Regular readers may recall that the Washington Monthly’s July/August issue was devoted to what we and New America Foundation’s Asset Building Program believe to be the biggest economic subject not being talked about in a presidential campaign that is ostensibly all about the economy: the plunging wealth of the average American family. This problem, we argued, was the precipitating cause of the Great Recession; has gotten much worse because of the recession; and until it is dealt with, no amount of new jobs, however much they’re needed, will get the nation’s economy back on track.
Our package got some attention, including a week-long series on MSNBC’s The Cycle. Unfortunately, it’s still the case that neither of the presidential campaigns has seriously addressed the issue of collapsing family balance sheets and the consequent inability of most Americans to be able to afford retirement—despite the fact that these problems are very much on the minds of voters.
Thankfully, the New York Times has now joined our crusade. Here’s a lengthy excerpt from its Sunday lead editorial:
Even before the Great Recession, Americans were not saving enough, if anything, for retirement, and policy experts were warning of a looming catastrophe. The economic downturn and its consequences — including losses in jobs, income, investments and home equity — have made that bad situation much worse.
And yet, judging by the presidential campaign, this clear and present danger is a political nonissue.
Medicare, of course, is an issue. But Social Security, a critical source of income for most retirees, is barely mentioned, though the parties have sharply different views on how to improve it. The Democratic platform correctly acknowledges that it can be strengthened and preserved, implying that a modest mix of tax increases and benefit cuts is needed. The Republican platform vows to “give workers control over, and a sound return on, their investments.” That sounds like privatization, which would be cruel folly.
Neither side, however, is grappling with the fact that the nation’s retirement challenges go well beyond both programs, and that most Americans, by and large, cannot afford to retire.
The crux of the problem is that as traditional pensions have disappeared from the private sector, replacement plans have proved woefully inadequate. Fewer than half of the nation’s private sector workers have 401(k) plans, and more than a third of households have no retirement coverage during their work lives, according to the Center for Retirement Research at Boston College.
The center also found that among people ages 55 to 64 who had a 401(k), the recession and slow recovery left the typical worker with just $54,000 in that account in 2010, while households with workers in that age group had $120,000 in all retirement accounts on average. That is not nearly enough.
Nor do most Americans have significant wealth in other assets to fall back on. According to Federal Reserve data, median net worth declined by a staggering 40 percent from 2007 to 2010, to $77,000; for households near retirement, ages 55 to 64, the decline was 33 percent, to $179,000. Home equity, once thought of as a cushion in retirement, has been especially devastated. The bursting of the housing bubble has erased nearly $6 trillion in equity, and left nearly 13 million people owing a total of $660 billion more on their mortgages than their homes are worth, according to Moody’s Analytics…
More saving is clearly needed, along with ways to protect retirement savings from devastating downturns. The question is how. In addition to strengthening and preserving Social Security, the nation needs new forms of retirement coverage, along the lines of the“Automatic Individual Retirement Accounts” that President Obama has proposed in recent budgets, which would require companies that did not offer retirement plans to automatically divert 3 percent of an employee’s pay into an I.R.A., unless the employee opted out. A similar plan was recently proposed by Senator Tom Harkin, Democrat of Iowa.
The proposals are not cure-alls, but they could be important steps toward an ultimate aim of expanding retirement coverage and reducing reliance on 401(k)’s, which have proved far too vulnerable to investing mistakes and market downturns to be the core of a retirement plan.
Millions of Americans are headed for insecure retirements, but with new policies, millions more could escape that fate.
Like I said, we are delighted to see the New York Times sounding the alarm about this problem. But while the one possible solution they point to, the Obama administration’s proposed universal opt-out IRA, is a perfectly good one, it doesn’t remotely match the scale of the problem, as the editorial itself admits. So our hope is that the Times will be devoting more ink to other possible solutions to the wealth and savings crisis. They’ll find plenty of such ideas in our July/August issue—including mandatory matched savings plans for every young American; new regulations that allow average families, and not just big corporations, to make money on clean energy investments; and tax reform that takes some of the half trillion dollars in federal tax breaks for savings and investment, which now mostly go to the upper 20 percent who don’t need help saving, and redirects it to the bottom 80 percent who do. With any luck, some of those ideas will make their way into presidential contest.
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