401(k)s are failing many Americans. Why not expand Social Security instead?

Washington, DC, May 20, 2015 | Vox


By Dylan Matthews

Nowadays, many left-of-center policy types have been wondering whether we should increase Social Security. Former Secretary of Labor Robert Reich makes the case — in cartoon form — in the video above. You can read a transcript here.
 
The basic issue here is that many Americans aren't saving enough for retirement. Optimistic assessments say that nearly one-third of Americans ages 66 to 69 don't have enough saved to maintain their standard of living in retirement. More pessimistic studies argue that fully half of working Americans aren't saving enough to reach that goal.
 
And our current system of retirement saving isn't helping. The move from defined-benefit pensions to employee contribution-based plans like 401(k)s in recent years has introduced a lot of uncertainty into retirement planning. Many Americans have been stuck with high-fee mutual funds that end up eating into their savings.
 
Expanding Social Security would be a simple option to boost retirement savings. There are already number of proposals in Congress along these lines, including Rep. John Larson's (D-CT) Social Security 2100 plan and Sen. Bernie Sanders' (I-VT) Social Security Expansion Act. Coming soon are plans from Rep. Gwen Moore (D-WI) and Sen. Sherrod Brown (D-OH). Sen. Elizabeth Warren (D-MA) is on board. While the details differ, the plans tend to share a few key points:
 
  • Increasing benefits for current and future retirees by $20 to $70 per month.
  • Adopting CPI-E, an alternate inflation measure focused on goods the elderly buy, which rises faster than the regular inflation rate, enabling bigger cost-of-living adjustments
  • Providing a larger minimum benefit for the poorest workers, to reduce senior poverty
  • Financing it all by taxing some or all wages in excess of the current payroll tax cap ($118,500 a year, currently); some plans also tax high earners' investment income
These are big changes, especially the financing mechanism, which would increase the marginal tax rates on rich workers by 12.4 percentage points.
 
One quibble with the video: it's a little weird to state, as Reich does, that seniors deserve more benefits because they "paid in to Social Security over their lifetimes." The average worker can already expect to get more back in benefits than they pay into the program already, even before expansion. But if you're generally a fan of taxing rich people to improve the lot of poorer people, this is the retirement policy for you.
 
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