Current Retirees Should Not Be the Last to Enjoy a Middle-Class Retirement

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Posted in: Government

There is an old saying that Social Security is the third rail of American politics: touch it and die. In fact, however, politicians in both parties—but especially Republicans—have been openly licking their chops for years at the thought of hacking away at the most successful social program in this country’s history. This must stop.

In my next column here on Verdict, I will describe why Social Security must be expanded rather than cut. In today’s column, I describe some good news about the living standards of recent retirees, explaining why we should respond to that news by celebrating the government programs that work and committing ourselves to improving the retirement prospects of all future retirees.

When Is Good News Unwelcome? When It Could Be Used as an Excuse to Advance a Regressive Political Agenda

Presidential elections too often bring forth candidates who view the nation’s elderly as a target for punitive policies. In my most recent Verdict column, I noted that former Florida Governor Jeb Bush has taken a particularly aggressive position, suggesting that the retirement age should be increased “from 65 to 68 or 70.”

As I pointed out, this was an especially odd argument, because the full retirement age for Social Security has already been increased to 67, for everyone born in 1960 or later. It is, as I noted, truly worrisome that the former governor of a state filled with retirees, a man whose presidential campaign announcement was replete with attacks on “entitlements” (as well as on the other standard Republican bogeymen, unions and bureaucrats), proposes to increase the retirement age without first even knowing what the retirement age is.

Even so, Bush is hardly the only prominent politician who would gladly look for any excuse to justify cuts to future Social Security benefits. That Bush would cut benefits so clumsily, by taking the best years of people’s retirement away from them, merely makes him especially callous. He is not, unfortunately, alone in looking for ways to attack people’s retirement security.

In this atmosphere, then, even good news about people’s retirement prospects is fraught with peril. Yet it actually is the case that, for one subgroup of retirees, the news truly is good. Not great, but good.

Last week, in an excellent in-depth report, The New York Times described how the people who are currently between 65 and 74 years of age are the only group other than the superrich who have weathered the Great Recession and come out ahead. In fact, it is only the relatively good news about this group’s ability to stay in the middle class during their later working years and early retirement years that is masking even worse news about the economic plight of people 64 and under.

I have been studying and writing about Social Security, both its technical aspects and the political pressures surrounding it, for more than ten years. One eternal verity is that any good news about retirement incomes gives politicians an opening to say, “See? Older people are stealing from younger people by hungrily grabbing their government handouts. We have to cut these programs.”

This cynical political game is all about generational conflict. Jeb Bush gleefully follows the script, as he tried to justify his recent proposal as a way to “sustain the retirement system for anybody under the age of 40.”

These attacks on “greedy geezers” are wholly unjustified, of course. The reality is that, even for the group that the Times identified, the good news is not driven by their Social Security benefits, or even their Medicare coverage. Instead, this is the last group of retirees to include large numbers of people who will receive private pensions from their former employers.

Even as private-sector pensions have become all but extinct over the last generation, conservative politicians have recently been doing everything that they can to hack away at the pensions of public sector workers—which is an especially spiteful move, given that public sector workers have willingly worked for lower-than-normal wages in return for promises of better pensions.

In addition, this age group—which, according to the headline of the Times article, has found a middle class “sweet spot”—is now benefiting from particularly good timing, in having been able to buy houses during their youth before the historic run-up in housing prices. Now, for those who were able to hold off on selling their homes during the worst of the housing bust in 2008-12, selling a house is a great way to cash out on a one-time-only windfall. No such windfall awaits those who will follow what we might call the “Sweet Spotters.”

Finally, the Sweet Spotters are the first group to include a fairly large number of people who are healthy enough to put off their retirements voluntarily. That is, for people who really do view 65 or 67 as too early to retire, the option already exists to keep working and thus to put off collecting Social Security benefits. (Such a decision is rewarded with somewhat higher monthly benefits when a person does ultimately retire.) Thus, for politicians who see increasing lifespans as an excuse to force people to work longer, the people who can do so have already made that choice for themselves, without being forced by government action to do so.

Middle Class Comfort and the Social Security Blanket

Notwithstanding all of this relatively good news, even many Sweet Spotters rely heavily on Social Security to help them get by. The pension- and house-rich subgroup masks the presence of people who truly are not doing very well, and for whom Social Security benefits provide not the ability to take cruises and buy boats, but the minimal means necessary to live with some dignity in retirement.

It is important to remember that Social Security’s introduction in 1935 was spurred by the country’s collective shock at the high concentration of poverty among senior citizens, who, during the Great Depression, were often literally starving. Although it would be comforting to imagine that we no longer need such a safety net, the article in the Times quotes UCLA economist Kathleen McGarry, who describes Social Security as still “the single most important tool in combating poverty among the elderly.”

For opportunistic politicians who view the elderly as a target for budgetary savings, the existence of the Sweet Spotters could be used to try to argue that government can safely cut cash benefits to retirees. The reality is exactly the opposite.

The Best Way to Approach These Issues Is Through Progressive Tax Policy

One of the most poorly understood realities about retirement-related policies is that changes must necessarily be phased in over long periods of time. When we are considering changing the rules of the game for something as important as retirement, we must remember that this is truly a once-in-a-lifetime decision, and it is all but irreversible. It would thus be irresponsible to imagine that we could suddenly look at an age group that has already reached retirement age and decide to make more than minor changes to the system.

Even if we thought, however, that it is acceptable to view the Sweet Spotters as a source of funds to reduce government deficits, the right way to do so would not be to cut benefits, but to increase the progressivity of taxes.

Changes to large government programs necessarily happen only rarely, and the reality is that cuts today are highly unlikely to be reversed in the future. Therefore, if we were to respond to the existence of the Sweet Spotters by imposing cuts in Social Security benefits—even if it were actually possible to take benefits away from current retirees—it is precisely the people under age 40, whom people like Jeb Bush purport to be protecting, who will ultimately be harmed. And again, the many current retirees who are not doing well would also lose out in any attempt to cut Social Security benefits immediately.

It is important to remember, moreover, that the Sweet Spotters are not actually doing especially well. Even the analysis in the Times carefully notes that this is entirely a matter of comparing them to other age cohorts, describing the Sweet Spotters as a group that is “better off financially than past generations and [that] may well enjoy a more successful old age than future ones, even those merely a decade younger.” Their “fortunes appear to have held remarkably steady” in the face of a bad economy. Holding steady looks good when others are losing ground, but this is not a group that is generally seeing their champagne dreams and caviar wishes come true.

For those who are doing especially well, of course, there is a simple way to allow the federal budget to benefit from the unexpected relative prosperity. Progressive taxation is designed to draw tax revenues from those who can best afford it. This particularly applies to “the one percent” (and the increasingly concentrated wealth at the higher end of the higher end, the 0.1% and the 0.01%), but it can apply to less exalted incomes as well, because graduated tax brackets increase effective tax rates as one moves up the economic ladder.

To be clear, I see nothing in the evidence to suggest that there is a large group of Sweet Spotters who are doing so well that they deserve to have their Social Security benefits reduced, directly or indirectly. To the extent that such a group exists, however, the obvious way to separate them from the rest is simply to have in place a tax system that taxes the rich at higher rates than the poor. Tax policy proposals, such as those favored by all of the Republican presidential candidates, to reduce or eliminate that progressivity are thus not only elitist, but they have the inadvertent effect of removing the most direct way to deal with distributional anomalies.

Of course, another way to make it possible for the government to spend less on retirement benefits in the future would be to make it possible for private retirement benefits actually to support a dignified retirement. If government policies were changed to increase workers’ wages (not just the minimum wage, but wages across the board), and to require employers to contribute to retirement incomes that would truly support people in their golden years, then direct support from the government might someday no longer be necessary.

The reality, however, is that for everyone who is younger than 65 today, the U.S. political system has spent a generation undermining the elements of middle class prosperity. Republican politicians have been joined by a large number of Democrats to pass laws that have allowed private pensions to wither and die, while actively harming unions and watching the minimum wage be eroded through inflation—to the point where workers at profitable companies apply for food stamp benefits in order to survive.

The existence of the Sweet Spotters is a reminder that there really is a way to allow large numbers of people to go through their working lives, and then to live modest, comfortable retirements. We should celebrate that we once succeeded in doing that, and take it as inspiration to ensure that this happens again. Attacking “entitlements” is exactly the wrong approach.

  • Frank Willa

    Thank you for the insightful review. Threshold is the idea that government should be involved in assuring fairness and justice for all in society; it most certainly should. The failed “free market” is best at sorting out the economy, which it seems to me is little more than cover for the abuse of some of the wealthy to take unduly from those that have earned a better deal, is revealed by your analysis.

    More so it is and was wrong that “government is the problem”, and that by reducing its role in everyone’s life we would all be better off. The “government is the problem” is the impediment to meaningful change; refuting and rejecting this notion if the first step without which we will remain stuck where we are. It is akin to the “horns of the dilemma” question of: have you stopped beating your wife? That leaves progressives unable to even say lets have a government solution. Until we re-establish the legitimate role of government in our lives, we will remain unable to solve problems and grow the economy for the benefit of all. I believe that from the 1930s through the 1960s the Federal government was the greatest economic engine the world had ever seen; everyone benefited.

    Of course the failure of trickle down economics is apparent – see the decline for most people starting in the 1980s and continuing to now. A robust government that manages the economy, and assures fairness-economic and social- for as many as possible is the very creation of the founding fathers.