The United States is in the early stages of a crippling retirement crisis. Nearly half of all private-sector employees in the country—some 58 million people—had no company-sponsored retirement plan in 2018. As recently as 1999, only 39 percent of retiring workers were in this predicament. The retirement situation in the United States isn’t just bad; it’s getting worse with each passing year.
The crisis engulfs all kinds of workers: blue-collar teamsters, high-skilled professionals working for profitable corporations like Verizon and United Airlines, and public-sector civil servants in cities plagued by budget crises (read: Detroit). Many have lost their health insurance and pension benefits—and in some places, they’ve even been ordered to return payments that were miscalculated by pension authorities years in the past. An increasing number of people now work at jobs that never offered pension plans in the first place.
Pensions are regarded by most workers as among the most binding of all promises—a compact between themselves and their employers, sealed by years of labor. Americans assign to government the responsibility for protecting this sacred compact from any temptation by companies to raid retirement accounts for their own purposes. Increasingly, though, this once-unbreakable promise has become discretionary: Employers can abandon it when the stock market falters, when a firm goes through financial reorganization, or simply when shareholders demand higher profits. Insecurity is becoming the standard of older age in this country.
Across the spectrum, workers have responded to the crisis by planning to work many more years than they had expected, only to find that they cannot hold onto the jobs they had in their 50s. Aching backs make physical labor too difficult, while companies are often looking for ways to ease out older, more expensive workers. Those who do find employment past the age of 65 are likely to be relegated to positions that are far below the status—and salary—of the jobs they once held.
Yet this problem is not universal. In late 2015, the Institute for Policy Studies and the Center for Effective Government co-published a report, entitled “A Tale of Two Retirements,” that substantiates what many have long suspected: While companies are defaulting on pensions and benefits for workers, up in the C-suite, the weather is fine. Not only are CEOs socking away millions of dollars in executive retirement plans, they are also enjoying such benefits on a tax-deferred basis. In 2014, Fortune 500 chief executives put $197 million more into their retirement accounts than they would have been able to if they’d been ordinary workers, saving $78 million on their tax bills in the process. They won’t start paying a dime in taxes on those funds until they retire, thus depriving the country—at least for now—of critical resources needed to fund schools, hospitals, and other public institutions.
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Retirement insecurity is an increasingly serious manifestation of the vast inequality that is eating away at the social fabric of America. The same forces eroding pension rights are also leading to historic wage disparities, the uneven distribution of wealth, a hollowing-out of the middle class, and the exacerbation of historic racial inequities. Roaring stock markets deepen inequality by driving increases of wealth at the top. Middle-class equity is tied up in the housing market, which has gyrated in ways that have placed serious downward pressure on retirement savings for the majority.
We can get a sense of how profoundly inequality affects retirement when we look at communities that experience retirement in very different ways. Opelousas, Louisiana, a city of about 16,000, has one of the highest elder-poverty rates in the United States. Seventy-seven percent African-American and Creole, Opelousas is home to men and women who have worked all their lives, but mostly in jobs that provided no benefits at all—retirement or otherwise. In 2017, per capita income in Opelousas was only $15,266 a year, and 45.3 percent of its population was living in poverty.
Few residents were entitled to sick leave or health-care coverage while they were working, and virtually none can count on a pension to support them when they reach retirement age. A lifetime of poverty never translates into what the rest of the country defines as true retirement. Instead, the working poor stay on the job until they are ready to drop.
The story of 71-year-old Valerie Miller offers a raw glimpse into this reality. Miller grew up in extreme hardship. As an adult, she cleaned houses while her husband, Martin, worked as a carpenter, until eventually their bodies broke down in their 60s. He is now in a nursing home with Parkinson’s, and she survives in their house on her own with a $960-per-month Social Security check and $50 in food stamps. Hardened by years in poverty, Miller is girding herself for more of the same. “A lot of people sometimes wonder how you’re making it, but you manage,” she says.
In contrast, Ogden, Utah, has had an easier time taking care of its retirees. A small city nestled at the base of the Wasatch Mountains, Ogden has earned the notable distinction of having the narrowest wealth gap among US metropolitan statistical areas with 500,000 people or more. Ogden residents are much more likely than Opelousas residents to live a good life in their working years and to be able to retire comfortably.
Some local observers have been quick to credit the powerful influence of the Church of Jesus Christ of Latter-Day Saints, also known as the Mormon Church, and its moral code. And there is some truth to the assumption, as the faith is justly known for its blend of self-reliance and care for others. Support for the aged of all faiths in Ogden is largely organized through private means and based on strong social bonds, a powerful culture of service, and a desire to help the poor, whether they’re Mormon or not.
But the underlying economic stability of Ogden owes much more to the presence of the federal government—more specifically, federal agencies and installations, which provide steady jobs with good benefits, including generous retirement plans. The US Air Force has a large base nearby. The Internal Revenue Service office in Ogden employs thousands of the city’s residents. Before the federal government’s arrival, Ogden was a bustling railroad hub, and this too provided steady access to well-paying jobs. These stable sources of middle-class employment have ensured that Ogden’s workers and retirees flourish in a way that their counterparts in Opelousas never have.
Ogden retirees like Louise and Randy Nathanson have benefitted from both church and state. Randy worked at the local Air Force base, while Louise raised their children and then became a schoolteacher. “We weren’t rich before,” she remarks, “and we’re not rich now”—but, she adds, they are comfortable and secure. Given the area’s affordability and the Nathansons’ modest mortgage, they didn’t need to dip into Randy’s 401(k) until they retired.
Ogden is similar to Opelousas in that both cities have religious underpinnings and active volunteer groups that seek to serve the broader community. But in Opelousas, there is a limit to the effectiveness of the faith-based charity model. In spite of the valiant efforts of committed volunteers, systemic racism coupled with hard economic realities—and the notable absence of stable employers like the federal government—make it difficult to sustain a decent retirement. In Ogden, the combined economic power of the Mormon Church and the federal government protect residents from the vagaries of inequality and amplify the efficacy of volunteer organizations.
In the United States, economic security in old age was seen, for a long time, as both a social issue and a national obligation. From the birth of Social Security to the end of the 20th century, the common assumption has been that we have a shared responsibility to secure a decent retirement for our citizens. Yet that notion is weakening rapidly. Instead, we have started to hear echoes of the mantra of self-reliance that characterized welfare “reform” in the 1990s: You alone are in charge of your retirement; if you wind up in poverty in your old age, you have only your own inability to plan, save, and invest to blame.
This is an unacceptable conclusion. To reverse it, we must ensure that workers who have spent decades saving for retirement through pension contributions—based on promises made to them by their employers—can rely on those commitments. Companies that go bankrupt should not be able to put their shareholders first and their employees last when debts are settled. The fiduciary responsibilities of banks and brokerage houses that supervise the investment portfolios of pension funds must be elevated, and the supervision over them by federal regulators made more robust.
At the same time, the rules governing 401(k) plans need to be tightened so that retirement money becomes an investment that cannot be touched until retirement. In times of economic hardship, many workers feel they have no choice but to tap into these savings early. If we had more substantial and generous unemployment insurance, invested more in retraining, and provided more generously for medical needs, it would be much more feasible to create retirement funds that wouldn’t need to be raided early by families in distress.
Finally, we must shore up the Pension Benefit Guaranty Corporation, the federal agency charged with insuring private retirement plans, since it is the only backstop for those that go bankrupt and will soon be out of business if we don’t. Even though the PBGC provides only partial coverage for benefits, it remains a vital means of protecting at least some of the pension money that workers depend on. If it goes belly up, there will be nothing for them to fall back on.
Beyond these protections for private retirement accounts, the most universal of retirement plans, Social Security, needs to be more robustly funded. Eliminating the earnings cap and requiring high-income employees to pay a Social Security tax on all of their earnings is a vital first step, and it may well be the only one needed to ensure that this basic support system can function well into the future. Needless to say, the wealthy would hardly feel it if they were required to pay the same tax on their earnings that people with far less income routinely pay now.
What we cannot do, however, is ignore these issues or assume they are merely problems for the current generation of retirees. Younger workers will not be able to escape this vortex; indeed, they may face futures even more precarious than today’s seniors do. Younger workers have far less generous retirement benefits; are expected to work for many more years than prior age cohorts did; were punished more in the housing market when the 2008 financial crash reduced the availability of credit; and have faced, in general, more uncertain conditions in the labor market.
For them, the very concept of retirement is fading away, replaced by a work life that does not end at the traditional age of 65. As private pensions, Social Security, and Medicare become increasingly inadequate for meeting basic needs, the working life simply has to go on. That may not be a problem for those who are well-educated and work in rewarding, well-paying professions that do not tax the body. But it is not a solution for people who can no longer stand for hours, lift heavy objects, move at a rapid pace, or master new technologies that require an education they don’t have. For these people, the obligation to work longer and longer is a recipe for stress and downward mobility. The fact that the fastest-growing sector of American labor consists of full-time workers over the age of 65 tells us how bad the problem of retirement insecurity has gotten.
We have to start looking in the right direction for solutions. And we must ensure that we do not rob other deserving populations—especially children, in whom we invest a paltry sum relative to other advanced postindustrial societies—to solve the inequalities that beset the retirement “system” in the wealthiest country in the world.
