Are you counting on Social Security for your retirement? Blame Congress if it's not there

We’ve grown accustomed to sky-is-falling forecasts on the future solvency of Social Security and Medicare, which are almost as old as the programs themselves.

Social Security was scarcely 30 years old in the 1970s when its Board of Trustees warned that financial disaster was just around the corner. So far, these disasters have never materialized, but that doesn’t mean it couldn’t happen.

This week the trustees were at it again, warning that without congressional reform, Social Security will go belly up in 2035, and Medicare a year later. We’ll see.

Fixing Social Security would be heartbreakingly easy — little tweaks such as means testing, raising the retirement age a year or two, or welcoming more immigrants into the country would have a profound and positive impact.

But even if it can be saved, Social Security has become little more than pocket change. The average Social Security check in America exceeds the cost of the average apartment by only $600 a month — which doesn’t go far in covering food, gas, insurance, heat, phone, cable, clothes and so on.

For many, the golden years that are supposed to include time for hobbies, travel and dining out with friends are more like a prison cell, with little money for anything but staring at TV or social media.

Fifty years ago this didn’t matter much, because pensions were supposed to cover much of a retired employee’s salary; Social Security would make up the difference.

But in 1980, an insurance broker discovered a loophole deep within the U.S. tax code, specifically Section 401(k). Essentially, it said that employees could save part of their salaries tax free, and a year later the IRS affirmed that regular deductions could be made for that purpose from weekly paychecks.

This was initially hailed as a great new era in American savings. Yet the real beneficiaries were American companies, who quickly used 401(k)s as an excuse to discontinue their pension obligations. They assured workers this was in their best interest, because, unlike pensions, they could control how their money would be invested and see exactly what they had in the bank.

But the savings didn’t materialize. Instead, they plunged. In the 1960s and ’70s, Americans socked away about 12% of their wages. Today we save less than 4%.

So Americans lost their pensions, but instead of saving more they saved far less — because you can’t save what you don’t have.

In the 1960s, few women worked because few women had to. A single salary took care of the family. As salaries began to slip in proportion to the cost of living, more women began to enter the workforce, both out of need and for the natural desire to have a career of their own.

Not only were women paid less than men, their entry into the workforce created a labor surplus that depressed wages across the board. By the 1980s, it took two people to make what a sole breadwinner would have been earning 20 years before.

Corporate America was treated to essentially free labor at the same time it was also allowed, by way of the 401(k), to break free from expensive pension plans. Families that once had a sole wage earner and a guarantee of a comfortable retirement now needed two wage earners and had to save for retirement on their own.

Those who could afford to save made out fine. Without having to pay a living wage or pension costs, corporate earnings and stock prices soared — great news for those heavy into 401(k)s. According to the Federal Reserve, however, only the top 10% of income earners have truly been able to save at a rate that saw their accounts grow into a sum that would provide for a comfortable retirement.

Many accounts have pitifully small amounts of money in them, and are used more like an emergency fund — subject to penalties for early withdrawal that far outweigh any tax advantages — than a pension substitute.

Contrary to popular opinion, the story of American economic classes over the past half-century is not the gap between the haves and have-nots. It’s the shrinking number of the haves. In 1965, high school graduates who were good with their hands could have a home, two cars and a pool.

Today we have made college a requirement for a living wage — and then taken such a sizable cut of that wage in the form of obscene tuition costs and subsequent student loans that more kids are wondering, why bother?

Similarly, the 401(k) was heralded as a way for the have-nots to gain wealth. What it did instead was to sap retirement wealth from people who had previously viewed themselves as comfortably middle class. So Social Security is facing its greatest risk at a time it’s needed most.

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Tim Rowland is a Herald-Mail columnist.

This article originally appeared on The Herald-Mail: Will Congress act to save Social Security? There are simple answers