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September 16, 2012 4:45 PM The New York Times Joins Our Crusade to Get the Candidates to Address the Family Savings Crisis

By Paul Glastris

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.

Paul Glastris is editor in chief of the Washington Monthly.

Comments

  • Doug on September 16, 2012 4:59 PM:

    Amazingly enough, the reasons given for why people don't have enough set aside for retirement doesn't seem to include the fact that wages, salaries too, as far as I know, haven't kept up with productivity in those industries where such gains can be measured.
    If one only has enough for current expenses how are that person supposed to save for retirement? If there is enough money coming in to allow for some to be set aside in savings and there are children, which is to take precedent: retirement saveings or helping pay for the childrens' college?
    Until an effective marginal income tax rate of 50% or greater is re-established, thus forcing businesses to invest in their employees, stockholders and the company or pay massive Federal income tax bills, article such a this one can only propose solutions that don't address the REAL problem - underpayment of employees and under-investment by businesses and corporations.

  • Rabbler on September 16, 2012 5:18 PM:

    I think Obama could still lose this election if he promised to 'save' 3% of the workers wages with the help of Wall Street.

  • CharlieM on September 16, 2012 5:43 PM:

    Mandate that Wall Street gets a 3% cut of eveyone's wages. The same self-entitles wankers who are responsible for the current mess due to their rapacious greed.
    Right. What could possibly go wrong...

  • c u n d gulag on September 16, 2012 6:34 PM:

    How can people save, when, even if they do the right thing and go to college - and maybe even get a Masters or Doctorate - they have to pay back college loans for years and years, and, in too many jobs, get wages that are too low, and have to pay for any benefits out of their own pockets - and if they don't graduate, face a lifetime of below-average, if not minimum wage, jobs?

    Why aren't young people get married more often?
    Having children earlier?
    Renting, instead of buying, until later?

    It's da money, honey!


  • Ken D. on September 16, 2012 6:56 PM:

    Mr. Glastris, if you have followed Krugman on the deleveraging aspects of the Lesser Depression, show your work. If not, you probably shouldn't be commenting on this subject in public.

  • mudwall jackson on September 16, 2012 7:02 PM:

    IRAs are self-directed, not employer-directed. doesn't mean the money would flow automatically to wall street. and you might have read the line where employees can opt out.

    but with interest rates at microscopic levels, what would you suggest? stuffing the money in a mattress? pensions aren't going to come back and even if they do, that still puts money into the coffers of the investment banks. i'm not an expert but i doubt you could substantially increase social security without an substantialy increase in payroll taxes, which disproportionately affects the poor.

    the far bigger problem is the wage level. if you barely make your monthly nut, you're not going to be all that enthused about saving money for a retirement that's 20 or 30 or even 10 years away.

  • steve on September 16, 2012 9:21 PM:

    The Feds zero interest rate policy is what is killing savers. The only way to save enough for a future retirement involves getting a reasonable rate of return that gets compound over a long time frame. The zero interest rate policy makes this impossible

  • Tom Marney on September 16, 2012 9:50 PM:

    "Mandate that Wall Street gets a 3% cut of eveyone's wages. The same self-entitles wankers who are responsible for the current mess due to their rapacious greed.
    Right. What could possibly go wrong..."

    Indeed. The real problem is that increasing inequality has given investors (a.k.a. the rich) literally more money than they know what to do with, and not by just a little bit. That's why interest rates, housing values and 401k's have cratered even as the stock market rallies. fix that and most of our other problems will largely fix themselves.

  • Roddy McCorley on September 16, 2012 10:20 PM:

    Here's where my retirement went:

    1) Three years between jobs wiped out what there was of my 401k.

    2) My wife did that thing they tell you you're supposed to do - she got training for a new career path. Specifically, she went to law school. They don't tell you when you apply for law school and take out the loans that unless you're going to an Ivy League law school you probably won't ever be considered for a job in a law firm.

    3) Refi's to cover loss of income while my wife went to law school.

    4) Daughter going to college. (In Europe, so we're hopeful that at the end of the process there will be something other than a large debt to show for it. We're also hopeful there will still be a Europe by then.)

    Nothing that a decent income wouldn't address. Of course, since wife and I are in our fifties, probably more realistic to wish for cold fusion.

  • John Sully on September 16, 2012 10:27 PM:

    I say we have the queen declare a Jubilee Year!

    Oh, we don't have a queen? Nevermind...

  • Holmes on September 16, 2012 11:47 PM:

    There is a serious disconnect in the editorial. On the one hand, it's says how little Americans have for retirement. On the other hand, it appears to approve of plans for Social Security "benefit cuts". Many, if not most, retired Americans need every dollar of their Social Security check. And cuts aren't necessary to balance the books -- a slight raise in the payroll tax percentage, and elimination of the cap will do.

  • square1 on September 17, 2012 7:56 AM:

    In many ways I have more respect for rich, sociopathic conservatives, who want to rip off the money of the poor and middle class, than I do for the Centrist Democrats who actually think these policies will help average Americans. Holmes correctly points out the silliness of addressing the problem of lack of savings by....cutting benefits. I mean just how stupid do you have to be to not see this contradiction?

  • boatboy_srq on September 17, 2012 9:40 AM:

    “giv[ing] workers control over, and a sound return on, their investments” is the height of folly: assuming that workers a) have time to research and monitor their investments on their own (never mind respond in real time to values that are all too common) and b) identify and hold investments that provide that "sound return" assumes far too much capacity: after work (40-90 hours), commutes, family responsibilities, etc there's not enough time remaining to deal with this, and nowhere near enough time or flexibility to deal with the issues that crop up midday. Delegating the management of these investments is valuable only when large sums are aggregated so they can be managed economically: once upon a time this sort of arrangement was referred to as a pension. The GOTea wants all the benefits of a managed pension system without the managed pension itself.

    Add to that the other commenters' statements about how 3% is a pitiful savings rate, the various crashes in stock/fund values and the real estate collapse, and you get a scenario where even smart investors who take the time can get wiped out as easily as someone who makes no plans and expects SocSec to meet his/her needs.

    More savings are clearly needed. Assuming that the average citizen is in a position to plan intelligently, and select investment products that both offer the necessary returns and the durability to withstand the gyrations of the marketplace is foolhardiness at best. And demanding that all these things be dropped on the shoulders of the average citizen without some public regulation or management is a recipe for disaster.

    The other commenters here have it nailed. Unless there's a plan to ensure that each citizen has $1M tucked away for retirement there's little point in discussing privately managed savings, and plenty of reasons to revisit SocSec with an eye to expansion rather than dissolution.

  • Sgt. Gym Bunny on September 17, 2012 10:14 AM:

    If it counts for anything, I do have a meager retirement plan set up with my employer. However, I think I have the bare minimum deducted from my pack check. After paying bills, I probably have, on average, about $150 leftover from my paycheck (bi-weekly) to purchase gas for the car and food for the belly, which doesn't leave a whole lot of room for savings. (Disclaimer: No, I don't live extravagantly. My mom still pays for my non-smartphone cell plan; I rent a room in my brother's house; and I entertain myself by listening to public radio or watching PBS or by downloading free mixtapes when I'm at work.)

  • boatboy_srq on September 17, 2012 10:27 AM:

    @John Sully:

    I say we have the queen declare a Jubilee Year!

    Oh, we don't have a queen? Nevermind...

    SHHHH. Don't tell Ann Romney: she thinks that's what she's up for this year.

  • low-tech cyclist on September 17, 2012 10:53 AM:

    The simple solution would be to increase Social Security benefits.

    And we pay for the increase with a fully auctionable carbon cap-and-trade plan.

  • paul on September 17, 2012 12:16 PM:

    Yep, we need to save more so that we'll be better off in the future, but without spending less, because that will clobber the economy in the present. While the people who hold huge stores of cash will neither invest it nor release it in the form of additional wages.

    Next: making bricks without straw.