America’s Real Retirement Problem

Social Security isn’t a major problem. It can be fixed with a few tweaks, and the sooner changes are made the easier the tweaks will be. That doesn’t mean every American will have adequate retirement income, says Clive Crook of Bloomberg. Social Security doesn’t replace a lot of working years’ income for  most people, and too many Americans rely on Social Security for most of their retirement income. The investment markets also aren’t the major problem, though they aren’t helping. The fact is that Americans aren’t saving enough to generate retirement income security. Many people who’ve studied the issues agree. The difficulty is getting people to agree on what to do about it. The best thing you can do for your young adult children and your grandchildren is to encourage them to save 10% or more of their incomes starting as soon as they begin earning income.

Crook’s proposal is to supplement Social Security with a forced government savings program.

How, specifically, might this be done? I’d recommend, as a start, that an additional 5 percent be deducted from wages and invested in a choice of pooled accounts holding a mixture of domestic and foreign assets. Pooling and central administration would keep fees very low. Balances would accumulate tax-free until retirement; distributions would then be taxed. I’d also advocate that taxpayers provide a subsidy to those on low incomes, sufficient to cover the whole deduction for those earning the minimum wage, so that everybody could afford to save through their retirement account. To help meet the cost of this taxpayer subsidy, narrow the existing tax preferences for saving, which flow to those on higher incomes who least need the help.