Progressive Non-Solutions To a Non-Retirement Crisis

It's common to hear that Americans face a "retirement crisis." In response, progressives have come up with their own solutions; including expanding Social Security and having the government run retirement plans for workers. In reality, though, the crisis is vastly overstated. And progressive solutions would do surprisingly little for those Americans who truly are underprepared for retirement. Real answers exist, but they are more about making government work better, than about making it larger.

One prominent study claims that 53 percent of Americans won't have enough income in retirement. Another study says it's 84 percent. If true, these are big problems. And for progressives, they demand big solutions: most favor expanding Social Security benefits, notwithstanding the system's $10 to $15 trillion funding shortfalls. Many also propose having state governments set up retirement plans for private sector workers, overlooking the sorry condition of state-run plans for government employees.

Facts demonstrate however that the retirement crisis is overblown. For instance, a 2008 study funded by the Social Security Administration (SSA) found that for a typical retiree household to match its pre-retirement standard of living, it needs an income equal to 69 percent of its career-average earnings. Household don't need a 100 percent "replacement rate" because the cost of living is usually lower in retirement.

SSA's own computer models estimate that roughly four-out-of-five retiree households today meet that 69 percent standard. More important, SSA projects that future retirees will be about as well off as today's. While the retirement landscape will change - many more Americans will depend upon 401(k) and IRA plans, while much fewer will have traditional defined benefit pensions - the overall level of retirement income adequacy isn't projected to decline.

But that doesn't mean everyone is doing fine. For instance, a 2014 study by RAND Corporation economists Michael Hurd and Susann Rohwedder found that 71 percent of Americans are adequately prepared for retirement. But among unmarried women with less than a high school education, only 29 percent of will have sufficient retirement income.

But here's the problem: big solutions from progressives won't do much for single, less-educated women. For one thing, this group is less likely to have the 10 years of work experience needed to qualify for Social Security benefits. A 2011 SSA study showed that "never-beneficiaries" are 19 percent more likely to be female, 3.7 times more likely to be never-married, and 2.6 times more likely to have less than a high school education. Increasing Social Security benefits won't help if you don't qualify for benefits in the first place. In fact, while nearly all middle and higher-income Americans collect Social Security benefits in retirement, over 20 percent of the poorest fifth of the households won't even qualify for benefits.

The other favorite retirement reform for progressives - introducing retirement plans run by the states - also wouldn't do much for those most at risk in retirement. After all, if you don't work enough to qualify for Social Security benefits, contributing to a retirement account probably isn't your top priority.

There is an easier and cheaper way to improve retirement security and a number of countries are already doing it. First, the government should provide all retirees with a flat retirement benefit, regardless of how much they worked, or earned, prior to retirement. For instance, we could provide every retiree with a poverty-level income at roughly half the cost of the current Social Security program. This would take the poverty rate among retirees from around 9 percent to zero percent. For the poorest one-third of retirees receiving Social Security, this would be a benefit increase. And for those who don't even qualify for Social Security under current rules, this minimum benefit would be a life-saver.

But second, since the government benefit would be capped, middle and upper income workers would have to save more on their own. To help, every employee would automatically be signed up for a retirement plan if their employer offers one. For employees who aren't offered a pension at work, the government could allow access to the Thrift Savings Plan, the retirement account for federal employees. Florida Senator Marco Rubio has already introduced legislation to open up the TSP to workers without pensions.

These ideas may sound radical, but they're very similar to how retirement systems work in the United Kingdom, New Zealand and Australia. The government provides a solid safety net for the very poor, while facilitating greater personal saving by everyone.

Progressives are so busy touting the so-called "retirement crisis" as a call for bigger government that they forget about the Americans who truly need greater help in preparing for retirement. If we followed the lead of progressives, we could spend billions of extra dollars and find that we've missed the people who need help the most.