This month, millions of people on Social Security started receiving benefit checks boosted by an 8.7% cost of living increase. Older adults account for about four in five of those beneficiaries.
Additional improvements to Social Security payouts could address one of the nation’s most troubling economic problems with the aging of the population: The lack of retirement savings. Marketplace’s Sabri Ben-Achour spoke with Senior Economics Contributor Chris Farrell to learn more about these changes.
The following is an edited transcript of their conversation.
Sabri Ben-Achour: Remind us, how are Americans doing when it comes to saving for our retirement?
Chris Farrell: You know, they’re falling short. The system is really geared against them. About half of workers don’t have access to an employer-sponsored retirement savings plan, and workers don’t save for retirement unless their employer offers them the option. And then even those who have an employer-sponsored retirement savings plan, like a 401(k) or a 403(b), you know, there’s a lot of demands on our money, we go through spells of unemployment. And the Federal Reserve calculates that the median balance in retirement accounts for workers, and this is ages 55 to 64, so you’re nearing retirement is $134,000. And that’s just not going to last very long during those retirement years.
Ben-Achour: One argument is to lean more on Social Security to deal with this problem. How would that work?
Farrell: OK, this is an argument that I like because Social Security is the financial foundation of retirement. And so, if you improve social security benefits so that it replaces more of your working income or retired, it’s the best way to ensure financial security. So, think about it, no need for policies about how to move your retirement savings when you change jobs, no reason to figure out asset allocation, safe withdrawal rates, and other complex financial decisions. So, a more generous Social Security would also help address racial income inequities.
Ben-Achour: So how do we pay for that? I mean, does that mean we would contribute more into Social Security? Or where would that money come from?
Farrell: The cottage industry of scholars, you know, they designed very sensible blueprints for not only fully funding Social Security, but also boosting the overall benefit. And it largely relies on tax increases and some reforms, some changes to the system. And right now, we’re hearing this discussion as the new Republican majority House of Representatives. They’re starting to talk about cutting benefits. It’s being tied to this debate over lifting the debt ceiling. But here’s the thing, poll after poll after poll shows that the American public strongly supports Social Security, and the positive results go across demographic and political and age lines. So, we can afford it isn’t easy, but it isn’t the impossible dream either.
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