For Your Own Good

Richard Quinn

IF WE WON’T SAVE for the futureshould somebody do it for us? Everyone knows Americans don’t save; last year, we managed a miserable 3.4% of personal disposable income. That’s not going to cut it for either financial emergencies or retirement.

We can’t even get many workers to save sufficiently to obtain an employer match in their 401(k) plan. That’s free money left on the table. According to separate calculations by Alight Solutions and Fidelity Investments, one out of five workers don’t invest enough to get their employer’s full matching contribution. What can they be thinking? How are they spending? My view: Except for those living in poverty, everyone can afford to save. What they can’t afford is a lot of their spending.

With the problem well-recognized and no solution in sight, perhaps it’s time to go in another direction—a controversial one, I’ll admit. Should we force more savings and, in the process, ensure that all Americans have a better stream of retirement income? One vehicle that’ll do that—here’s the controversial part—is Social Security.

First, we need to get our act together and ensure the current program remains solvent. “To illustrate the magnitude of the 75-year actuarial deficit, consider that for the… Trust Funds to remain fully solvent throughout the 75-year projection period… revenues would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.76 percentage points to 15.16 percent.” That’s from the 2017 Social Security Trustees Report. The current rate is 12.4%. This shortfall can be fixed in many ways, but let’s take a leap of faith and assume it is indeed fixed.

Next, we turn to increasing retirement income. If we need 15.16% of payroll to keep what we have, we need something more for additional benefits. Let’s say we add another 3% for employers and 3% for workers, for a total Social Security payroll tax of around 21%. In theory, that could boost the ultimate benefit by perhaps 40%. Even if employers lowered 401(k) matches as a result, many workers would be ahead of the game.

And as long as we’re in the realm of the controversial, let’s invest that new money in the stock market, rather than Treasury bonds paying barely 3%, as is now the case. Yikes, partial privatization.

None of this precludes the need for individual savings, but it does ensure every worker saves something. It also boosts the retirement incomes for those less responsible. Heck, maybe that 3% should be 5%.

These concepts are not new. But every time they or similar ones are raised, there’s political controversy and nothing happens. Every government action to date to boost saving for retirement has met with mediocre success, in large because of individual behavior. Remember myRA?

Like it or not, right or wrong, we can’t cut Social Security unless we somehow transform the average American’s often-irresponsible financial behavior. What to do? My contention: If people can’t fix their own financial future—and it seems many can’t—perhaps we, as a society, need to fix the problem for them, by expanding Social Security and making everybody contribute more.

Richard Quinn blogs at Before retiring in 2010, Dick was a compensation and benefits executive. His previous article was Choosing Badly.

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