Nearly one-half of California workers will face significant economic hardship in retirement, living on incomes that are less than double the federal poverty threshold. That is one of a number of disturbing but well-documented predictions in Meeting California’s Retirement Security Challenge, a report just released by UC Berkeley Center for Labor Research and Education.
The report goes on to describe the alarming erosion of what once were three solid pillars of retirement: Social Security, private savings and secure defined benefit pensions. For most in the private sector, less than a fifth of whom today have any sort of secure pension and few of whom have more than a few thousand in other retirement savings, only Social Security remains secure.
In the face of this erosion it is equally alarming to see some self-styled retirement experts assert that average Americans could do much better investing their retirement savings over time in a nationally-managed stock market fund rather than in Social Security’s secure fund. The idea being that they would use the proceeds to buy a fat annuity at retirement time. What this touts is essentially a national mutual fund based on the values of stocks in the Dow Jones Index. And the Dow is notoriously unstable.
It might be okay to claim that there are places you could invest that Social Security money that might possibly earn you a bigger return. But it is reckless not to offer the disclaimer that such investments could also be very risky and that you could lose your shirt with little time to recover before you retire.
There are good reasons to invest some of your money in instruments such as mutual funds. Properly managed they can be a valuable supplement to secure retirement programs like defined benefit plans and a secure Social Security benefit. But since 2000 we have seen as many down years as up in the stock market, some of them doozies, particularly the 33.8 percent drop in 2008 that was twice that of the big crash in 1929 and only exceeded by the monster 52.7 percent plummet in 1931.
Such market gyrations have eaten up the retirement savings of many in the private sector who are now dependent upon the mutual fund-like 401(k)s, leaving them with little to live on in retirement and possibly unable to retire at all.
Public sector workers are in better shape for now, being much more likely to have secure pensions. But those pressing for conversion of Social Security to an insecure system are many of the same folks in the movement to strip secure pensions from public workers, putting all in the same leaky retirement boat.
Here’s a much better solution that would restore retirement security to all Americans: mandate a return of defined benefit pensions for everyone. Tell corporations that they need to pay as much attention to the retirement security of their workers as they do to the obscenely outsized salaries and pensions of a few corporate leaders in the C-suites. As to Social Security, rather than end it in favor of a riskier system, we need to mend it for the long haul, ensuring that at least one piece of the retirement security floor remains solid for everyone.