Sunday, February 08, 2015
Who Has Money In Retirement?
I asked a financial services executive recently how our retirement saving system can be considered a success, considering that all but the highest-income households are approaching retirement with next to nothing saved.
His reply: "They don't have any money while they're working, so why would they have any money in retirement?"
I'll do this executive a favor and let him remain nameless - but it was a moment of revealing truth-telling from an industry insider. Individual retirement accounts and 401(k)s work just fine for people with money, not so much for everyone else. "Them that's got shall get, them that's not shall lose," as Billie Holiday sang.
Income inequality breeds retirement inequality - a situation that Social Security was devised to address. Before Franklin D. Roosevelt created the system in 1935, seniors without money went to the poor farm, literally. Social Security has nearly eliminated that sort of abject poverty by providing a nearly universal modest pension. Last year the average monthly benefit for a retired worker was $1,260.
Yet there's a huge gap in retirement nest eggs. Data from the Investment Company Institute shows that near-retirement households with annual incomes over $200,000 had saved an average of $885,000 in 2010, compared with just $49,600 for households with incomes ranging from $30,000 to $45,000. And 45 percent of working-age households own no retirement account assets whatever, according to the National Institute on Retirement Security (NIRS).
So, while conservatives worried about deficits argue for Social Security cuts, a group of progressive economists, policy experts, labor leaders and politicians is seeking the opposite outcome. On Wednesday they met in Washington to argue not only that Social Security can address retirement inequality - but that it is by far the most logical available platform for addressing the problem, due to its risk pooling and progressive approach to income distribution. Social Security replaces the highest percentage of pre-retirement income for workers at the low end of the wealth scale.
You can read on here or just pause to consider a system where no one saves for retirement because all our needs are met throughout our lives, as individuals, as communities, globally, because we all share in the common wealth. That is the alternative: socialism.