retirement crisis
The American Retirement System Is in Trouble

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.

Partly as a result, a growing share of Americans say they will be leaning more heavily on the third leg of the stool: the Social Security system. A new Gallup poll shows that both Millennials and Baby Boomers are increasingly likely to envision a retirement where they are dependent on payments from Uncle Sam (Gen Xers haven’t shown as much of a shift).

The median Social Security payment is about $16,000 per year for an individual—not enough for a decent retirement. Moreover, the Social Security system is not adequately funded for the long-term; Millennials today will not have access to a robust program when they reach retirement age unless taxes are increased or benefits are reduced in the interim.

In other words, the Gallup poll is a sign of trouble ahead. 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 workers with modest means to put money away. This should be a priority for Republicans, as well. The alternative to a more sustainable private retirement system isn’t a free-market paradise; it’s ever-expanding entitlement programs that explode the federal budget.

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