We Need to Work Longer, Save More and Invest Better ... It's Simple Math

Let's talk about something that undoubtedly won't be a popular idea with many of We the People.

But here it is anyway. Americans on the whole need to work longer before retiring. Otherwise we can't expect our retirement benefits, including Social Security, to provide adequately for us as oldsters.

Working longer means three good things: (1) more pay while continuing to work; (2) bigger benefits upon retiring; and f(3) fewer total dollars required to fund retirement years.

Working longer would be a gift by oldsters to future generations as a result of lengthening the working years, having more money for retirement and shortening the number of years spent in retirement. That would lessen the burden on taxing the younger workers to pay for the oldsters in retirement.

It's either that or we must be willing to accept reduced benefits, make higher contributions while working or some other combination that will make the numbers work for America's future generations. Because the numbers sure don't work now. Not even close.

The simple facts are that retirement investing should be increased and improved, and our working years need to be increased. The various retirement plans that exist now are simply unaffordable to current taxpayers and can't be sustained over time.

Politically and socially, however, it's a tough issue -- a real tough issue. And if there's one thing politicians don't like to deal with is that -- a real tough issue that's not going to win them votes.

The Payoff in Delaying Retirement has the story:

Opposing cuts in Social Security, Medicare and other benefits for seniors last month in Ohio.

 

" . . . the impasse between Democrats and Republicans . . . follows to the letter the most ironclad rule of American politics, which has held sway for the last three decades: spare the old.

 

The impasse was . . . the consequence of an intractable divide in Washington over taxes and spending. It led to the so-called sequester, the product of a longstanding bipartisan reluctance to tinker with the social safety net erected to maintain the living standards of the elderly. Why? Because the old vote at much higher rates than the young.

 

It’s true that Republicans have offered plans to limit spending on Medicare and Social Security by turning them into voucher-type programs, letting seniors buy their own health insurance with a set amount of money and manage their own pensions. But they never dared pay the political cost of turning these ideas into law even when they controlled Congress and the White House.

 

Democrats, meanwhile, have been reluctant to put up an all-out fight for the large tax increases needed to pay for the expanding entitlement programs demanded by an aging population, without any cuts. Usually champions of progressivity, they have nonetheless resisted proposals to direct benefits for the elderly more specifically to low and middle income Americans.

 

This fixation on defending entrenched positions is getting us nowhere. The problem — a growing cohort of retirees, born during the baby boom, now claiming Social Security and Medicare — is only getting bigger.

 

But what if there were a way for the government to ease the strain that the aging place on the budget while actually increasing their income in retirement, at little or no cost to their benefits? A well-designed reform would even improve the nation’s rate of economic growth. The way to do it is simply to encourage older workers to spend a larger share of their increasing life spans in the work force. . . . 

 

Spending on Medicare, Social Security’s old age pensions and retirement programs for civilians and military on the federal payroll . . . will consume about 38 percent of the federal government’s entire budget, up from 25 percent four decades ago, according to the Office of Management and Budget.

 

Meanwhile, the C.B.O. expects the discretionary part of the budget — which includes every program requiring annual appropriations, from the budgets of the Pentagon and the National Science Foundation to worker training programs and early childhood education — will shrink . . . . Forty years ago discretionary programs . . . consumed more than half of the budget. In 10 years they will consume less than a quarter.

 

Senior citizens, to be sure, merit protection. Social insurance to keep retirees from dropping out of work and into poverty is as necessary today as when President Franklin Roosevelt signed the Social Security Act in 1935. But an income support system meant for a society where people retired in their late 60s and died in their late 70s is under strain as Americans take to retiring earlier and living well into their 80s and beyond.

 

Encouraging more senior workers of able body and sound mind to remain in the work force, many economists suggest, would not only improve their finances and those of the government. It could underpin higher economic growth over the long term. . . . 

 

For instance, a study published several years ago by C. Eugene Steuerle, Barbara A. Butrica and Karen E. Smith of the Urban Institute found that working just one more year would increase retirees’ income in retirement by 9 percent. Working an additional five years would lift their incomes by 56 percent.

 

Retirees wouldn’t receive fewer Social Security benefits, on average, because their annual benefit would increase with each year they delayed retirement. Nonetheless, government finances would improve through increased income tax revenue.

 

What’s more, a growing cadre of older workers could counter to some extent the slowing growth of the labor supply, which in the next decade is expected to expand at less than half the pace of the 1960s, 1970s and 1980s, slowed by the retirement of the boomer generation and the tailing off of women’s long march out of the home and into the workplace. The C.B.O. expects that slow growth in the labor supply will reduce our potential growth rate over the long term, to 2.25 percent a year, a full percentage point less than the average since 1950. . . .      

 

Encouraging workers to work longer won’t be politically easy. . . . In any event, a real debate over how to ease the strain on the American economy caused by increasing longevity would undoubtedly be more fruitful than cutting the budget for park rangers."

 

Summing Up

 

We can't solve our financial mess without addressing and solving the issue of oldster entitlements.

That means that voting oldsters are going to have to accept lower retirement benefits, work more years, contribute more to their retirement funding, or some combibnation thereof.

 

My guess is that both the oldsters and the nation's economy would be better served by oldsters working longer. The younger workers certainly would benefit from paying less in taxes to support oldsters in retirement. And perhaps the older workers could teach or replace various public sector and private sector administrative workers.

 

In turn that would free up more workers to participate in the private sector of our economy. There are lots of areas of the U.S. economy that would be able to grow nicely through private sector innovation and entrepreneurialism if the government taxed less of our citizens' income.
 

See how easy this could be? And how appreciative our kids and grandkids would be? And how much sense it makes?

 

In any event, that's my view, unpopular as it may be. It's a simple way to get out of our intergenerational financial dilemma, and it's just simple math.

 

Thanks. Bob.