There has never been a “golden age” of retirement in America.
Retirees 30 or 40 years ago fared no better than retirees today. Pensioners don’t fare much better in other countries. There is no “free everything” nirvana for the over-65s. Anyone who thinks the pension system is better in Kazakhstan – where 80% of rural homes still have outdoor toilets – should move there and try it.
But these myths and fairy tales about retirement die hard. And they were on display on Capitol Hill on Wednesday, where Bernie Sanders’ Senate “Health, Education, Labor and Pensions” (i.e. “HELP” — get it?) committee held another dog-and-pony show on the topic.
America faces enormous retirement challenges, but it’s unlikely to help us get where we’re going if we can’t even agree on where we are, let alone where we once were.
So where do you want to start? A number of speakers – senators and witnesses – recalled the supposedly good old days, when America’s charitable corporations gave wonderful lifetime pensions to all their workers and everyone lived, retired and died happy.
This golden age supposedly occurred before the great plague of “greed” suddenly attacked the country, out of nowhere, around 1980.
Never let facts get in the way of a good story, right? It’s all nonsense.
Private sector pensions have always been aimed at a privileged minority. According to the Congressional Research Service, in 1980 fewer than 27 percent of Americans over age 65 had a pension. The peak, around 1990, was 37%. At most, private sector pensions provided about a fifth of all retirement income.
The number of those who paid a pension was much higher. But they didn’t get much, if any, unless they had been with one employer for a long time. If you had a job for life at one company, then yes, you would probably do pretty well. But if you didn’t, you could easily get screwed.
Those “golden age” private sector pensions were so high that Congress had to pass the sweeping and historic Employee Retirement Income Security Act of 1974, or ERISA, to try to curb many of the (legions) rampant abuses.
Light: ERISA Killed Defined Benefit Pension Plans, Says Yale Law School Expert
Even those pensions were not abolished out of pure “greed”. They left because the economy changed.
It was no coincidence that Sanders called a “fourth generation” auto worker from Detroit to testify about the good old pensions his grandparents received.
The “Big Three” once could afford generous pension plans because they held more than 90% of the U.S. auto market until the 1970s. Today it is about 30%.
Oh, and according to official US government data, car prices today are much lower in real terms, adjusted for inflation.
It’s amazing what you can afford if you run an oligopoly at the expense of the consumer.
So, folks, turn in your Toyotas, Hondas, Nissans, Hyundais, Subarus, Mazdas, BMWs, Mercedes, VWs and Teslas, and go back to paying an astronomical amount for a Big Three car with no air conditioning, no radio, no heat. seats, no power windows and no full seatbelts, that uses leaded gasoline and gets about 30 yards to a gallon, and, sure, maybe we can think about bringing back those old Big Three pensions.
Oh, but you’ll have to die younger so we can afford them. The average life expectancy at age 65 today is about 20 years longer. In 1960 it was about 14 years.
If everyone went back to smoking, even big tobacco companies could probably afford more generous pensions.
In the meantime, if we want to return to the “golden age”, then all over 65s will have to take a 50% pay cut.
According to the US Census, the median Household income among those over 65 is now $50,290. In 1980 it was… $30,217 in today’s dollars. (See Table 15, here, and then adjust for consumer price increases from 2004 to 2024.)
In 1969? Try $23,777. Less than half the income today.
And these are the medians, the type of average that avoids the distortions caused by a few large numbers.
These good old days always sound better, don’t they?
Meanwhile, somehow the Senate managed to talk about this issue for an hour and a half without considering three key issues that could transform the outlook for Social Security or retirement: cracking down on tax evaders, taxing resources as well as income, and investing your Social Security Trust Fund in the stock market, like every other pension fund on the planet.
Meanwhile there is the myth that somehow everyone else has it better. Virtually every foreign country is considered to have a superior pension system to the American one. All Western European countries, of course, as well as many others. Kazakhstan also received applause during the Senate hearings.
In most countries, including those in Western Europe, pensioners complain that the grass is greener everywhere. Yes, Danes have generous pensions. But they also pay much higher taxes.
One of the main sources for this is data compiled by the Paris-based Organization for Economic Co-operation and Development, or OECD, which publishes data on “elderly poverty.” A casual reading of the data would suggest that America has a higher percentage of older adults in poverty than many other countries.
If only there weren’t footnotes! Here is the key point from the OECD: “For international comparisons, the OECD treats poverty as a “relative” concept.. The poverty meter depends on the average household income in a particular country at a particular time. Here, the poverty threshold is set at 50% of the average equivalent disposable family income.”
The italics are mine.
In other words, if the average household income in your country is 10 bags of acorns a year, and you’re trying to live in retirement on eight bags a year, you’re in Fat City as far as the OECD is concerned. Live on 80% of the average income. You are way above the “poverty rate”.
Good luck. As I said, if you move to Kazakhstan be prepared to use an outdoor toilet. Average temperature in the country in January? Oh, about five degrees Fahrenheit.
Enjoy!