Here's the Real Reason Why Americans Can't Afford to Retire
Hint: it has very little to do with #grinding.
By Paul Blest and Judy Cai, More Perfect Union
Everyone knows that retirement in America is in crisis. The National Council on Aging found earlier this year that nearly half of all adults over the age of 60 had an income below the standard needed to afford basic needs, and tens of millions of households with older adults are financially struggling.
So who’s to blame?
Conservatives like Peter Thiel and Ben Shapiro have blamed Social Security and demanded it be reformed to provide fewer benefits to fewer people. “You have the fiscally unsustainable reality that is Social Security, a giant pyramid scheme with an aging population,” Shapiro said in October. “Everyone knows we're going to have to radically increase taxes or radically reduce benefits in the next few years.”
After they can’t work anymore, Americans rely on three things: Social Security, whatever they have saved, and retirement benefits. In the past, those benefits were usually pension—defined benefit plans where companies set aside an amount of money each month to pay retirees. It’s a major reason why workers stayed at companies like Ford and General Motors for their entire careers.
In the 1980s, however, companies began moving away from pensions in favor of 401(k) plans, which are cheaper for employers. These plans require workers to pay into their own retirement each month, which their employers may or may not match. Corporations quickly jumped on board, seeing an opportunity for savings.
The result is that just 15 percent of private sector workers have a pension today, and even at the big automakers, the prospect of retirement is looking a lot different for workers like Sara Schambers than for her mother Sherry, who retired from Ford with a pension.
“When we hired in, we knew that we weren't getting a pension, and we knew that we weren't getting healthcare when we retired,” Sara told More Perfect Union. “But why should it be any different between me and my mother?”
Even though 67 percent of workers have access to a 401(k), less than half of those workers opt in, and many — primarily lower-income people — are forced to dip into their retirement savings in emergencies. “Not only does the worker in a 401k model have to decide whether or not to be in a retirement account, but that worker also has to decide how much to put in the account,” says Teresa Ghilarducci, a labor economist and expert on retirement security.
Between Social Security and the loss of pensions, retirement looks a lot more precarious than it used to. But now, federal and state policymakers are floating ideas to shore up retirement for Americans for the next several decades, including taxing income over $250,000 to boost benefits for everyone.
To learn more about how retiring in America got so difficult, and what advocates are doing to try to expand benefits — and make sure people don’t work for the rest of their lives — check out our video.
My aunt grew up during the Depression and worked hard all her life, as a kitchen worker at a yacht club, as a seamstress, at whatever she could find. She retired on social security, She never would have put it like this, but what I tell people is that she thinks that FDR sits at the right hand of God and advises God on social welfare. I don't know what she would have done otherwise.
A reminder that teachers in 13 states and Washington DC are not eligible for Social Security. (Alaska, California, Colorado, Connecticut, Georgia, Illinois, Kentucky, Louisiana, Maine, Massachusetts, Missouri, Nevada, Ohio, Rhode Island, and Texas.)
The passage of WEP/GPO will help some of them, but remember that most teachers are women, who statistically earn less over their careers, take unpaid leave to raise children and provide care to family members and live longer. Social Security may not be a lot, but it's an essential backup, given that defined benefit plans are meager in some of these states.