Certain online programs should have a built-in laugh track. Chief among these are the countless “retirement savings calculators” designed to help us determine if we’re saving and investing properly for retirement.
Go ahead. Google the term and then plug in your numbers. If you’re like most of us, the results may make you cry — or laugh madly. This includes many who are gainfully employed and have contributed regularly to a 401K or an IRA.
Bottom line: Many of America’s Baby Boomers (and those of generations to follow) are woefully unprepared for retirement. I’ve been beating this drum for some time — see links to posts below — so I shall not belabor the details.
Cutting Social Security
Although these challenges are well-known, the current mantra on Capitol Hill is that we should cut Social Security benefits by reducing payouts and raising the ages for individuals to be eligible to collect.
These measures are urged because the Social Security Administration has projected that by 2019 it will be “paying more in benefits than we collect in taxes,” and by 2041 it will have sufficient funds “to pay only about 78 cents for each dollar of scheduled benefits.”
However, as other policy analysts have noted, the projected funding gap can be addressed fairly and cleanly by raising the income cap on payroll taxes. Currently the top 6 percent of income earners pay FICA only on the first $106,800 of their income. By removing the cap, the Social Security fund will be able to pay full benefits for everyone and rebuild its surplus.
How about raising Social Security?
But even a fully funded Social Security system will not be sufficient to ease the coming pain, when countless aspiring retirees look at the cold reality of a modest monthly check and sparse retirement savings.
Amidst the clamor of calls for belt-tightening, labor lawyer Thomas Geoghegan — one of our most thoughtful social and political commentators to boot — proposes raising Social Security benefits in a recent New York Times op-ed piece (link here):
…I cringe when Democrats talk of “saving” Social Security. We should not “save” it but raise it. Right now Social Security pays out 39 percent of the average worker’s preretirement earnings. While jaws may drop inside the Beltway, we could raise that to 50 percent. We’d still be near the bottom of the league of the world’s richest countries — but at least it would be a basement with some food and air.
Geoghegan is enough of a wonk to spell out how to raise the extra money, including removing the payroll tax cap, accessing estate tax revenues, and other measures.
What’s at stake
But the main message we should be sounding is what prompted Geoghegan to write in the first place, that is, the importance of providing a decent public pension to the elderly.
In 2004, conservative economist and retirement investment guru Ben Stein wrote these words in a personal finance column (link here) that have stuck with me:
It is fine to have no money when you’re young. It is not fine to have no money when you’re old. It is even fun to be poor when you’re in college or right out of it. But to be retired and in your 70′s and not know how you are going to pay your bills – that is terrifying. In fact, it’s a grotesque nightmare.
What is life like if you are old, weak, tired, not in great health, lonely and have no money? You are miserable, and you are in fear and you are gaunt on the inside.
I may not agree with Stein on many things when it comes to politics, but there is a deep ring of truth to these words. We need to harness our better natures and find a way to tackle this challenge in a humane way. A solvent and responsibly generous Social Security system can be a big part of the solution.