Oct 7, 2011
How things have changed. In 20 short years, we have gone from shopping until we drop to having to work until we drop. It is evident that changes in demographics, the economy and our mutual lack of individual and governmental fiscal discipline are likely to change retirement significantly for all of us. Soon, we will wish Pfizer had invented a pill to prolong productive life rather than active life.
Already, roughly one out of six retirement-age people is in the workforce. Some of these older employees are working by choice; however, the vast majority of our working grandparents and parents are likely standing on their feet greeting people or taking fast-food orders against their druthers. A minimum wage job can double the annual income of the average Social Security recipient. It is not professional curiosity or loneliness that drives many retirees to work—it is economic survival.
We have known for years that Social Security would one day prove unsustainable due to how it is funded, and inadequate in terms of the retirement it supports. In 1997, the U.S. Government Accountability Office published a report to this effect titled “RETIREMENT INCOME: Implications of Demographic Trends for Social Security and Pension Reform.” This document has proven to be highly accurate. Its most prescient line: “Ensuring that Americans have enough retirement income in the twenty-first century to meet their needs will require that the nation and the Congress make some difficult choices.”
The 1997 GAO report also correctly points out that, “Social Security has been an effective agent for ensuring a reliable source of income in retirement and greatly reducing poverty among the elderly.” The importance of Social Security as a ‘reliable source of income’ is bolstered by the untimely failure of the financial market just as the largest group of retirees in our history heads over the Rubicon. Clearly, we do not want the only safety net to be private investment in the stock market.
So, how do we fix Social Security?
The two largest challenges facing Social Security are the looming increase in retirees and the decrease in the ratio of workers to retirees that this will cause. The number of retirement-age people will double in the next 25 years to just over 78 million, or a quarter of the population. As a result of this demographic shift, the number of workers per beneficiaries will decline in the same period from 4-to-1 to 2.5-to-1. It will not get easier to fund retirements from the earnings of contemporaneous workers—it will get harder.
There are three simple answers to the Social Security crisis: add more workers (more payees), raise the retirement age (less retirees), and/or boost wages through productivity (more revenue). The first requires supporting immigration and promoting larger families. The second requires changing our aging populace’s expectations about retirement. The third does not have much to offer. We have done about all we can in terms of productivity. The world is not going to allow us to raise the wages of our workers much.
Fixing Social Security comes down to having the political will to be pro-immigration and pro-family and to present a displeasing reality to the greying herd about their elusive retirement date. Unfortunately, Washington seems as short on political will these days as it is on cash. So, we have a stalemate where we need hard decisions.
There is one group that I would like to hear be more vocal about raising the retirement age. That is the professionals who have had the opportunity to work in fields that are highly compensated, such as politics, investment banking and higher education. Yet, these sectors seem more focused on early retirement in order to pursue personal endeavors. This is not the time to accentuate abstract personal needs—not when so many are struggling to cover the basics.
Let’s face it. Social Security is not going out with a bang; it is sticking around with a groan. That is the noise politicians make when they finally do the right thing. It is also the noise old bones make at work—where they will be staying longer. It is time to be honest with ourselves: Retirement is not a date, but an affordable percentage of life. It is also something society must support.