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August 22, 2019

Social Security, at 84 years old, is more important than ever in working to support retired Americans

August 14, 2019

In the beginning. (AP)

Eighty-four years ago today, in the midst of the Great Depression, President Franklin D. Roosevelt signed the law creating Social Security, helping to lift millions of elderly Americans out of poverty. It became an essential part of America’s retirement security, supplementing the other two legs of the “three-legged stool,” pensions and personal savings.

Yet millions of Americans now suffer from retirement insecurity, as nearly half won’t have enough savings and income to maintain their current living standards when they retire. Forty percent of Americans who are not poor now will fall into poverty or near poverty if they attempt to retire at age 62.

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Retirement insecurity reflects the weakening of the other two legs of the stool. Wages have stagnated for millions of Americans in recent decades while the cost of housing, health care and college education have skyrocketed. As a result, it’s becoming harder to put aside money for retirement. The median American family has no retirement savings apart from the equity in their home—if they own one at all.

And it’s becoming increasingly rare for employers to offer pensions. Companies shifted the burden of saving for retirement onto their employees throughout the 1980s and 1990s amid the decline of unions and worker bargaining power. In fact, the share of workers with traditional pension plans has fallen by almost half in the past three decades.

The rise of defined-contribution plans such as 401(k)s cannot always fill the void left behind by pensions. Workers often cannot afford to pay enough into their plans and find the money they do contribute is vulnerable to the ups and downs of financial markets. Americans who retire during or immediately after a recession often discover that their 401(k) accounts are severely weakened.

Meanwhile only about half of middle-income earners have access to defined-contribution plans, while the same is true of just one-in-20 of the lowest earners.

This retirement insecurity hits women and minorities the hardest, as a lifetime of lower median pay, limited access to employer-based retirement plans and greater exposure to income shocks leave them less prepared to stop working.

For example, white men between the ages of 55 and 64 have an average of $101,000 in defined contribution accounts like 401(k)s, more than triple that of black men and women and about quadruple that of Hispanic men and women. White households at that same age bracket have accrued on average $255,800 in wealth, compared to just $54,000 for Hispanics and $31,300 for black people.

Women in particular are at a higher risk of falling into poverty after they stop working due to lower retirement account balances and relatively longer life spans. Typical earnings for women after 65 are about $18,200 a year compared to nearly $31,600 for men.

Social Security is the safety net when the other two legs of retirement security — pensions and personal savings — fail. It protects millions of Americans from falling into crushing poverty in old age. More than one-fifth of those who receive Social Security benefits count on them for more than 90% of their total income.

On this anniversary of Social Security, it’s crucial to protect and strengthen the program, especially as the other two legs of retirement security increasingly fail millions of retirees. Americans deserve a retirement system that works for everyone and allows them to enjoy life after decades of hard work.

Maloney is vice chair of the Joint Economic Committee and a senior member of the House Financial Services Committee.

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