their own circumstance.

Any country can adopt capitalism, but it is a powerful economic engine that required a “load” and “governing mechanisms” to keep it from winding itself higher and higher in an ultimately destructive frenzy. It requires “fine tuning” as the economic climate cycles between “hot” and “cold.

So why do you see the American economic system as your personal piñata? You view our “free market” as something wild and unrestrained to the point of destruction is merely a market poorly managed. The problem, however, is not our “free market” but those charged with harnessing it to the task(s) of achieving consensual goals that adv ance the “common good.

America today has a government so breathtakingly incompetent as to be incomprehensible. Fortunately you don’t have to comprehend crime or other undesirable activity to stop it. You define the goal, pick the right people, give them necessary authority, and stand back.

Capitalism is not something you can “set and forget.” The harness necessary to transfer it’s energy to what you need done must fit properly so as not to chafe. You have to maintain it.

You can no more blame capitalism for poor “performance” than the farmer can blame the horse (or the ox) he uses to plow, plant and harvest his fields. Many fail to recognize opportunity simply because it is frequently dressed in work clothes.

Those who invest, whether it be in the form of venture capital, a “hot” geothermal well, a new refinery, a pipeline, a medical education or a hospital, each is one of the “movers and shakers” upon which our society has always depended upon for it’s future. Arrayed against them on the field of economics are the dissatisfied and the indignant, those who are not “players” and never will be.

They “want it all now”, spending all they make (and more) rather than living on less so they DO someday have something to invest in stock, a small business, commodities, etc. These are the people that buy things they know they cannot afford, such as big houses (with big expenses) or “hot” (and thirsty) cars soon wrecked by irresponsible use.

They include many of America’s single mothers, or those people with more children than they can afford, or those that sleepwalk through school (or drop out), or those that permanently identify themselves as members of the “underclass” with “in your face” makeup, body piercings and tattoos, or “doing” drugs. They include the perpetual victims of “Payday Lenders”, the scum of the financial world (even if profitable and legal). Why on earth is someone of your education and intelligence standing with this mob waving a “UNFAIR” sign?

If you live in America and have personal use of a reliable vehicle (paid for or not, no matter how old), have food in the fridge (any at all), money in the bank (any at all), money in your wallet or purse, change on the dresser, you know where you will sleep for the next week (rented, owned, or shared), you own more clothes than you are wearing, you have a computer, you have your own internet access, and you own a TV you are richer than 99+% of the people on Earth.   You’re “one of the 1%” that the “OWS” mind set vilifies and envies.

America is perhaps the only place in the world that, since WW II, the “poor” drive!  While government printing presses have just about achieved a “Star Trek society” where only those that want to work (and they got to pick when, where, how and how long), we remain in denial that OUR present “perpetual ponzi mascheme” is but an illusion intended only to fascinate and beguile the gullible. 

Posted by OneOfTheSheep | Report as abusive

Correction: Last sentence should have read:

“While government printing presses have just about achieved a “Star Trek society” where only those that want to work need do so (and each gets to pick when, where, how and how long), we remain in denial that OUR present “perpetual ponzi mascheme” is but an illusion intended only to fascinate and beguile the gullible.

Posted by OneOfTheSheep | Report as abusive

Yes, Social Security was founded as an insurance program, but it is not operated fairly. Households that have a spouse who has not been in the work force (and therefore not paying into the program) are provided retirement benefits for those free-rider spouses. If you want your spouse to be a domestic worker and stay home, then the only way this insurance program should pay a retirement annuity for that spouse is if you paid a premium into the program for that spouse’s benefit.

Posted by CharleneKing | Report as abusive

“All attempts to fix retirement security through private means have failed spectacularly and have only made the problems worse.”

So much for the “leave the private sector alone, and it will work” theory.

@OOTS, few begrudge corporations making money. When will you hear that? What we resent is being told that investing in “this or that” company, or financial instrument, is going to work in our favor, only to find it’s been mismanaged and we’re screwed out of it. Think Enron. People who had close to a million dollars in a fund lost it. Not the only example, but one of the worst.

We resent those financial instruments, tax breaks, tax laws, etc., being stacked in favor of those who can afford to take advantage of them. We’re only asking for a level playing field.

What do you suggest we do with our most vulnerable – children and seniors – who are caught in this political fight over Social Security? Tell them that it’s the fault of the SS fund and not those who “move and shake” our economy – corporations, banks, Wall Street, etc.? Tell them it’s not our corrupt Congress’s fault for being in bed with big money lobbyists? What are their alternatives?

I don’t worship at the alter of capitalism like you. But, I’m not recommending a different economic system (the one we have is a Mixed Economy by the way, not 100% capitalism), I’m just advocating fairness within the system – again, a level playing field for the poor, middle-class and wealthy alike.

You can write “We, the people” all you want, but I’m not one of your people and I think you’re dead wrong on so many points, whether social, political or economic. The real “We, the people” are the very ones you suggest throwing under the bus.

You blame the victim almost every time, no matter what the topic. You drool lasciviously for capitalism at the expense of humanitarianism.

Posted by JL4 | Report as abusive

The problem is the rich is taken from the poor and middle class families. Congress doesn’t need to touch social security at all and for what? to keep taking money to feed their kids and basket ball players etc…the rich is the ones that need to cut back because their stealing from God and they cursed with a cursed…More disasters plus more, if they take from people that been working and paying and even if someone not working. Congress in these rumors of wars needs to stop…when they start taking from people…check this out…just sit back in watch What God do….but worst. God is showing what they are doing…it’s the people behind America who have nothing else to do but steal from another people just greedy and don’t want to see people happy at all. taking everybody else money, to pay for their million dollar pay checks.. people work hard to have peace…at this point congress don’t need to take out federal tax on pay checks or state taxes or any tax. And why people need to pay into the system when congress is taking to pay other team players pockets.. DON”T DO IT AMERICA because GOD IS GOING TO MAKE YOU spend every dime back. AMERICA what are you trying to prove and who are proving it too? we can’t give all anything because all are the ones who spending the money all up on these science projects and etc….do you really think GOD is telling all to take from the poor and middle class…but keep the rich right on point, well who going to buy all products or even listen to all, all going to fall because how can two devils stand together expect they fall. God is always in the mist and I know you know

Posted by thelove | Report as abusive