Social Security alone isn't enough
The war on poverty launched by President Lyndon Johnson a half century ago is being lost. When the Census Bureau releases its 2011 figures in November, the poverty rate could be as high as 15.7 percent, according to economists surveyed by the Associated Press. That would mark the highest rate since 1964.
One in six Americans is now poor. Unless steps are taken, we fear that figure will become one in five or worse. To avoid that, several things should be done. To lift more people out of poverty, the federal minimum wage should be gradually increased until it can be considered a livable wage. It may also be necessary to improve on Social Security.
Consider this grim statistic from a recent piece by Teresa Ghilarducci, an economics professor at New York's New School for Social Research, in The New York Times:
"Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts. The specter of downward mobility in retirement is a looming reality for both middle- and higher-income workers. Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day."
The are 76 million baby boomers. For the past year or so they have been retiring at the rate of 10,000 per day. Roughly 47 million Americans are current considered poor. What will happen when, over the next decade or two, the ranks of the poor are swollen by millions of seniors whose only income, once they've exhausted their meager savings, is a Social Security payment?
Social Security provides 90 percent of the income of one third of the program's recipients. The average monthly benefit of a recipient this year is $1,126. That's enough to lift a single person above the official poverty line of $9,000, but anyone who tries to live on that income knows that they're poor. That's doubly true for senior citizens who, despite Medicare, still have high health-care costs.
Defined benefit pensions have all but disappeared. Younger boomers tend not to have them.
The voluntary 401k plans that began replacing pensions 30 years ago have largely been a bust. Too many workers don't join them, put too little in them when they do, spend the money when they change jobs, borrow it, or invest unwisely. They were no substitute for pensions.
It's too late for most baby boomers to save enough to escape a penurious old age. The answer, for those whose health permits, is to work longer, if, that is, they can find a job. Unless defined benefit pensions make a comeback - something that won't happen without an unimaginable resurrection of labor unions - more will have to be done to ensure that people save what they need to supplement Social Security. Ghilarducci suggests mandatory worker contributions to professionally-managed retirement accounts, presumably accounts that employees couldn't raid easily, that would have a guaranteed rate of return and pay retirees an annuity. That's a concept worth exploring. Forcing people to save for their own benefit in old age is preferable to forcing taxpayers, many of whom will be young and struggling, to devote even more of their income to prior generations.