While household retirement savings are growing, government retirement plans, such as Social Security and government employee pensions, are underfunded by up to $26 trillion.
More than 200 House Democrats are sponsoring a bill to expand Social Security benefits. This legislation will be funded by a dramatic increase in taxes. In addition, some states (California, Connecticut, Illinois, and Oregon) have established state-run retirement plans for private sector workers, which many progressives hope will supplant 401(k)s.
In his latest piece, AEI economist Andrew Biggs, a former principal deputy commissioner of the Social Security Administration, warns that “there is no retirement crisis among either today’s retirees or tomorrow’s.”
Among his key points:
- More Americans are saving more than ever for retirement. Participation in traditional defined-benefit pensions peaked at 39% of employees in 1973. Today, the Social Security Administration finds, 61% of workers, including 80% of married couples, participate in a plan.
- Retirement-plan contributions are up. From 1975-84, total employer and employee contributions averaged 6% of employee wages; over the past decade the average has been 8.3%. Retirement savings in employer-sponsored plans and individual retirement accounts are at record levels, rising sixfold since the mid-1970s.
- Retirement incomes have risen. The median retiree household’s income grew by 56% above inflation from 1989 through 2016, versus only 4% real growth for working-age households. Incomes grew faster [for] the poorest fifth percentile retirees than at the 95th percentile of the working-age population.
Biggs concludes that while household retirement savings are growing, government retirement plans, such as Social Security and government employee pensions, are underfunded by up to $26 trillion. “[A] real retirement crisis could materialize” if policymakers “move away from the private-sector plans…in favor of government provision of retirement income…”
This article is reprinted with permission from The American Enterprise Institute.
