So is there a retirement crisis or not? House Budget Committee members and experts who testified before the committee on May 15 did not agree. But at least they did concur on one thing: the need to take action to bolster the retirement readiness of those who are not well-prepared.
Testifying before the committee at its hearing “Keeping Our Promise to America’s Seniors – Retirement Security in the 21st Century” were Ann Marie Cook, President and CEO, Lifespan of Greater Rochester, NY; Melissa Favreault, Senior Fellow at the Urban Institute; and Andrew Biggs, Resident Scholar at the American Enterprise Institute.
“The problem grows more pressing by the day,” said Chair John Yarmuth (D-KY), setting the table in his opening remarks for a discussion that was at times pointed. Ranking member Steve Womack (R-AR) struck a similar tone, saying in his opening remarks that improving the situation “is a goal we all share.” But in an almost-premonition of the tone the hearing had at times, Womack added that the differences lie “in how we get there.”
The Third Rail
The hearing included extensive discussion concerning Social Security.
Rep. Stewart (R-UT) related a study in which more respondents said that they believe in UFOs than believe that Social Security will be there for them when they retire. Stewart said he thought that view was “not foolish” because Social Security’s survival is “mathematically impossible” if no action is taken to fix the situation. He also called it “nuts” to consider Social Security to be the “third rail” of American politics, something so sacred that the mere discussion of any change to it is foolhardy to pursue. He said that it is his experience that people can handle such a discussion and that they want something to be done.
Biggs took issue with the assessment regarding the likelihood of Social Security’s long-term vitality, saying that it is “not correct.” He told the committee that as long as Social Security is still taking in money, it will be able to pay benefits. The crucial matter, he indicated, is whether the Social Security Trust Fund runs out. If that happens, Biggs said, then the system will provide smaller benefits.
How much smaller? When asked by Rep. Robert Scott (D-VA), Biggs said that if the Social Security Trust Fund goes broke, the system will provide 80% of the benefits it does now. Rep. Sheila Jackson Lee (D-TX) argued that a 20% drop in Social Security benefits would be a real hardship to many people, and asked Cook — whose organization provides services and assistance to elderly people in Rochester, New York state’s third largest city — what effect that would have on the people Lifespan serves. Cook responded that she “can’t imagine that some seniors would be able to survive” a 20% cut to their Social Security benefits, and that it would “force choices between prescription drugs and food” for some.
Rep. Daniel Meuser (R-PA) asked Biggs what he thought about the Social Security 2100 Act (H.R. 860, which Rep. John Larson (D-CT) introduced on Jan. 30 and is now before three House committees: Education and Labor, Energy and Commerce, and Ways and Means). Biggs responded that it would be a “more than 100% tax increase.” He added that in his view, “Realistically, that’s not going to happen.”
And what of eliminating the Social Security cap, Womack asked Biggs. The AEI resident scholar responded that doing so would not be in the spirit of the balance the program’s originators intended, and that “Scandinavian levels of taxation” would result if the Social Security cap were taken away. Doing so, he said, would transform Social Security into a form of welfare and a means of redistribution; in addition, Biggs suggested, such a change could imperil the firm support Social Security has enjoyed for more than 80 years since that support is premised at least in part on its being seen as an earned benefit.
But at least members and witnesses concurred about taking action to bolster Social Security in some way.
“Social Security is the bedrock of the U.S. income security system. We must shore up its finances,” said Favreault. Stewart expressed the belief that “we can fix this” and fellow committee member Joseph Morelle (D-NY) remarked that “a promise made should be a promise kept.” Biggs remarked that it is “always better to do this sooner than later” and stressed the need for bipartisan action.
Beyond the Third Rail
The problem “goes deeper than demographics and problems with federal programs” such as Social Security, said Yarmuth in his opening remarks, adding that many households have not fully recovered from the Great Recession. He called Social Security “a pillar” of support for retirees, but added that it was never meant to be their only support.
Womack suggested that we have “gotten away from the original conception of Social Security” and asked Favreault why that is. She attributed it to a variety of factors, including low lifetime earnings, the way skills are distributed across the population, and the fact that some people must take time out from earning and contributing to the Social Security system in order be caregivers to family members or to pursue education. Favreault in her testimony said that “Decades of income stagnation and high levels of inequality in health risks have compounded” the challenges to saving for retirement and that efforts to shore up Social Security “must account for persistent disparities in retirement and disability and the effects of increasing inequality in earnings, wealth, and longevity in recent decades.”
Biggs called retirement saving “an exceedingly important topic,” but disputed the notion that there is only bad news about it. “Unfortunately, there is a great deal of ignorance with regard to the adequacy of Americans’ retirement savings. I mean ignorance literally: there are a great many facts and datapoints on U.S. retirement savings and retirement incomes of which many elected officials are unaware, in part because the news media receive a higher click count for stories on a supposedly looming ‘retirement crisis’ than for articles acknowledging that, in fact, things are going fairly well,” said Biggs in his testimony.
Few people know that more people are saving for retirement than ever before, Biggs told the committee, adding that U.S. Census Bureau figures show that the percentage of retirees living in poverty is down, and that net assets are six times higher today than they were during the period in which defined benefit plans were the predominant way to finance retirement. “We need to build on our successes,” said Biggs.
“The real world that I deal with and my constituents deal with is very different,” said Rep. Janice Schakowsky (D-IL), vigorously disputing Biggs’ contentions regarding the state of retirement readiness. “We can have a war of statistics,” she said, disputing the worth of averages due to wealth disparities and calling them “numbers that don’t reflect what ordinary Americans face.”
Rep. Pramila Jayapal (D-WA) also pressed Biggs on current income disparities; he responded that there also were income disparities in the 1930s when Social Security began and that 90% of earnings were subject to the Social Security tax at the program’s outset, only slightly higher than today’s level of approximately 85%.
Biggs did cite challenges to retirement saving and preparedness. For instance, he noted that small employers are much less likely to offer 401(k) plans to their employees; Favreault in her testimony struck a similar note, testifying that “for many, employer-sponsored retirement plans and Social Security complement one another, but access to such plans is not yet universal.”
Biggs also noted that health care costs can vary considerably and that “governments at all levels need to get retirement funding in order.” But “it’s not just job loss and health,” he added; Biggs also questioned setting a younger age at which Social Security benefits can be claimed.
“I’m not saying that there are not problems,” Biggs said in response to a question from Yarmuth, but that they “are not as severe as some people are saying.”