The Daily Star, Oneonta, NY - otsego county news, delaware county news, oneonta news, oneonta sports

Guest Column

April 13, 2013

Social Security is a system worth saving


How small? In Otsego and Delaware Counties, where more than 15 percent of the population is receiving retiree benefits from Social Security, the average monthly benefit is $1,200. Do we really want to cut that? It’s hard to get by on $1,200.

But this is where that “relying on ourselves” part comes in, right? To supplement Social Security (or even, as some people argue, to replace it altogether), we’ve got private pensions, 401(k)s, IRAs ... The idea is that if we work hard and we’re frugal, we’ll do well. And if we’re really clever, we’ll make out like bandits.

Or not. We’ve been running this experiment for over three decades, and it has totally failed.

Until the 1990s, private pensions were a big help. Before then, a pension was usually a fixed check you’d get every month from a pension fund set up by your employer and/or union. At their high point, these “defined benefit” pensions covered over half of full-time workers, providing a dependable and sometimes sizable monthly benefit from retirement till death (and often beyond, through survivor benefits). Unfortunately, today, less than a fifth of workers have this kind of pension plan.

The 401(k) was invented in 1981 as an executive perk. With a 401(k) retirement account, the amount you pay in is fixed, but the payout isn’t: It depends on how your investments are doing. So you, not the employer, bear all the risk. Sometimes employers contribute a bit, sometimes they don’t. Sometimes the market pays out, sometimes it doesn’t. What’s more, many employers don’t offer 401(k)s, and many workers opt not to participate even if they’re an option. The same vicissitudes apply to IRAs and other retirement “products.”

All this adds up to trouble for those banking on do-it-yourself retirement accounts: Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their accounts. That won’t go very far. And it definitely won’t go far if they happen to retire at a time when the stock market is going bust. In short, while money management firms are making a mint off 401(k)s, workers aren’t.

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