Three quarters of our fellow Americans have just told a survey that they think everybody should have a defined benefit (or “final salary”) type pension plan.

Good, yes?


Talk is cheap.

How many of them are actually willing to fight for the final salary pension plan we already have?

I’m talking about Social Security. And the answer is: Probably not many, based on how everyone talks, acts and votes.

Some 242 million U.S. workers and retirees either depend on Social Security today or will do in the future. But as regular readers know, the program is now $16.8 trillion dollars in the hole. Without a drastic fix, within about a decade it will have to cut benefits across the board by about 20%.

Yet you would hardly know from the last umpteen U.S. elections.

If we get to the point where Social Security actually has to be cut, it will be interesting to go back and look at the main newspaper headlines during the past five or six U.S. presidential elections.

To put the Social Security funding gap in context, there are 154 million taxpaying households in this country, according to the IRS. So filling the Social Security gap would involve a one-year hike averaging…$110,000 per household.

In the words of Alec Baldwin in Glengarry Glen Ross, “Oh, have I got your attention now?”

(Maybe on Social Security we all need a put-your-coffee-down moment.)

Meanwhile the Federal Reserve reports that the entire net worth of every household in the country adds up to a mere $12.3 trillion.

So we can’t plug the gap by taking every nickel, Castro-style, from the richest 1%. We can’t even plug it if we take every nickel from everybody.


President Biden’s proposals include slapping an extra 12.4% tax on those earning more than $400,000. (Incidentally that would raise the effective top marginal rate of federal income tax to nearly 50%.) He also wants to expand benefits for those at the lower end of the scale.

As MarketWatch’s own Alicia Munnell says, in an interview with Think Advisor, the tax hikes aren’t enough and the extra benefits make the hole bigger, not smaller. Wharton says this plan would close less than half the long-term funding gap.

As a nation we have run up an extra $17+ trillion in national debt since 2000, paying for wars, bailouts, rescue packages, tax cuts and boondoggles (pick your order). So at a time when we need to lay our hands on $17 trillion for the country’s main pension fund, we find we have managed to borrow $17 trillion…and spend it on everything other the country’s main pension fund.

Nice work.

How ironic that 21 years ago, when the federal budget was balanced, President Clinton said the number one budget priority should be to “save Social Security first.” If only.

Meanwhile one workable plan to square the circle, by investing Social Security funds in stocks like every other pension fund, isn’t even on the agenda.

Why not? I hate to sound cynical but: Many of the people making the rules don’t really rely on Social Security themselves. So are they really going to sweat bullets finding ways to save it?

Back in 2005 then-president George W. Bush came out with a half-baked, or possibly quarter-baked, plan to “privatize” Social Security. Most of his plan was unworkable or worse. But buried within it was one sound principle: That some (or even all) of our Social Security money should be invested in stocks. – were people picking their own stocks in this scenario? if so, that sounds dangerous 

There was, and is, no reason why the trust fund shouldn’t be empowered by legislation to do that.

But this idea is so outside the “Overton Window” of acceptable solutions that people won’t even discuss it.

If it’s so crazy, why do all other pension funds invest in stocks?

If it’s impossible, how can even the Norwegians do it with their massive state pension fund?

Based on some basic math—and with a hat tip to Michael Kitces at Buckingham Wealth Partners, though I have updated the numbers—we can calculate that Social Security today has a capital value of about $320,000 for the average man who retires at age 67, and $380,000 for the average woman.

That is how much you would have to pay to buy an equivalent inflation-adjusted lifetime annuity from a private insurer.

So a 20% cut would make the average man $64,000 poorer, and the average woman, $76,000.

Meanwhile, the new survey suggesting that 77% of people support “pensions for all” turns out to be less than it seems. It’s published by the National Institute for Retirement Research, a perfectly reputable think tank. But its original creators included the National Association of State Retirement Administrators and the National Council on Teacher Retirement. And the survey appears as part of a document asserting widespread public support for state and local retirement plans.

Leave a Reply

Your email address will not be published. Required fields are marked *