Americans’ retirement-security system could be better. Many public pensions are underfunded. Social Security suppresses saving rates, spends an enormous amount of money without protecting all senior citizens from poverty, and threatens to wreak havoc on the federal budget in years to come. But the problems with our system, and particularly with its private components, are frequently exaggerated.
Even the terrific blog run by The American Interest has fallen prey to this tendency. A recent post begins thus:
America’s beleaguered retirement system is a three-legged stool, comprised of employer plans, private savings, and entitlement programs. The major development of the last two generations has been the evaporation of reliable employer plans: Outside of the public sector, few employers offer defined-benefit pensions. 401(k) plans have not made up the difference, and most Americans are not putting aside enough in individual accounts to retire with dignity.
The post ends with some good recommendations: “Policymakers should be focusing like a laser on ways to increase retirement savings for ordinary workers — pushing for greater financial literacy, and creating better tax and regulatory incentives [for] workers with modest means to put money away.”
But its picture of our system is too pessimistic. I’ll admit I’m a contrarian on this issue, having been convinced by my AEI colleague Andrew Biggs. Actually, it’s the numbers that did the convincing. As I’ve written before, retirees today have much larger incomes than the retirees of a generation ago, and working-age people are saving much more in retirement plans than their predecessors did. (Most workers never had the fabled defined-benefit plans of yore.)
Social Security benefits have risen well above inflation over the last generation, but not as much as private retirement benefits have, and retirees are therefore less and less dependent on the program. We shouldn’t be complacent, but it’s all right to take heart.