Social Security’s Needed Expansion - By Katrina Vanden Heuvel - WaPo [View all]

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Social Security’s needed expansion
By Katrina vanden Heuvel - WaPo
Tuesday, April 9, 6:03 AM

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Corporations used the turn to 401(k) individual savings accounts to drastically slash their retirement contributions. This hidden pay cut has had devastating effects. With wages not keeping up with costs, workers have been unable to save much on their own. Fifty-seven percent of workers report less than $25,000 in total savings other than the value of a home or a defined-benefit pension.

Many families are wracked by either the loss of a job or a medical crisis that upends their finances, exhausting their savings and forcing them to pay penalties to tap their retirement accounts. Yale political scientist Jacob Hacker has shown that more than one in five Americans lost at least a quarter of their available household income during the Great Recession.

Social Security’s austere payments — averaging $1,262 per month — replace only about 33 to 40 percent of annual earnings, when most experts argue retirees need about 70 percent of their income to maintain their living standards in retirement. Sixty percent of Americans receive at least two-thirds of their retirement income from Social Security, with the bottom 40 percent receiving 84 percent of theirs from Social Security.

Yes, we need to reform Social Security, but the reform should increase, not cut the income support that millions rely on. In an important political blueprint for sensible reform released by the New American Foundation, Michael Lind, Steven Hill, Robert Hiltonsmith and Joshua Freedman call for adding a supplement to Social Security that would guarantee all retirees about 60 percent of their average wage in retirement (similar to that of most other developed nations). Link to Study: http://growth.newamerica.net/publications/policy/expanded_social_security

They would pay for the expanded benefit not by increasing the payroll tax rate but by eliminating tax breaks for the wealthy, particularly those now offered to private retirement plans that disproportionately benefit the wealthy (à la Mitt Romney’s famous $100 million IRA plan) They would also lift the payroll cap to make Social Security financially stable.

The authors argue that the United States would end up spending about the same percentage of gross domestic product on the overall retirement system, but with a much fairer distribution of support. This would also stabilize and improve the overall economy since the elderly will spend those extra dollars, giving a boost to aggregate demand.

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More: http://www.washingtonpost.com/opinions/katrina-vanden-heuvel-social-securitys-needed-expansion/2013/04/09/0376d93a-a07a-11e2-82bc-511538ae90a4_story.html