Photo: 401(K)2013 via Flickr Creative Commons
It is no surprise we’re facing a retirement crisis in the making. American workers aren’t saving for retirement – most often, because they simply can’t.
Some states (California, most recently) have taken concrete and proactive steps to dealing with this issue. Others – including our own – have studied ways to fix the problem. But little has been done on the national level in many years to secure retirements for everyday Americans.
Whether because of partisan gridlock, or the fact that as a “long-term issue” retirement security seems to be relatively unimportant (espeically given to the number of short-term debacles/crises at play), there is only one proposal on the table nationally that would make saving for retirement more widely available: a plan by Senator Tom Harkin (D-IA).
Harkin’s plan would make it easier for employers without a pension plan to offer one, which would certainly be an upgrade to the status quo. But unlike Social Security – this country’s best national retirement program to date – there would be no mandate to save, which would still leave many workers without retirement security.
At the federal level, there hasn’t been a real push for a mandatory private pension system to supplement Social Security since a presidential commission recommended doing so in early 1980. And that idea, not surprisingly, was dead-on-arrival when Ronald Reagan took office shortly thereafter.
But as people get a better sense of the crisis, more stakeholders are joining the chorus in support of improving retirement security. In May, BlackRock – the largest investment firm in the world – CEO Laurence Fink said, “We need a comprehensive solution to retirement savings that includes some form of mandatory retirement savings.”
Some experts have pointed out Australia’s “superannuation” account system. Put in place two decades ago, it currently holds more than $1.6 trillion in assets, “giving Australians one of the highest per capita retirement savings pools in the world.” The plan requires that employers contribute 9% of pay to every worker between the ages of 18 and 70. That money, like a 401(k), is owned and managed by individuals.
For the time being, a superannuation plan might not be feasible. But it does show the impact of mandatory nationwide plans – substantially increased investment and, consequently, a more secure retirement for retirees. Fortunately, there is a national plan in the U.S. that we could use right now to improve retirement savings: Social Security.
Like Australia’s plan, Social Security is nationwide, mandatory, and has substantially improved retiree economic security over the past half-century. Scrapping the cap on taxable income for Social Security (so those earning over $110,000/year pay in) would infuse enough cash to quell many critics’ concerns about solvency, and even expand benefits for students and low-income retirees. It wouldn’t be 9% of pay, such as in Australia, but it would certainly be a step in the right direction.