We are headed for a catastrophic retirement train wreck. A Wall Street-driven financial crisis has stripped millions of people of things like jobs, pensions and home equity that were supposed to deliver a dignified retirement after a lifetime of hard work. The crisis has also provided certain interests the opportunity to make false claims about the “unaffordability” of vital social insurance programs like Social Security and Medicare that help the 99% make it. These opportunistic “Raiders of Your Lost Retirement” do not give a hoot if you starve in your golden years – this is about money to them. American financiers hate Social Security, for example, because they want to push us toward private retirement accounts on which they can charge fees. A large swath of the wealthy does not like Social Security and Medicare because they do not like to pay taxes.
You might think Obama would be on the side of the citizens on this one. But it seems that the President will officially propose this week to cut Social Security and Medicare as part of his annual budget, despite the fact that this move would be economically irresponsible, socially disruptive and morally repugnant. Here are seven things that should make Obama tremble before he dares to announce such a betrayal of the American people.
1. Retiring on thin air: In a recent report by the Employee Benefits Research Institute (EBRI), we find that a whopping 57 percent of American workers have managed to put away less than $25,000 for retirement – less than the one year’s annual income for the median American adult. In 2008, that number was 49 percent, and the problem is getting worse every year. Half of American workers are either “not too confident” or “not at all confident” that they will be able to make ends meet in their retirement. In her must-read New York Times op-ed, economist Theresa Ghilarducci doesn’t mince words – or numbers. She estimates that close to half of middle-class workers will be poor or near poor in retirement and reduced to living on a food budget of about $5 a day. That won’t even buy a decent bag of cat food.
In the face of this bleak picture, the President appears to be poised to propose a cut to Social Security in the form of a “chained CPI” – a way of calculating annual cost of living increases that does not keep up with the actual costs senior have to pay. Economists including Dean Baker, co-director of the Center for Economic and Policy Research in Washington, have discredited chained CPI. Baker warns that it can cost retiring 65-year-olds the sum of $650 per year, and that number can leap to twice that amount once seniors reach 85.
2. Pension perils: American workers like pensions better than higher incomes, more vacation time and bigger bonuses. And it’s no wonder: retirees with pensions have far more income security than their pension-less counterparts. In 2011, one out of three older adults enjoyed some form of pension, but thatnumber has been shrinking for decades. Since 1985, 84,350 pension plans have vanished. Corporate pensions have gone the way of the dodo bird and the precious few private pensions that remain are in jeopardy. Public pensions are the targets of cynical austerity hawks who use the excuse of state and municipal budget crises that have little to do with pensions (and much to do with Wall Street) to make war on workers’ retirements.
This puts an added strain on retirees, and we don’t yet know how catastrophic it’s going to be because many affected by the pension killing-spree will not retire for many years. But we surely know this: pensions have been a vital part of retirement that have kept retirees afloat, and without them, more will sink into poverty.
While we’re on the subject, it may interest you to know that the President will receive a pension that will start at around 200k per year after his second term, and it will go up from there. That’s just the beginning – other perks include travel, office expenses, and so on. And yet he is preparing to make it more difficult for those Americans without pensions to survive. Something wrong with this picture?
3. The 401(k) catastrophe: It’s high time to face it: the 401(k) experiment, which started in the 80s, has been a complete disaster. 401(k)s don’t even come close to providing the retirement security promised to workers. To expect Americans to morph into finance experts who can evaluate mutual funds and stockmarket choices may be one of the most absurd legacies of the last three decades. And, as Helaine Olen outlines in her book Pound Foolish: Exposing the Dark Side of the Personal Finance Industry, people trying to save for retirement have become a prime target of hustlers who push mutual funds with hidden fees and needless charges which pile up and rob the contributor of hard-earned money.
And lest we forget, Enron, like many other companies, put strong pressure on employees to invest in the company’s stock. Result? Many employees lost most of their life savings when the company blocked workers from selling its stock held in 401(k) accounts, just as the stock price was taking a downward plunge.
401(k)s are volatile, complicated, expensive, and inadequate. Social Security, on the other hand, is simple, fiscallly sound, and prudently managed.
4. Political games don’t wash: Social Security raiders tell us that the program needs to be “fixed,” with very little to back up their claims. There is nothing wrong with the program now, so they forecast – and let’s remember how good these same people were at forecasting the financial crisis – some kind of future crisis.
Here are the facts: According to the trustees of the Social Security trust fund there might be a shortfall in revenues against predicted claims in 2033 ifeconomic growth is not good. You could reasonably argue that a tweak ought to be made a couple of decades down the road when we actually know how things stand, like making the rich pay Social Security taxes on the money they make over the current low ceiling of just over $100,000.
There is no justification for doing anything now, and the raiders know it. So they make things up. Economists Thomas Ferguson and Rob Johnson note this in their article, “From New Deal To Raw Deal: The Real Economics Of Cutting Social Security.” They observe that Peter Orszag, the former head of the Obama administration's Office of Management and Budget, who now works at Citigroup, has admitted that Social Security has nothing to do with any budget crisis:
“The first yellow flag is Orszag's frank acknowledgment that Social Security features barely at all in any putative budget short fall: ‘Social Security is not the key fiscal problem facing the nation. Payments to its beneficiaries amount to 5 percent of the economy now; by 2050, they're projected to rise to about 6 percent.’”
Orszag knows the truth, but because he is aligned with the interests of financiers, he comes up with a stunning justification for making cuts:
“As Orszag frankly confesses, ‘even though Social Security is not a major contributor to our long-term deficits, reforming it could help the federal government establish much-needed credibility on solving out-year fiscal problems.’"
In other words, politicians have to cut Social Security not because it has any negative impact on the budget, but to prove to the markets that they can. How’s that for logic?
5. Americans oppose cuts: The American people have made it abundantly clear that they do not want Social Security and Medicare cut. And yet the President has made your retirement a bargaining chip in budget negotiations with Republicans, smuggling the cuts through the customs of specious arguments about “the need to govern” and so on. Let’s call this what it is: immoral. The social insurance that provides hard-working Americans protection against financial and health calamities should not be a bargaining chip any more than civil rights should be a bargaining chip. The dignity of our elderly, not to mention the health of our children and vulnerable citizens who rely on these programs to live, are part of the fundamental structure of a decent society and are essential to our economic prosperity. How, for example, is a person at peak working age to remain fully productive when she has to care for elderly parents who can’t make ends meet?
A more cynical view of what’s happening is that Obama is paying off his wealthy donors. A political scientist I know warned me when Obama was elected the first time that he would do very little on financial reform because Wall Street had always been one of his major funders. That same political scientist warned me this time around that Obama would make cutting entitlements a priority in his second term for much the same reason: a coalition of big business interests supported his reelection, and this is what they want in return. If Obama goes through with these cuts, he will have spelled out for all those who supported him exactly who he represents.
6. Means-testing Medicare is discredited: Reports say that Obama will propose to cut $400 billion from Medicare over the next decade. One idea that may appear in his plan is means-testing, a notion that has long been the golden dream of those who hate Medicare and Social Security because it tends to diminish political support for the programs.
A few months back, when a lot of Democrats and liberals were touting means-testing, I decided to ask several prominent economists, including a Nobel Prize-winner, to explain to me what they make of it. Please turn your attention to: “6 Reasons Joseph Stiglitz and Other Top Economists Think Means-Testing Medicare and Social Security Is a Destructive Idea.” Their conclusion: means-testing is nothing more than a back-door strategy for taking away benefits earned by hard-working people. As Stiglitz explained, it undermines progressive values by going against notions of fairness and shared citizenship while promoting the false idea that Social Security and Medicare are welfare, which they aren’t. As James Galbraith explained, these programs are not charity; they are social insurance.
“We don’t means-test public education,” Stiglitz told me, “because we believe that we want people to have the same opportunities and we lose out on that with means-testing.” Shouldn’t that go for dignified retirement and adequate medical care in old age? Stiglitz thought so.
Healthcare costs are a terrible problem, but not because your grandmother receives benefits. The problems stems from monopolistic conditions in the insurance industry, ridiculously high prices for drugs charged by pharmaceutical companies, and a fee-for-service system that encourages doctors to charge for expensive and unnecessary services. If politicians were really interested in addressing rising healthcare costs, they would deal with those issues.
7. Women at risk: Woman were instrumental in getting Obama elected, and yet he is proposing to throw them under the bus. As Manisha Thakor points out, women live longer than men and need more support in old age. Thakor notes that recently, ABC World News Tonight anchor Charlie Gibson reported that when it comes to healthcare, male retirees required $170,000, while female retireres had to come up with $240,000. And yet how are they going to find this money when they retire with two-thirds of the assets of men?
Saving is particularly difficult for women because they still do more housework and have added childcare and eldercare responsibilities compared. Plus, they also earn less than their male counterparts. Proposing cuts to Social Security and Medicare will mean that more women will sink into the mire of poverty. Much has been said of the GOP war on women. How sad and cynical for a Democratic president to join them.