Social Security: Bedrock of certainty during volatile economic times

January 10, 2011 | Alex Stone

How secure is your retirement looking these days? That probably depends on your retirement plan — that is, if you’re lucky enough to have a one. Fewer employers are offering workplace retirement plans – these days, only 59% of full-time workers even have access to one at their place of work.

Decades ago, defined benefit plans (a.k.a.: pensions) were the norm. But over the years, many employers discontinued those in favor of defined contribution plans (like 401(k) plans). That limits the employer’s risk – but makes planning for retirement much more dicey for the worker. And that is the very reason a strong Social Security system is more important than ever.

Pensions provide a guaranteed stream of lifetime income after retirement, and are largely unaffected by wild swings on Wall Street. Defined contribution plans are subject to much more market volatility, and the plans themselves vary greatly depending on the size of the plan, yield growth, and hidden fees.

In Washington state, just 3.6% of firms offer defined benefit plans to full-time workers, while 38% offer defined contribution. The likelihood of setting up a retirement plan as a work as a part-time worker is pretty slim; fewer than 18% of private businesses in Washington state offer any type of retirement plan to part-time employees.

A recent report issued by the Demos Institute shows that moving from defined benefit systems with fixed returns, to riskier defined contribution plans, puts a secure retirement further out of reach for millions of Americans:

“The retirement security of American families has crumbled in the past generation,” said Robert Hiltonsmith, author of the report. “Workers retiring in the next 20 years can expect to make only 65 percent during retirement of what they made during their working years–16 percent less than their parents.”

By contrast, nearly every American contributes a portion of their paycheck directly to Social Security, which is invested in the United States government — not gambled in the stock market. The move away from guaranteed pensions and the increasing volatility on Wall Street makes Social Security more important than ever. Defined contribution plans like a 401(k) might supplement some income, but Social Security is more important than ever to ensuring Americans can live out their golden years in dignity.

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Posted in A Fair Deal at Work, Retirement Security, Social Security


  1. Winslow P. Kelpfroth says:

    Sorry, Alex, I don’t share your optimism.
    Although it is true that surplus social security funds are invested in US Treasury notes, these are not productive assets, such as productive farm land, earning real estate or shares in a going business, but are instead promises to tax future wage earners. If one makes the leap of faith that the US borrowing capacity is infinite, and that the central bank won’t create so much money as to inflate the benefits away, then, yes, social security is secure.
    One of my major criticisms of EOI position papers is the apparent absence of prudence. I have yet to see a paper warning that, present trends continuing, this or that policy has some potential downside. The institute would be a bit more relevant, in my opinion, if it worked on some policy risk analysis.

    • Winslow, your conception of US Treasury notes is interesting, but inaccurate imprecise. Government spending on education, transportation, health and other public systems provides the foundation for future economic growth – whether in higher land values, increased business productivity, or elsewhere. Backed by our tax dollars, a U.S. Treasury bond represents a promise to repay debt with future earnings (that is, economic growth) supported by those very investments in our future. In other words, we pull ourselves up by our own bootstraps when we make collective investments via government bonds in our shared public structures.

      If you review our policy briefs closely, you’ll see our authors often outline the negative consequences (that is, “downside”) of current state and/or federal economic policies for our working families and small businesses. For example, the lack of a paid sick days standard costs the country millions of dollars a year in lost productivity and increased health expenses. Skyrocketing tuition for public colleges and universities means today’s young workers can’t get the education/training then need to be as productive as they could be, which not hurts their future earnings, but lowers the nation’s productivity as well.

  2. Winslow P. Kelpfroth says:

    future growth being a given, of course.

    • Well, there are optimists and pessimists on that score. Economic growth in the U.S. has averaged about 3.5% per year since the Civil War. Of course, there are lots of individual ups and downs in the economic cycle over that timeframe, but short-term economic cycles don’t have that large an impact on the Social Security Trust Fund because we’re dealing with a very large sum of money. And while past performance is no guarantee of future outcomes — because of course we can’t know the future — I think we’re more likely to see good long-term economic growth in this country if we make investments in education, transportation, health, etc.

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