Building an Economy that Works for Everyone

Social Security: Bedrock of certainty during volatile economic times

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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