Yes, there is a retirement crisis

On Tuesday, the Social Security subcommittee of the House Ways and Means Committee held a hearing on “what workers need to know about Social Security”. Given the release of the Social Security Administration’s annual Trustees Report only a day earlier, this hearing was yet another conservative attempt to undermine the program and shape the discussion over the size and nature of the retirement crisis – the growing shortfall in Americans’ retirement savings. Launched by Chairman Sam Johnson (R-TX), the hearing announcement made reference to retirement income being underreported, implying that families are better off than the data show. Moreover, the witness list included crisis deniers, such as the American Enterprise Institute’s Andrew Biggs, making claims that the number of households inadequately prepared for retirement is largely overstated.  Some testimony turned to calls for Social Security benefit cuts. Because, after all, cutting Social Security would theoretically inflict little harm if families are already well prepared for retirement. In reality, families would suffer tremendously from Social Security cuts. Why? Because as a long-standing body of economic research has repeatedly shown, there is indeed a growing crisis.

The Center for Retirement Research estimates with its well-respected National Retirement Risk Index that 53 percent of working age households in 2010, the last year for which data are available, could not expect to maintain their standard of living in retirement. This share of households falling short in their retirement savings has gradually risen from 31 percent in 1983 to 38 percent in 2001 and now to about half of the entire working age population. The risk of having insufficient savings is especially large among communities of color, single women, and households with little education, New York University Professor Edward Wolff has shown in a number of studies.

{mosads}The standard for retirement security is to ensure that families at least can maintain their standard of living. That is, families should have enough money from Social Security, pensions and savings to stay economically in control of their lives as they age. This control over their lives will allow families to avoid having to rely on families, charities, and the public, while also giving them the opportunity to contribute to society by starting a business and volunteering.

What, then, does the retirement crisis mean? Rather than staying economically in control of their lives, many families will have to muddle through the last stage of their lives. They will give up on dreams to turn their skills and experience into productive new ventures.  They will not volunteer at the local soup kitchen or child care center. They will keep working even through ailing health. They will cut back on critical expenditures such as seeing a doctor regularly and taking their medications. They will turn to public programs for help to pay their utility and health care bills. They will move in with their families and have to rely on their children for financial assistance, assuming that those children themselves have the means to support their aging parent.

The growing retirement crisis spells trouble for families, the public, and the economy. Families will suffer from stress as they worry about their finances, they will experience more and more severe health problems – including premature death – than would be the case with more savings, and they will generally lose a lot of their dignity having to rely on others after a lifetime of hard work. Public finances will be pushed to the limit, crowding out other priorities such as education. Moreover, economic growth will be slower than it otherwise would be because employers will have more workers whose productivity is declining, while many older families, who could start successful new businesses, will forego those opportunities.

These challenges for families, the public, and the economy will only grow bigger and more noticeable in the coming decades. It is a matter of simple arithmetic. The share of families with insufficient savings has been going up over time and the population 65 years old and older is forecast to grow faster than younger households for the coming decades. A growing population that is facing increasing economic struggles cannot be ignored. The rhetoric of those denying the retirement crisis does not match American families’ reality, and could inflict real economic harm if it translates into Social Security benefit cuts. The answer isn’t cutting benefits and raising the retirement age. Congress needs to modernize and strengthen Social Security and find ways to more efficiently and more effectively encourage private savings to avert this crisis. 

Weller is a senior fellow at the Center for American Progress and a professor of public policy at the McCormack Graduate School of Policy and Global Studies at the University of Massachusetts, Boston.