The Safety Net, Part I

THOSE WHO MAKE A CAREER OF SERVING OUR NATION in the armed forces know that they are earning a nice retirement as they do so. Men and women who serve 20 years can retire with half the rate of pay they were earning at the point they retired, for life — and if active-duty people get a raise, so do retirees. Those who serve 30 years receive 75 percent of their rate at retirement, and the few who actually put in 40 years of service receive their full pay at retirement for the rest of their lives.

These facts raise few eyebrows among taxpayers. People who wear the uniforms of our armed forces put their lives, bodies and sanity at risk for our nation, and providing a comfortable retirement for them and their families seems only fair.

In the years before the advent of 401(k) plans and other tax-deferred retirement savings plans, the majority of American workers had what were called “defined benefit” plans, so that retiring after years of service to one company would result in a guaranteed monthly income that was not subject to the ups and downs of Wall Street. This was part of an implicit deal between workers and management: You gave the company your prime years, and in return the company provided for your retirement.

401(k) plans were sold as a way to “give the worker the power to manage his own retirement” and thus get out from under the grip of paternalistic corporations. What it really was was a way for the management class to relieve itself of its responsibility for its workers, and as a bonus earn Wall Street hefty fees for managing all those new investments.

In an editorial on Nov. 17, the Washington Post editorial board posited the following:

(T)he poverty rate among the elderly is 9.1 percent, lower than the national rate of 15 percent — and much lower than the 21.8 percent rate among children.

“This suggests that Social Security is doing a good job of fighting poverty as is and that those gains could be preserved in any attempt to trim the program. … (I)f anyone has a claim on a greater share of federal resources, it would seem to be the young — and especially the poor young. Unchecked entitlement spending for the elderly crowds out spending on programs that might help them, as well as defense, research, infrastructure and law enforcement.

My new favorite Democrat, Massachusetts Sen. Elizabeth Warren, did not mince words on the floor of the Senate in her response to the editorial:

No retirement crisis? Tell that to the millions of Americans who are facing retirement without a pension. Tell that to the millions of Americans who have nothing to fall back on except Social Security. There is a $6.6 trillion gap between what Americans under 65 are currently saving and what they will need to maintain their current standard of living when they hit retirement. $6.6 trillion — and that assumes Social Security benefits aren’t cut. Make no mistake: This is a crisis.

The call to cut Social Security has an uglier side to it, too. The Washington Post framed the choice as more children in poverty versus more seniors in poverty. The suggestion that we have become a country where those living in poverty fight each other for a handful of crumbs tossed off the tables of the very wealthy is fundamentally wrong. This is about our values, and our values tell us that we don’t build a future by first deciding who among our most vulnerable will be left to starve.

Preach it, Elizabeth.

I think it is time to acknowledge the obvious: for the vast majority of workers, 401(k)s have been a failure. According to Forbes magazine:

Our national demographics, coupled with indisputable, glaringly insufficient retirement savings and human physiology, suggest that a catastrophic outcome for at least a significant percentage of our elderly population is inevitable. With the average 401(k) balance for 65 year olds estimated at $25,000 by independent experts — $100,000 if you believe the retirement planning industry — the decades many elders will spend in forced or elected ‘retirement’ will be grim.

It is often pointed out that Social Security was not designed to provide anything like a generous retirement, but more to prevent the abject poverty that used to be relatively ordinary among seniors.

Less often mentioned is that Social Security’s designers assumed the defined-benefit pensions I mentioned previously would do the heavy lifting of providing a comfortable retirement — and for decades they did. But since that is no longer the case, and since 401(k)s and other “defined contribution” plans have utterly failed to replace them, I think it is time to look at some alternative solutions.

I mentioned the military retirement system at the beginning of this column, where years of service determines how much you get; more service means more money. That might serve as a template for any adequate national pension system.