Retirement security mustn't be just a memory

My neighbor across the street thought he was all set for retirement. Then the housing crash and the stock market slide took away his part-time job as a small contractor and the nest egg he had built up for the future. So now he's driving around prescriptions for a local pharmacy, and worrying about his savings and wondering if he will ever be able to retire.

Retirement experts like to talk about the three legs needed for a secure retirement: Social Security, pensions and savings. That very equation should make most of us quite worried. The retirement platform is missing a couple of these legs, and you can't relax on a one-legged stool.

Pensions for the future were supposed to be defined contribution accounts. Now these 401(k) accounts have deflated into 201 accounts, and are threatening to become 101 accounts. Most of them are based on the stock market, which means if you started saving in 1997, you have gained absolutely nothing over 12 years. And if you have been saving for a half a decade, you have lost a lot of money.

The savings leg is missing too. Most of us owe a lot more than we have saved. Our wages have stagnated and our expenses for health coverage have skyrocketed, way beyond ordinary inflation. For people in their 20s and 30s, the loans heaped up to pay for college make it impossible to save. The current median household wealth for people between 45 and 54 -- less than $83,000 -- is half of what it was five years ago. That includes any ownership in their homes.

So that leaves us with Social Security. Close to a million people in our state, one out of six state residents, look forward each month to their Social Security payments. 700,000 are retirees, more than 100,000 are disabled workers, and 110,000 are widows, widowers and their children. These payments are a lifeline for retired child care workers, who haven't made much money all their lives, as well as retired doctors, like my dad, who have. The average support for a retired worker is a little more than $1,100 a month.

If only private retirement savings could be run as efficiently as the government-run Social Security program. Administrative costs of Social Security are less than a penny on the dollar. The Social Security Trust Fund now has more than $2.2 trillion in reserves, and that will grow to $5.5 trillion in 2026. That trust fund will help pay for the retirement and long lives of the baby boom generation. In the last half of this century, Social Security will be a completely pay-as-you-go system. Even if we accept the most dire predictions of its opponents, it will still pay $20,000 a year in today's dollars, $8,000 more than the average beneficiary gets now.

Social Security is the best financed program of the U.S. government. It also funds many of the government's other endeavors. Under Ronald Reagan, the marginal tax rate on earned income for the very wealthy dropped from 70 percent to 28 percent. Under George W. Bush, tax rates on unearned income dropped to 15 percent. Backstopping these gifts to the wealthy was the agreement in 1983 to raise Social Security taxes from 5.4 percent to 6.2 percent for both employees and employers. This has enabled the Trust Fund to exceed $2 trillion. This money is invested in U.S. Treasury bonds, which finance government operations.

We have an opportunity now, indeed a responsibility, to figure out how Social Security could make up for the failure of the private retirement schemes. Social Security provides about 40 percent of the average wage earner's income when he retires. We can do better. We could increase elderly survivor benefits, provide credits for family care so that moms and dads who stay at home to raise their children are not penalized when they retire, and increase benefits for lower income workers. And just as my parents received their first Social Security checks at age 65, we should be able to provide full retirement benefits at age 65 now.

The question is not the fiscal health of Social Security, but the well-being of American retirees. If we can bail out Citigroup and Bank of America, we certainly should be able to help out the victims of their actions, by guaranteeing citizens the security for a healthy retirement.



John Burbank, executive director of the Economic Opportunity Institute (www.eoionline.org ), writes every other Wednesday. His e-mail address is john@eoionline.org.