The End of Retirement

American workers have little to celebrate on this Labor Day. That’s especially true for older workers, who face the end of any possibility of a secure retirement, so hard-won during the 20th century. In my recent Mother Jones piece on the subject, I wrote:

I contemplate my future at a time of deep recession with no pension and a depleted 401(k). And it occurs to me that the very notion of a comfortable, paid retirement may turn out to have been a temporary phenomenon, with a life span almost precisely the same as my own…And I have to wonder if someday the tale of a foolish generation of Americans, who imagined that a lifetime of work would be rewarded with a comfortable and secure old age, will become just another footnote in the annals of the market.

One commentary on the subject came earlier this year from AFL-CIO President Richard Trumka, speaking at the National Institute on Retirement Security. His conclusions regarding the possibility of change may be overly optimistic, but his analysis is sound. Here’s an excerpt:

Today’s retirement security crisis is just one of the many painful consequences of the failed economic policies of the past 30 years—policies of radical deregulation and corporate empowerment.  

They’ve culminated in the worst economic decade in living memory—job loss, wage loss, collapse of the housing and financial markets, enormous growth in inequality and the massive destruction of wealth.  

These policies allowed — and even encouraged — employers to walk away from what had been a system of shared responsibility.  The result?  Today, fewer than 20 percent of private-sector workers have real, defined-benefit pensions. 

As a country, our challenge now is to build a new economy on a solid foundation of good jobs, opportunity, a return to shared responsibility and a level playing field that allows both workers and business to thrive.

Keeping the promise of retirement security must be part of this great transformation in American life…part of the legacy we seek to build and the future we envision. 

Today only 13 percent of workers say they are very confident about having enough money for a comfortable retirement—that’s the lowest level in 16 years.  And this lack of confidence is justified.  The majority of America’s workers will face retirement with far less security than their parents.

That’s especially painful to me—because it was our union movement that created retirement in the United States.  Before the rise of the labor movement in the 1930s and 40s, elderly Americans were the most impoverished age group in our society, and only a privileged few received government or employer pensions.

With the enactment of Social Security and the growth of union-negotiated pensions, elderly Americans became the least impoverished age group.

After the New Deal, it was collective bargaining that set the pattern for labor markets—and not just for workers covered by union contracts.

These were the years that produced the three-tiered American retirement system:  Government provided a foundation with Social Security, employers provided defined-benefit pensions and individuals saved for their retirement. 

With this system, our parents could retire after a career of hard work, confident of a stable income they would not outlive.  They could sleep at night knowing that, should they die, their spouse would continue to have a dependable income. 

For millions of Americans—teachers and bus drivers, factory workers and flight attendants, construction workers and nurses—reliable, employer-funded pensions made their lives immeasurably better.

That was a legacy.  That was the world I grew up in back in Nemacolin, Pennsylvania.  A world where working people had real pensions they had won at the bargaining table and on the picket line…

…A world where retirement, which had been a dream realized only by bosses, had become a reality for tens of millions thanks to Social Security and collective bargaining. 

Today, all three tiers of that retirement system we built are in danger.  Employers are increasingly abandoning their pension plans.  Workers with lost jobs and stagnant incomes are unable to save.

In this bleak landscape, Social Security stands out as the one feature of what passes for our retirement system that works for all Americans.  But too many in Washington seem bent on perpetuating the Bush administration’s attacks on Social Security. 

The labor movement took on those people and beat them in the Bush era — and we will do the same in the Obama era.

When people lump together Social Security attacks with deficit reduction efforts, we have to remind the public of this basic fact: Social Security is NOT contributing to our budget deficit—in fact, the buildup of the Social Security Trust Fund is financing our budget deficit. 

And while the program faces a funding shortfall over the next 75 years, in pension plan terms, Social Security is 88 percent funded over that 75 year period of time and by any measure would be considered a healthy pension plan.  Relatively modest adjustments—WITHOUT benefit cuts—can address even this long-term issue. 

Social Security is the most important family income protection program and the most effective anti-poverty program ever enacted in the United States.  One-third of Social Security beneficiaries receive more than 90 percent of their income from Social Security.  Two out of three depend on it for more than half of their income. 

Social Security is the sole source of income for nearly one in five seniors.  The average Social Security benefit is just little more than a minimum wage income—meaning a typical retiree needs almost twice the average monthly Social Security benefit for a reasonable standard of living.

And if that’s not bad enough, growing Medicare cost-sharing means our seniors will need higher benefits just to maintain the replacement rate of the past 25 years.

Social Security benefits must remain at least as robust as they are today…quite frankly, INCREASING Social Security benefits would be a massive boost for our economy right now and for our long-term ability to provide all Americans financial security in retirement.

Social Security is the ONLY reliable and guaranteed benefit for the growing number of people without pensions.  But Social Security by itself cannot provide retirement security for most Americans.

And despite all the flashy new investment products the financial services industry markets, traditional defined-benefit pension plans remain the soundest vehicles for building and safeguarding retirement income security. 

If you are lucky enough to have a union, there is still a good chance that you have a pension plan.  Sixty-six percent of union workers have pensions, compared with only 15 percent of nonunion workers.  But unions are under increasing pressure at the bargaining table to allow employers to cut or eliminate real pensions. 

In the private sector, the funding rules for single employer pension plans in the Pension Protection Act of 2006, coupled with new accounting standards, have contributed to an environment in which even healthy companies are freezing their pension plans entirely or closing them to new hires.

Our current economic downturn has made this much worse.  In many parts of this country, public-sector workers have the right to form unions.  Not surprisingly, state and local government workers are four times more likely than private-sector workers to have defined-benefit plan coverage.  But public-sector plans are under attack through legislation and ballot initiatives.

In the private sector, over the past decade, many employers have abandoned their real pensions for 401(k) plans—plans with little or no employer money … plans with no protection for workers against market risk or outliving your money … and plans with high investment management fees.

We hear different reasons for this, but here’s the bottom-line problem:  Our current system lets employers off the hook.  They can refuse to provide any benefits at all.   If there ever was an implicit social contract, it has eroded.  My friends, that is NOT the vision I have for America. 

Unfortunately, the vision put forth by policy makers in both political parties and the White House is for tepid reforms that address only the shortcomings of the 401(k) system.  I think we were all glad that the president included retirement security as a national issue in his State of the Union address last week. But his remedies fall short.

Tinkering with 401(k)s by adding automatic enrollments as a plan feature will not bring about the change we need.  And what good is individual annuitization if you don’t have any money in your account and you are at the mercy of the insurance industry on pricing?

At best, I’m afraid, these proposals will marginally increase retirement savings for those who already can afford to contribute, and will do nothing to make employers take some responsibility in this crisis.

In this crisis economy workers can barely meet day-to-day expenses.  How much then can they save on their own for retirement?  Plainly put: There is no way that 401(k) plans can adequately substitute for the loss of a guaranteed lifetime benefit.

Look at the data: The median account balance in 401(k) type plans for 62-year-old workers is worth an annuity payout of about $400 a month.  $400 a month.  That just doesn’t cut it.  And most workers will outlive their savings.

A Time magazine cover story last fall on the failure of 401(k) plans about summed it up:  “This isn’t how retirement was supposed to be.”   After a lifetime of hard work, workers deserve to retire with dignity—with the economic security they have earned. 

It is imperative to strengthen and preserve what remains of the current private-sector pension system by working on two tracks—through collective bargaining and through legislation…

5 responses to “The End of Retirement

  1. People need to think carefully about 401(k) plans. These plans have been THE prop for the stock market, allowing it to balloon to grotesque proportions (everyone thinking that thereby they were getting rich) while good jobs have gone overseas, leaving the rest of us to work at WalMart. I grew up in a home where investments in stocks were seen as the same as gambling, and probably worse than gambling, because you are in essence making money off of others’ labor.

    My husband now has the equivalent of a 401(k), a 403(b) I think. However, we are using the most conservative plan which has no money in the stock market. Yes, you will not get “rich” this way, just as you will not get “rich” putting your retirement money into shares at your local credit union. However, getting “rich” at the expense of other people is not very ethical, and putting your money into risky investments is not very sensible.

  2. The first step to strengthening Social Security—to simply preserving it—is relieving Alan Simpson of his position as co-chair of the Deficit Reduction Committee. A man who regards those on social security as lesser people sucking on the tits [sic] of a cow, and doesn’t mind saying so, should be cast as far away as possible from what is an already inadequate life-line for many seniors. If the Obama administration is serious about protecting social security, it should admit the error of naming Simpson to co-chair the Committee by firing him.

  3. Elizabeth Rogers

    I SO agree with your column! Somehow, somewhere, some way things have gone terribly wrong in the USA. The little that remains of the “social contract” between employers and employees and between generations will be totally annihilated if the November elections turn out as they appear to be headed. It’s a complete mystery to me how middle and working class Americans can be persuaded to think that they will fare better under the Republicans. Their policies (two unfunded, unpaid-for wars, minimal regulation, tax breaks for the rich, unmitigated greed) did a lot to create the Great Recession. Republicans represent the interests of corporations and the wealthy, but somehow they’ve been able to convince too many of us ordinary voters that they’re on our side. They aren’t and they never will be!

    I’ll vote, as I have for the past 50+ years, and I’ll probably contribute to my state’s Democrat candidates, but the hope I had in 2008 for real change and progress has definitely been tempered by today’s realities. If they win big in November, as expected, the Republicans will start to undo everything President Obama has accomplished, including doing their best to dismantle Social Security as we know it. How can anyone now in their 50s+ think their retirement funds (if they’ve been able to accumulate any) would be better off in a private account that depends on, of all things, Wall Street and the stock market?!

  4. outraged citizen

    Alan Simpson is a very ignorant, mean, evil, old man.
    Why hasn’t Obama gotten rid of him? Obama’s no democrat. This country’s in big trouble.

  5. Elizabeth Rogers

    Re Simpson–yeah, he’s all that! He’s got his and the devil take the hindmost (which, unfortunately, includes most of us). I think Pres. Obama is just trying to get something going that will fend off the worst of the privateers. I don’t think Simpson will get his way. SS hasn’t been called the 3rd rail of politics for nothing. Older people VOTE, and I can’t see the baby boomers voting for anyone who wants to trust what retirement savings they have left to the likes of Goldman-Sachs.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s