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IT’S TIME TO THROW out our broken retirement system and start over. My first article for HumbleDollar, published more than five years ago, was titled Choosing Badly. It was about the inability of most employees to make good use of their 401(k) plan.
Guess what? Nothing’s changed.
Today, some 401(k) plans still have too few investment choices, while others have too many. There are multiple options that people don’t understand, such as target-date funds compared with index funds, or whether they should take advantage of the “brokerage window.” Plans will become even more complex as annuity options are added. This choice overload is partly to help the plan sponsors do their duty as fiduciaries—at the expense of their confused workers.
I recently spoke with an employer who will offer new hires a unique choice. They’ll be able to choose the existing cash-balance pension plan with employer contributions based on years of service and age, and they’ll get a guaranteed annual 6% interest credit and immediate vesting. In addition to this pension, the employer allows workers to participate in a 401(k) with an employer match of 50% on up to 7% of pay.
The new alternative, however, is to forgo the pension and instead enroll in a new 401(k) plan with a 4% guaranteed employer contribution, plus a dollar-for-dollar match on up to 4% of an employee’s pay. The possibility exists for an 8% employer contribution, which is roughly the cost to fund the typical pension plan.
Favoring the pension should be obvious because the employer guarantees lifelong payments to those who stick around long enough to qualify. How great is that? Still, I’d bet most workers will take the new 401(k) because of the easily grasped 8% payment. That’s the employer’s preferred option, too, because—unlike the pension plan—the employer has no long-term liabilities or interest-rate risk with the new 401(k).
The goal for this employer—and many others—is to work its way out of retirement plans that cause fluctuations in corporate earnings. That means it wants out of any defined benefit pension obligation.
This points up how accounting rules, federal laws and regulations create a conflict between the interests of the shareholders and that of workers—and the workers are losing. With the decline of pensions, the risk of paying for retirement has shifted to employees.
Why do we make saving and investing so complicated, especially when the average worker’s financial acumen is not great? Why do we need 401(k)s, 457s, 403(b)s, IRAs, Roths, SEPs and so on? Why the different rules for government, corporate, small business and non-profit plans? Why are rules and limits different for IRAs and 401(k)s, and even for married individuals?
For example, beginning in 2026, high earners making $145,000 a year or more will be required to make any 401(k) catch-up contributions to a Roth 401(k) account—meaning after-tax dollars must be invested, but can be withdrawn tax-free. Why?
I suspect the government will capture a slight short-term revenue gain—but with potentially much greater losses of tax income in the long term. It’s about short-term federal budgeting. On the other hand, this requirement likely does high earners a favor—at the cost of more confusion for workers.
All these variables present Americans with unnecessary decisions. The typical worker simply cannot or will not make such decisions. The system isn’t working.
A look at retirement savings makes that clear. The average 401(k) balance for those age 65 and older is only $232,700, while the median (or typical) balance is just $70,600. That $232,700 might generate income of $800 a month or so—not enough to retire on.
We need to start over. We must recognize the limits of the great majority of Americans to implement a 40-year plan to save and invest for retirement. They’re too intimidated by the thousands of pages of rules and regulations.
Here are my ideas: First, we should significantly increase the percentage of income replaced by Social Security so that, at retirement, middle-class Americans would have a basic livable income. This change would be funded by increasing payroll taxes, but more so on employers than workers. Payroll taxes would be levied on benefits provided through employer cafeteria plans, such as health spending accounts and dependent care, which are currently exempt. I would also add all state and local workers to the Social Security system.
The exact nature of these taxes is not important. It’s the concept that’s important—that, for most Americans, voluntarily saving for retirement, coupled with relatively modest Social Security benefits, won’t get the job done.
The tax percentage would automatically be adjusted annually to ensure the system’s ongoing sustainability. You get what you pay for. No more periodic funding crises.
I can already hear the outcry. No, this is not socialism, though it may be a wealth transfer. It’s also an honest recognition of the shortcomings of human behavior when it comes to retirement planning. Adequate income for a growing older population will have to be paid for one way or another.
My second idea: All current regulated retirement vehicles are eliminated and replaced with a single plan, whether employer-sponsored or not. One set of rules, regulations and limits, and the same tax treatment for all contributions. If you want to save specifically for retirement on a tax-advantaged basis, you’ll use this one vehicle as you see fit.
Congress—along with some states—have spent decades tinkering with schemes to encourage retirement savings, either by making plans a requirement or by rewarding retirement savings with tax advantages. But the result is a a multi-headed monster and a bureaucracy to go with it. It’s time to recognize our collective shortfalls and get back to basics.
Richard Quinn blogs at QuinnsCommentary.net. Before retiring in 2010, Dick was a compensation and benefits executive. Follow him on Twitter @QuinnsComments and check out his earlier articles.
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This was an interesting article – both thoughtful and thought provoking, as is evidenced by the number and quality of many of the comments it’s received. I appreciate that you not only said what you didn’t like about our present system for retirement saving but you also gave some ideas about how you think it can be improved. While I agree with some of your observations, I disagree with your conclusions. I think the present system is both powerful and workable for folks who are willing to take the time and make the effort to understand what they need to know to be successful at building a separate “Nest Egg” that can be used to supplement the income they hopefully will get from Social Security – which is a fantastic retirement “Safety Net” that provides an “earned benefit” – not a check from an “entitlement program.” IMO, Social Security should be strengthened and preserved as it is, without any benefit reductions for people age 45 and older. The thought of making people even MORE dependent on Social Security by doing away with our current individual and employer based retirement plans, and at the same time giving more power and responsibility for our retirement welfare to folks who think “long-term” is their next Election Cycle and who can’t see beyond a “Ten Year Federal Government Budget Window” seems like an obvious disaster to me. Somewhat akin to giving the keys to your favorite vehicle to an irresponsible driver with poor vision and lousy decision making skills, who also suffers from drug and alcohol abuse. Who would do that? It’s a total non-starter for me.
I believe, and have seen up close and personal, that knowledge is power when it comes to managing and achieving financial success. Granted, nothing is guaranteed but death and taxes, but at my church I’ve helped teach both Ron Blue’s “Master Your Money” program and Dave Ramsey’s “Financial Peace University” curriculum. The students often had little financial acumen before enrolling, but after completing the classes they knew enough about the basics of personal finances to take control of, and in many cases, dramatically change, the course of their financial future. They were also equipped to understand and take advantage of the plethora of free financial information that is available these days to anyone with a computer or Smartphone.
In today’s world it’s not that hard to be able to learn about how to manage your money, plan for your financial future, and invest for retirement, including some of the examples you gave – like how to understand the difference between Target Date Retirement Funds and Index Funds, or how to choose appropriate investments within a 401(k) plan. This learning does require time and effort, but the potential benefits are well worth it.
Considering how much money our country spends on education, we should be able to create an empowered nation of citizens who are highly financially literate almost without exception. Doing that would allow people to be more responsible and successful when it comes to earning and managing their money. It would lead to better individual outcomes, with less reliance on the government for help. I believe it would also result in more personal charitable generosity.
Our existing system IS quite complex when it comes to retirement planning, tax planning and preparation, and investing. I argue not in favor of the complexity for its own sake, some of which I personally abhor as a professional Tax Practitioner, but rather for the opportunities and benefits the current system offers to those who learn how to apply it to improve their present financial well being and their future financial independence.
I’m working on a “real life” hypothetical example which I may post separately to this comment. Or I may reach out to Jonathan about the possibility of submitting it as an article, given that I think it could possibly be an interesting and insightful read.
Dick, thanks again for passionately expressing your views in this article.
The problem isn’t too many vehicles, nor is it an insufficient Social Security program.
You may be willing to fork over more money to the federal government so that they can use it to buy votes, but, they’ve done such a poor job in keeping Social Security sustainable, I’m not at all interested in turning over more of my income or relying more on people who run $2+ Trillion a year in deficits, and have accumulated $32+ Trillion in national debt. First, make Social Security, as it is, sustainable and then maybe, we can talk.
With respect to complexity, Americans have had consistent access to a perfectly acceptable, straightforward, more than adequate, tax-favored retirement savings program for the past 43 years – it is called the Individual Retirement Account. A median income worker who consistently saved the maximum and obtains a 5% rate of return, would be able to replace 90% of pre-retirement income (when combined with Social Security).
Ask most any economist and they will confirm that a 401k or a pension is diverted wages. So, those who lack access to an employer-sponsored plan are the same individuals whose wages are not diverted – those who receive 100% of their wages (after taxes).
Bottom line, Americans’ failure to adequately prepare for retirement has nothing to do with a lack of access to tax-qualified plans (some call it coverage), nor does it have to do with too much complexity. Social Security has been clear about its role as providing a base level of income replacement for older Americans – and that hasn’t changed for decades.
The lack of retirement savings has everything to do with a failure by (a few, some, many, most) workers to prioritize retirement preparation.
Yup, so how do we solve that? Saying many people fail to act responsibly does not solve the problem. What happens as more and more of these workers reach retirement unprepared or with minimum assets?
But I do disagree that the complexity of plans, laws, limits, etc is not a factor. And, as you know many people do rely on SS and other people’s taxes and that will not change, ever, so it does no good to say it’s unfair or we don’t want government involvement.
The first rule when you find yourself in a hole, stop digging.
Part of having a market economy, means that people have choices. Our parents made choices for us, as their parents did for them. My grandmother brought my mom to America back in 1925.
You and I made choices to work for firms that provided defined benefit pension plans. We accepted lower wages to do so. Despite that, you and I also went without consumption so as to accumulate assets for periods when our largest and most valuable asset, our ability to earn an income, to be productive in ways others were willing to pay for, was reduced, eroded or ended.
People need to be responsible for their choices.
Some of us were so concerned about maintaining our ability to earn that we went back to school at night full time while working full time – including education in our 50’s and 60’s. Those are choices few are willing to make.
Some of us wore the green and took dramatically reduced wages – then leveraged the VA benefits for education purposes. That’s a choice few are willing to make.
In past decades, prior to most employer-sponsored plans and IRAs, when most everyone worked until they were physically incapable of continuing employment. Some of us continue to voluntarily work into our 70’s. That’s a choice few are willing to make. Too many feel entitled to a retirement that they didn’t prioritize while employed.
You asked, how do we solve that? The answer is that until people are responsible for the choices they make, there is no solution. Until each and every American is required to accept the outcomes from the choices they made (except in instances of death or disability), we will continue to have what we have always had (to paraphrase Henry Ford).
In other words, you and I are expected to be satisfied with the outcomes of our efforts, our choices, why should others be held to a different standard?
You asked, what happens as more and more of these workers reach retirement unprepared or with minimum assets? Because I see no movement in holding people responsible for their choices, I assume Congress will deficit spend to add new welfare programs, using taxes to be paid by those too young to vote and generations yet unborn. What do you think Congress will do?
You commented that the complexity of plans, laws, limits, etc. is a factor. No, as my note confirmed using IRAs, for those in the Baby Boom generation and all generations to come, only for those who let it be.
And, you commented: As you know many people do rely on SS and other people’s taxes and that will not change, ever. Here, we agree – so long as we enable that. But, things can change. There is a reason why we now have $30+ Trillion in retirement assets. That’s 50 times the reported assets in 1975, 10 times as much once you adjust for inflation.
And, finally, you commented that it does no good to say it’s unfair or we don’t want government involvement. No one suggests the government should walk away from Social Security or Medicare.
Many of us just want them to stop adding new programs. Those age 65+ living in poverty are less than 10% (probably less than 5% once adjusted for assets) – far below the 30+% back in the 1960’s. Lots of progress.
But, until Americans stop relying on Congress to bail them out and shift those costs to future generations by running $2+ Trillion in deficits due to inadequate general revenues (see Health Reform’s expansion of Medicaid, bail our of multiemployer pension plans, addition of Part D to Medicare, etc.), they will shift those costs to future generations – the digging will continue, the hole will become ever larger, …
Given that, according to the BLS, only about 2/3 of workers have access to retirement benefits(defined contribution and/or defined benefit), it is hard for many workers to even be able to access such benefits. Small businesses that do offer these plans often price them at an expense ratio that subtracts significantly from a worker’s overall savings balance,especially over a long period of time by subtracting plan expenses each year.
Increasing the % of income that SS replaces is a laudable goal that is unlikely to be implemented in anybody’s lifetimes. It is hard to see it ever being implemented. A more reasonable goal would be set up a Federal govt sponsored savings fund managed with investments in Treasury instruments and standardized equity indexes. Employers would be encouraged(and/or strongly pushed) to give their employees access. Their motivation would be that, especially for small firms, the incentive would be that this would be an incentive to reduce or eliminate their retirement plan costs.
Anyone who laments the loss of pensions should read Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers by Ellen Schultz.
Very misleading and questionably accurate. It talks about DB plans which apply to few private sector workers. Reading the summary it does not mention the major failures of union welfare plans and underfunded state plans.
Defined benefit plans have decreased over the years. The fact of underfunded state plans is not relevant when talking about the decline of pensions when looking at the overall job market as it pertains to the availability of pensions for public and private sector workers alike. It still remains that govt and private sector unions are the primary source of pensions. As the book details, private sector companies have striven to rid themselves of the pension obligation. At the same time executive compensation and stock buybacks have risen. I’m sounding like one of those socialists. Except, it is not socialism. Companies taking care of their workers is about making companies responsible to not just strictly be shareholder focused. In the long run, companies who are strictly subservient to shareholders are not as successful as those whose stakeholders include not only shareholders but employees and society overall.
Please do not confuse confuse “complexity” with “flexibility and choice.” We are a country build on individual responsibility and choice. I prefer to have the flexibility to chose the approach that is best for my situation — this is paramount. If you do not have the skills to determine your personal approach, then hire someone to help.
What many seem to want is someone else (federal government) to pay for there own shortsightedness. Advocating that Uncle Sam should take care of us all IS socialism. And, why would I trust the federal government with my pension? They are heading down the path of fiscal insolvency.
A trillion here and a trillion there and soon you are bankrupt.
Last night I was talking with a brother in law who has dramatically different political outlooks than I do. If we both weren’t honestly curious about other views, we wouldn’t be able to speak to each other at all. But we agreed on one thing, Social Security is insufficient. He’s worked hard his whole life, but never for a company with a 401(k) or pension plan. His wife just retired from a low paying gov’t job, but her pension and their combined SS are insufficient to cover the costs of living in a small house. She’s working at a new low paying gov’t job that she enjoys, in large part because she’s learning new technology skills she never thought she could possibly understand, but at some point she will want or need to retire again. He keeps working because the other income just isn’t enough. They’ve made some bad choices along the way and one of them suffered a major injury with long lasting consequences, but they were never profligate spenders and the fact is they worked very hard at low paying jobs. I suspect situations like theirs are the majority. The system needs change to support them in old age.
But here’s a serious problem, we agree on the problem, but his view of why SS doesn’t pay enough is disconnected from reality and this is indicative of politics getting in the way of facts. But, again, we agree on something: Congress needs to return to the days of compromise to get things done. Ideas in this article make sense. I have quibbles with the details, but no doubt we need simplification. But I’m pessimistic anything can get done while lobbyist fees to keep current systems operational are a tiny portion of the fees being reaped by the myriad financial products of the current system and while gov’t remains so polarized.
Agree with all your points and recommendations to fix the mess we are in.
I agree that the current mess of options and rules is way too complicated. Regarding your second proposed solution, a single plan that replaces everything else, might make sense. And guess what? We already have the plan up and running to do the job: Social Security.
What if individuals were given the option to divert extra funds from their paycheck into Social Security, in effect buying additional SSA premiums? Seems to me this would go a long way toward solving the looming liquidity crisis as well while greatly simplifying what has become a ridiculously convoluted hot mess of rules, plans and exceptions.
Of course, the lawyers won’t like it – it’ll be way too easy for everyone to understand, and there won’t be nearly as much fiddling around with updates and modifications. Nor will the financial planning industry – why buy an annuity when you can just plow more into your SSA kitty?
Now – if we can just come up with an equally elegant fix for medical care…
As much as I sympathize with the dilemma and agree with the author’s analysis regarding human behavior, I don’t believe that relieving people of the responsibility of preparing for their future fosters the sort of character, citizenship, and self-sufficiency that we want in America. Transferring the responsibility of caring for the aged from the individual and, more importantly, the family onto the state strikes me as corrosive to liberty and to the importance of family. The current system may be flawed, but I believe your cure is worse than the disease in the long term.
If everyone was born healthy, intelligent and with a large and prosperous family your attitude might have merit. Unfortunately, that is not the case.
It sounds like you are afraid of socialism. However in the annual publication of the happiest people in the world the Scandinavian countries ALWAYS are at the top, and it isn’t because of their long, dark, cold winters!
I would not characterize the Scandinavian countries as socialist, but as capitalist with generous social welfare benefits. They are in many cases more free market than the United States, starting with school choice. They also have, until recently, a largely homogeneous population which increases efficiency and strong community bonds.
Richard, you don’t mention the Windfall Elimination Provision (WEP) or the Government Pension Offset (GPO), archaic rules which penalize public employees. I worked as a public employee for 14 years during which time I did not pay into social security. For many years now I have paid the _maximum_ social security but I will only get up to 45% of my social security pension simply because I was a public employee. There is a bill, the Social Security Fairness Act HR 82 that will die in Congress because the majority of Congressional members simply don’t care. We are only asking for what we have already paid into social security, no more, no less.
I am not sure I like the concept of pensions, I understand their benefit for the trades who often would not always set aside money for retirement when they first start out from apprenticeship. But I come from a state which has had problems where the government and others have dipped into the pension funds and things ended up being underfunded. That happens in the professional world as well.
But all that said, IFF the government is going to step in and create any such new plans to try to solve these issues – they HAVE to use it too. What’s good enough for the goose is…
I am tired of hearing all the wonderful pensions and health care benefits that our congressmen and women get, all the way up to the presidency. If they create a plan for us, they have to use it too. An old Microsoft adage is “Eat your own dog food”. If our lawmakers and policymakers had that restriction on themselves, it might end up being a better system for all.
Both ideas are awesome and I’ve been advocating for them with my friends and family.
The first idea is not socialism. Many people conflate political meddling of spending tax revenues with a solid inflation protected annuity that Social Security is. If anything, the government should sweeten the pot and incentivize people to delay SS until 70. Perhaps, give a tax credit on any TIPS/iBonds related federal taxes as an incentive. Both make great inflation protected assets.
The second idea has another benefit in that pooled assets give many more taxpayers access to solid financial advice and, perhaps, a better fee structure when assets are pooled. A $500K “retirement” portfolio can access better advice than a $50K HSA, $100K traditional IRA, $200K 401(K), and $150K Roth IRA.
Some people will see “simplification” in your suggestions. Others, like me, will see “less choice.” And, no, your first idea is not socialism. But it does amount to increased moral hazard. Is there any doubt that social security has contributed to many people’s belief that “I don’t really need to save, I have social security that I can count on?” Fact is, the way the US government runs its fisc, only fools have confidence in trusting the government to not take in more money and waste it on needless programs. No, let’s NOT give the government more “responsibility” of people’s finances and give people MORE responsiblity for their income.
I’m all for that in theory, but the theory has proven for the last 90 years not to be valid.
How would you suggest we do that so that all Americans have sufficient income to retire while not relying on various tax funded programs and subsidies?
Social Security is the most directly funded program we have, not subsidized by general debt funded revenue.
“not sbusidized by general debt-funded revenue”? Benefits have exceeded social secuirty income since 2021 and the “trust fund” is an accounting mirage created by creative minds (minds that truthfully, are untrustworthy.) One way (not the only way, to be sure) to improve SS is to give people the option to invest a portion of their SS money themselves in an account governed by rules with a smidgen of flexibility but with a heavy dose of regulation. For example, give workers the abilty to “cash out” in the case of say a crippling medical situation or to purchase something which creates generational wealth (such as a home or a whole life insurance policy) but allow only a narrow band of target date investments to be appproved and utilized. We must create a new generation of individuals who are gently nudged to take control of their finances and think long term. This is a decades long goal which makes sense since this is a decades long in the making problem
The SS fund can only invest its reserves in Treasury instruments. For years, the fund took in more than it spent, which created reserves. Those rerserves are now being spent down and when they are exhausted, benefits will need to be cut unless Congress finally decides to fix the problem. The fund as currently structured, does not and cannot borrow to neet its obligations. Its also worth noting that the SS fund was originally created as an insurance scheme. Thus, there is only a benefit if you reach retirement age and are living. You do not have a fund account balance that is yours to use, borrow against or give away after death. What you envision is possible in an IRA or 401K type plan, but the SS fund is not that sort of vehicle. And, as Mr. Quinn noted, creating a generation of finacially savvy citizens is a good idea, but so far no one has foiund a way to make it happen.
I like your second idea. I once heard someone (can’t remember who to give them proper credit) call for a single account called a Universal Savings Account (USA). Can’t beat that acronym.
America is not perfect and many problems may need solutions but maybe once a week we should stop and think of all this country has given to with a grateful heart.
I see no other country where people risk their lives to enter and Americans are the most most generous people in the world..
And it’s my belief that the death of social security is greatly exaggerated for todays retirees. The federal government has the ability to draw from other sources of revenue to keep providing full benefits to all participants for another 20 years according to the consensus of expert opinions. I have faith Congress is likely to pass legislation to keep it funded beyond that.
I don’t have all the answers, but in the meantime, please keep the government out of my back pocket.
“I see no other country where people risk their lives to enter”
I’m sorry, but that is incorrect. People risk their lives, and not infrequently lose them, attempting to enter the European mainland, and the UK. North Koreans risk their lives to reach South Korea.
“Americans are the most most generous people in the world..”
They may be individually the most generous, I don’t have data on that, but when it comes to government assistance I very much doubt it. That is why we don’t have universal health care and life expectancy is the worst in the developed world. When it comes to Social Security the right wing of the Republican Party wants to end it altogether.
Regarding doubts about the statement “Americans are the most generous people in the world.
If you do doubt that, consider the Marshall Plan that helped rebuild a devastated Europe after World War II.
Whenever there is a famine somewhere in the world, where does most of the food aid come from with no strings attached? Hint: Not from China, Russia, or North Korea.
I’m not aware of any example of a nation today, or at any time in history, that has been as generous as America.
I don’t think you can gauge a nation’s generosity solely by the entitlement programs it offers its own citizens. Yes, government must seek to improve the lives of its people. But that is not a sign of generosity as much as government doing its job. In my opinion, generosity is viewed from the outside.
Coincidentally, I have been listening to a lecture series on the History of Western Civ, which has just reached the post-WWII era. According to the (American) lecturer the Marshall Plan was one of the first moves in the Cold War, designed to keep western Europe out of the Soviet bloc. I believe both the French and Italian Communist Parties were doing well at the time. It also created markets for American goods.
Kathy…I do respect your opinions, but don’t share your views. Much is made of the fact that your pension it’s not cola’d. Our cash balance statement not not only does not receive cola, it does not receive any interest either. Once the payouts begin, the balance remains stagnant. We lose 10 years growth to inflation, no interest and no cola.
we are all not so fortunate as to get everything we feel we should be getting.
I understand your frustration coming to ing from a different country. I don’t believe Republicans want to end social security. It would be their death knell and I don’t think they eat children either. We shall agree to disagree on politics with civility and respect.
I don’t think government assistance equates to generosity. It’s a matter of trading higher taxes – hence lower disposable income – in various forms for transfer payments similar to Europe and Scandinavia. You can’t have generous social programs and not pay for them which seems to be what the U.S. is trying to do.
You don’t think that a willingness to pay higher taxes to benefit society as a whole is a sign of generosity?
No. I am generous with my own money. I am not generous with other people’s money. People who say they are willing to pay higher taxes are people who often have enough money to sheild their money from the tax man (in the forms of trusts and paying accountants to find the loopholes which always exist in the tax laws.)
Sorry, I really don’t. When people pay taxes or when they are increased they expect what they are “entitled to.” Perhaps more than their taxes actually paid for. SS and Medicare are good examples. Listen to the complaints about the 2024 COLA being unfair and inadequate even while there are no funds to pay for it.
Social Security is not going anywhere and benefits will not be reduced. Even in the worse case incoming taxes will fund most of promised benefits. It cannot go bankrupt as sometimes claimed.
‘Under the law SS is self-funding and other government revenue cannot be used to pay benefits.
It’s so easy to fix. A combination of relatively modest changes do the job for the next 75 years. The question is, why has one Congress after another ignored the Trustee warnings for decades to fix the finances of the program.
“The question is, why has one Congress after another ignored the Trustee warnings for decades to fix the finances of the program.”
Politics.
“in the worse case incoming taxes will fund most of promised benefits. It cannot go bankrupt as sometimes claimed.”
While it’s true that Social Security isn’t at risk of going bankrupt any time soon, if our dysfunctional elected representatives of both parties don’t set aside their partisan differences and come together to “fix” the Program’s finances within the next few years, the projected benefit cut could be between 18% and 25%. I don’t believe that SSA Beneficiaries who might have to live on only 75% to 82% of their previously promised payments would call that ‘fund(ing) most of promised benefits’. Such an unfortunate circumstance would likely pose a serious financial obstacle for many of them.
What’s especially frustrating is that, as you correctly noted, a combination of relatively modest changes would shore up Social Security’s finances and stabilize the system for several decades.
I used to be much more optimistic that the folks we send to Washington DC would come together to avert what would truly be a “fiscal cliff” for retirees. Now I’m much less certain that will happen. I’m not a betting person, but if I was, I’d say the current odds are about 50-50 that a viable solution is implemented before time runs out. I really hope I’m being too pessimistic and end up being wrong about that.
I sincerely hope the current conventional wisdom that says “Congress would never let Social Security funding deteriorate to where the Program isn’t able to pay promised benefits” ultimately prevails.
Interesting ideas Dick. Thanks for sharing.
I especially like streamlining and simplifying retirement vehicles. We have so many vested interests in the current mess that this probably will never happen.
“Adequate income for a growing older population will have to be paid for one way or another.” Paying for stuff…. What a concept!
I (born and raised in the UK) can only conclude that Americans are in love with complexity – or at least that their political system generates it. The retirement system is a mess, the taxation system is a bigger mess and the health care non-system is a disgrace. Sadly, I don’t see any prospect of improvement, as any suggestion that actually helps people is likely to be met with cries of “socialism”, which has become a meaningless epithet.
However, I believe that a requirement to “opt-out” rather than “opt-in” to 401Ks has had some beneficial effects.
BTW, I believe you are quite right about corporations. The mega-corp I worked for got totally out of the pension business this year. Remaining pensions were replaced with annuities. While the companies chosen look solid, I now have a lesser state guarantee replacing the PBGC.
Hi, I’m half Brit and my partner is English. I know the UK better than most Americans and can tell you that we in the US who truly understand the American psyche do NOT cotton to the very feudalistic notion that the “state” must take care of it’s citizens. That’s one of the most significant differences between the European mentality bourne out of feudalism (no wonder communism is a European construct) and that of the US (which is a rejection of paternalism and a robust recognition of the the individual above all else.)
That is not feudalism. It is a belief that we are all in this together, and if we don’t take care of each other we wind up with Hobbes’ “nasty, brutish and short”.
I find it surprising that a country that is so vocal about being Christian has apparently overlooked the actual message of the New Testament.
Americans have unique ways of looking at health care and retirement. They don’t think they should pay for healthcare at the point of service, but don’t like insurance or want universal coverage, at the same time they don’t realize we live in one of the lowest taxed countries.
Americans generally aren’t preparing for retirement, but just suggested higher taxes for higher SS benefits and see what happens. In short, we have our collective heads in the sand.
On the other hand, my friend in England who is retired and pays nothing for the NHS is convinced what he has is “free.”
And we wonder why people are confused? I just read this on MarketWatch
“Social Security’s COLA is great news for beneficiaries. It will help them keep up with rising costs. Unlike Social Security, the value of private savings — like 401(k)s and IRAs — erodes over time. Most pensions aren’t adjusted for inflation, either. Social Security is the only form of retirement income that keeps up with inflation,” said Kathleen Romig, senior policy analyst at the Center for Budget and Policy Priorities.”
Isn’t the growth in investments offsetting inflation? Doesn’t the 4% rule adjust withdrawals based on inflation?
Don’t forget that many large and well funded lobbying groups favor these complex retirement systems – investment managers, CPA’s, insurance sellers and lawyers. Elected officials are often sourced from these backgrounds. My take is that retirement structures are not going to get more simple, so we continue to need Humble Dollar and Boglehead type articles on the best strategies to manage finances within the complex systems.
Ted Benna, who is sometimes credited with inventing the 401K, says it has gone awry:
https://www.barrons.com/articles/the-inventor-of-the-401-k-thinks-it-has-gone-awry-1542413142
Likewise, Teresa Ghilarducci is a leading expert on the many issues with 401k(s) and US retirement structures. Google her name for many articles aligned with this posting.
These ideas are good in theory, but the reality is that the Federal government is increasingly less efficient at getting anything done. Can’t even keep a Speaker of the House seated, let alone address the border crisis. Embarking on a new program and shuffling the bureaucracy to “streamline” the retirement system would have many unintended consequences under current political conditions.
You have a valid point Ken, I wonder what it will be like as the older population grows and becomes more dependent on … ? Fill in the blank, government, taxpayers, family?
Or, the inability to retire creates an employment log jam.
In the future, for many, maybe most Americans retirement will be little more than a theory as well.,
The ability to make SS sustainable makes your point.
I would caution against: 1) declaring that things today are worse than in the past; and 2) that the government is less efficient than any other large organization. Would you really want to have the life that existed 50 years ago — less sophisticated health care, no internet, more pollution, etc., etc.? And if you’ve ever worked for a large corporation, are you going to claim it was a model of efficiency? That certainly wasn’t my experience, with constant changes in corporate strategy and endless meetings that went nowhere.
I embraced the Internet back when it was bitnet. I bought my first plane ticket “online” via Comperve in 1988. I was using ftp for then large quantities of image data in 1991. I wrote my first website in 1995.
Last week I used ChatGPT to write a job ad. It got perfect in seconds what would have taken me at least 1/2 hour.
Would I be ok returning to pre-Internet days? Yes.
I’m typing this on my phone, but on this the point of the Internet, yes, turning back the clock would be good for all of us.
But synthetic monoclonals? Wow, this is an incredible medical techology we need to keep!
No internet, you say? Sign me up. Yes, I acknowledge the irony of saying that whilst typing this on the internet. I think it’s been a net negative. The Amish were right.
It may be debatable as to whether things are worse today. However, things today are definitely much more complex than 50 years ago, and most people are overwhelmed by that.
I agree and I hope that’s true for people looking back in 2050.
Great article but individuals think little about the big picture and the people in Washington think even less.
I agree. They think even less about the long term which is what retirement planning is all about.