Good-bye Golden Years

As noted earlier, we Americans aren't living as long as we could. However, we are living longer than we used to. Currently, we can expect ten years of retirement or more. But the security of that retirement is increasingly under threat.

In 2010, Social Security, perhaps the most popular of all government programs, celebrated its seventy-fifth anniversary. Most Americans can still expect to receive Social Security when they retire, but that money only goes so far, making up 30–40 percent of the income lost upon retirement. Retirees have had to supplement their Social Security with private pensions.

After World War II, most companies and government agencies began putting people on pension plans, deducting a small amount from their salaries to ensure a defined benefit payment after retirement. As with Social Security, working Americans had a good idea of how much they'd receive from their pensions.

In 1974, Republican senator Jacob Javits introduced the Employee Retirement Income Security Act. Its passage insured privately financed defined benefit plans and guaranteed that workers would receive their full pensions when they retired. ERISA was a law workers could applaud. With it, they felt far more secure. Only a generation ago, 80 percent of Americans could count on defined benefit plans to provide for them in old age. Today, less than one third of workers are covered by such plans.24

More of them now have 401(k) plans, which make defined contributions into pension plans that are invested in the stock market and rise and fall with it. An early hallmark of the Ownership Society, such plans were lauded as giving workers more control over their retirement and more opportunity to strike it rich as the stock market climbed in value.

But, as Jacob Hacker points, out, the plans were “dirt cheap” for employers, whose contributions to them were cut drastically from what they had been under the defined benefit plans. And the plans were risky. Sometimes, as in the case of Enron and WorldCom, the money was invested in the company's own stock. When these companies went belly up, workers saw near total losses of their pension savings. Hacker tells of one WorldCom employee who built up almost $1 million in his 401(k). After WorldCom's bankruptcy, precipitated by the illegal activities of its CEO, the employee received a final retirement check for $767.14!25

Worse yet, as defined contribution plans became the rage, fewer companies offered any pension plans at all. And cutbacks in Social Security benefits actually resulted in an 11 percent drop in retirement wealth for the median family between 1983 and 1998, a time when the stock market was soaring.26 During the same period, the American personal savings rate fell from more than 10 percent of take-home incomes to less than 4 percent. Today, at least 60 percent of American families feel unprepared for retirement. Millions more are overly optimistic about their own retirement prospects, not accurately estimating the amount of money they'll need when they stop working.

Michael Pennock, the statistician from the Vancouver Island Health Authority who developed Bhutan's happiness survey, recently returned to Canada from a visit to the Oregon coast. “It's just amazing for us Canadians to see the number of senior citizens, some of them very old, who are working as clerks at Walmart or McDonald's or other stores in the United States. You don't see that here in Canada. People that age have pensions to provide for them.”27

Despite all this, when President George W. Bush announced his plans for the Ownership Society in 2004, a key plank was the privatization of Social Security. Conservatives claimed the Social Security system was near financial collapse, even though it was running a surplus that Republicans wanted to draw from to finance new tax cuts. Bush advocated shifting Social Security contributions into 401(k)s. Fortunately, public opposition stopped the idea in its tracks. We can only imagine what the retirement situation would look like for millions of Americans had their Social Security contributions evaporated in the stock market crash of 2008. But that hasn't stopped the Right from continuing to advocate privatization.

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