by Marco Rubio
Chapter Six
RETIREMENT IN YOUR OWN TIME, ON YOUR OWN TERMS
My mother turned eighty the day I was elected to the United States Senate. I remember looking at her on election night in the courtyard of the Biltmore Hotel, standing on the stage with me, confetti filling the air around us. I choked up with emotion at just the sight of her. She had dreamed of being an actress, but had spent her life in hard work—mostly as a maid—to give my brother and sisters and me the opportunities she never had. That night, she had been a widow less than two months. Before we lost my father, he had spent a lifetime sacrificing along with her for me to be up there on that stage.
My parents never earned enough to save much for retirement or to earn a pension. They both worked well past retirement age, and when they couldn’t work anymore, it was Social Security and Medicare that allowed them to retire in comfort and security. They are two of the hardest-working people I have ever known, but when the time came, they counted themselves blessed to have come to a country where a life of hard work could be rewarded with a dignified retirement.
Mom is still with me, living with my sister and her husband in the house she and my father purchased in 1985. At eighty-four, her health is declining, but, thanks to Social Security, Medicare and the love of a caring daughter, her life is about as good as it can be.
Spending time with her and my sister Barbara and her husband, Orlando, never fails to remind me how lucky we are. My mother has her benefits, and my siblings and I have the time and the resources to care for her. But lately, more and more Americans aren’t so lucky. For millions of us, financial security has faded—and with it, any hope of a stable and secure retirement. Americans at or near retirement increasingly live in fear for what the future holds. Like my parents, they have reached the sunset of their lives in the United States of America. But unlike my parents, they are nearing retirement uncertain and insecure about what the future holds.
Joyce is one of those Americans. She’s almost sixty-four and her husband, Scott, is seventy-five. All their lives, they’ve played by the rules. “We’ve always worked, paid our bills and tried to do things the right way—like we were taught was the right way,” she says. When Scott retired over a decade ago, he invested about $80,000 of his pension in the stock market and lost it. Then Joyce got downsized—“displaced” was the euphemism her employer used, as if she were a set of car keys—from her job at a newspaper. She got another job at another newspaper and was downsized again. After running through their savings, Joyce’s COBRA ran out and she found herself without health insurance. When she had what she calls “some health problems”—her fourth heart attack and rheumatoid arthritis, to be exact—the bills had to go on credit cards. Then they had to sell the house they had lived in for fourteen years. They didn’t make a penny on the sale. They just felt lucky to have gotten out from under the mortgage.
“So here we sit, with virtually nothing,” Joyce says. Less than nothing, actually. She calculates they owe over $20,000 in credit card bills. She has reached the point where she has contacted one of those companies that is supposed to negotiate with the credit card companies to reduce your monthly payment. She’s not optimistic, but what can she do? The credit cards were her only form of payment when she was unemployed.
“You need gas in your car and you gotta do something or pretty soon you’re not going to have a job again,” she says. “It’s like a circle.”
The most work Joyce can find is part-time administrative duty at the chamber of commerce. Scott picks up a few hours now and then with an auto dealership. When asked if she had hoped to be retired by now, Joyce erupts in bitter laughter. They had wanted to buy a mobile home and travel the country. “I don’t see that happening now,” she says. She’s still uninsured—she refused to buy insurance under the Affordable Care Act—so she is holding her breath until she qualifies for Medicare. In the meantime, health problems be damned, she has no choice but to work.
It’s those words—“no choice”—that seem to define Joyce and Scott these days. They’ve been left at the end of long working lives with no good options. They have no choice but to keep working. They had no choice but to sell their house. No choice but to run up their credit card debt. And the future doesn’t look like it will be offering any more freedom.
“I don’t know what’s down the road. We just live from day to day. We do what we gotta do. Sometimes it’s not easy,” Joyce says, “but I have no choice.”
Americans like Joyce, Scott and my mom were on my mind last spring when I spent a fine May afternoon outlining a plan to reform our retirement system to an audience at the National Press Club in Washington D.C. Washington has a long and dishonorable tradition of attacking anyone who dares say what everyone knows is true: that Americans are more insecure about their retirement than at any time in the past eighty years. Personal savings were decimated by the financial collapse and recession. Economic stagnation has endangered pensions. And most threatening of all to Washington politicians: Americans’ retirement savings of last resort—Social Security and Medicare—are nearing bankruptcy.
Financial analysts like to use the analogy of a three-legged stool when they talk about saving for retirement. Today, each of the three legs of our traditional retirement stool—personal savings, pensions and Social Security—is wobbling. And if we do nothing, each of the three will likely cease to exist as we know them well before my generation enters retirement.
The instability of each of the three traditional sources of retirement savings is caused by a variety of factors, yet they all share one common cause of decay: the lack of sustained economic growth. Economic stagnation prevents wages from keeping pace with costs, affecting the ability of the middle class to save. It also affects the ability of states and companies to fulfill their pension promises. And as earnings stall and unemployment and underemployment spread, it contributes to the erosion of the tax revenue needed to finance Social Security and Medicare.
These are facts—not theories or partisan talking points. Yet there appears to be no urgency in Washington about doing something about the looming retirement crisis. On the contrary, too many politicians lie in wait for their opponents to dare to raise these truths so they can pounce. When Wisconsin Representative Paul Ryan suggested a plan to shore up Medicare a few years ago, his opponents put out an ad featuring a Paul Ryan look-alike actually pushing an elderly lady in a wheelchair off a cliff. That’s the kind of subtlety and reason that has attended this debate.
That day last spring, I had no doubt that my suggestions would be used against me to try to convince seniors that I was trying to take away the benefits they had worked so hard for. Politics is politics. But I went ahead despite the likely partisan onslaught for two reasons. The first, I admit, is pretty selfish: My mother depends on Medicare and Social Security. I love my mother. Simply put, I would never support anything that would hurt her or retirees like her.
The second reason is less close to home but, at least for me, equally undeniable. Social Security is our largest domestic program and the largest source of income for most retirees. Medicare is the indispensable health care lifeline for the nation’s seniors. But an aging population, the sluggish economy and chronic fiscal irresponsibility in Washington have combined to doom these programs if nothing changes. The most recent Medicare Trustees Report predicts that the Social Security disability trust fund will be bankrupt in late 2016—late next year—and the retirement fund will be insolvent in 2034. Medicare will be bankrupt by 2030. These facts lead to one inescapable conclusion: Anyone who is in favor of doing nothing about Social Security and Medicare is in favor of bankrupting Social Security and Medicare. The politicians who so fiercely defend the status quo—and attack anyone who questions it—have it exactly wrong.
As you can no doubt tell, America’s retirement crisis is something I feel strongly about, and something I’ve been thinking about for some time. In fact, I’ve come to bel
ieve the single most important step we can take to relieve the retirement insecurity of Americans is to control government spending and spur economic growth. Everything I’ve talked about in this book so far—from making college more affordable to encouraging work to making America the best place in the world to invest and innovate—is aimed at restoring the American Dream by creating dynamic economic growth. Unless and until all Americans can earn more and save more, retirement will remain an uncertain—even unattainable—prospect for too many of us. No plan to avert a retirement crisis will work without robust and sustained economic growth in the years to come.
But while economic growth is essential to ease retirement insecurity, it’s not enough. The Broyles family is a good example of why. After having several jobs, Daniel and Becky are in business for themselves today. They don’t have any company pension or retirement plan. What’s more, they are likely to live longer than their parents or grandparents did. They love their work selling home furnishings and have no plans to retire.
More and more workers in our modern postindustrial economy are like the Broyleses. Instead of working at one company for life the way our parents and grandparents did, most of us today will have a number of jobs over the course of our working life. Many of these jobs won’t offer retirement plans. What’s more, the average American worker is now living and voluntarily working longer than Franklin Delano Roosevelt ever could have imagined when he came up with Social Security. Not only do we need to have economic growth to avert a retirement crisis, our retirement programs need to be modernized and restructured to meet the needs of a new kind of American worker. So our first challenge is to make it easier for these American workers to save more and work longer.
Albert Einstein is reported to have once said that the most powerful force in the universe is compound interest. Nowhere is this truer than with saving for retirement. The best way for Americans to guarantee security in retirement is to gradually build a nest egg of savings, starting as early in life as possible. Social Security was never meant to be the sole source of retirement income. For Americans of my generation and younger, this will be especially true. As the number of workers supporting retirees in our system declines, it will become more and more necessary for people to have adequate private savings.
But retirement can seem a long way off when you can’t afford to pay your mortgage or save for your children’s education. A reported three quarters of Americans today are living paycheck to paycheck with little or no savings for an immediate need like a job loss or medical emergency.1 When you’re cutting it this close, saving for retirement can be almost impossible. In fact, a recent survey found that over a third of Americans have less than $1,000 saved for retirement.2 This problem is particularly acute in minority households. Three out of four black families and four out of five Latino families have less than $10,000 in retirement savings. That is in contrast to one out of two white families. One reason? Only 54 percent of black and Asian workers and 38 percent of Latino workers have an employer-sponsored retirement plan.3
In addition to stagnating wages, another reason for the growing retirement savings crisis is the nature of work today. Throughout much of the last century, you could leave school and go to work at a local company or factory, stay there for the next forty or fifty years, and then retire with a pension. Today the average worker stays at each job for only about four and a half years—and that’s only the average worker. An astounding 91 percent of the millennial generation say they expect to be in each job for only two or three years, a vocational restlessness that translates into fifteen to twenty different jobs over the course of a career.4
Add to that the fact that many jobs, particularly low-wage ones, don’t have employer-sponsored retirement plans. Seventy-five million Americans—mostly part-time employees of small businesses, women and minorities—are working for employers that do not offer a retirement plan.5 And the rapidity with which Americans change employers these days virtually guarantees that those who do have access to an employer plan won’t for their full career. Some are never told about the existence of a plan or just choose not to go through the hassle of enrolling. It’s no wonder, then, that so many Americans have a fatalistic attitude about saving for retirement. A full 80 percent of people ages thirty to fifty-four believe they won’t have enough in the bank when it comes time to retire.6
Americans are rapidly on their way to giving up on saving for their retirement. Instead of spending their time trying to find Paul Ryan look-alikes to shove old ladies off cliffs, more politicians in Washington should be asking themselves why this is and what can be done about it. Instead of attacking anyone who dares question the status quo, Washington might stop to think about how retirement programs originally built for workers who had one job in their lifetime can conceivably be expected to meet the needs of workers who will have ten.
I think one reason members of Congress aren’t sweating the retirement savings issue too much is because they have one of the most efficient employer-sponsored savings plans in America. Members of Congress and other federal employees have exclusive access to the Thrift Savings Plan (TSP). Like a traditional employer-sponsored 401(k), the TSP allows federal employees to save pretax money for retirement. But unlike the typical employer-sponsored plan, it charges fees that are a fraction of those charged by most private defined-contribution plans and offers high rates of return. When costs are lower and returns are higher, beneficiaries save more. So the twisted irony is that members of Congress—who are employees of the citizens of the United States—have access to a superior savings plan, while many of their employers—the American people—are often left with access to no plan at all.
The most obvious and most just solution, I believe, is to give Americans who don’t have access to an employer-sponsored plan the option of enrolling in the federal Thrift Savings Plan. Giving Americans hard at work in the private sector who lack a retirement savings plan the same one that members of Congress enjoy can be done at little cost—the infrastructure is already in place. These private employees wouldn’t be offered matching funds, so the only expense involved would be the additional administrative costs of handling the new deposits.
The workers who are most likely not to be offered retirement plans by their employers are younger and lower income—precisely the Americans who most need new incentives to save. Conservatives have long pointed to the Thrift Savings Plan as the gold standard when proposing new ways for Americans to save for retirement. Now is the time for us to act to give Americans more options to save. Opening Congress’s retirement plan to the American people will allow us to bring the prospect of a secure, comfortable and independent retirement into reach for millions of people.
Giving Americans more options to save is the first part of solving the retirement security puzzle. The next part is ensuring that older workers have the ability to work as long as they want or need without being punished for it. And that brings us back to Joyce.
A couple of years ago, out of sheer desperation, Joyce elected to begin receiving Social Security benefits early, at sixty-two, while she was still working. But because of something called the Retirement Earnings Test, which penalizes workers who claim their benefits early while they still have jobs, Joyce estimates she’s receiving $300 a month less than she would if she had waited until she was sixty-five to claim her benefits.
The Retirement Earnings Test is like a 50 percent tax levied on the earnings of older workers—a tax on top of the payroll tax they already pay to finance Social Security. It works by reducing benefits by approximately fifty cents for every dollar a person between the ages of sixty-two and sixty-five earns in excess of $15,000 a year. Someone like Joyce has no choice but to pay this tax—she had to keep working and accept the cut to her benefits. But other Americans who have the option not to work usually stop working when they get to be sixty-two for no other reason than to avoid paying this penalty.
The Retirement Earnings Test
is as old as Social Security itself. It was born of a Depression-era impulse on the part of Washington to create jobs for younger workers by encouraging older workers to retire. Today, eighty years later, in a radically transformed economy with retirement savings at historic lows, it’s still providing a disincentive for seniors to work. What is even more nonsensical about this policy is that it doesn’t save any money. When a senior hit by this tax finally reaches sixty-five, his or her benefits are hiked way up to make up for any loss caused by the Retirement Earnings Test. The benefits received end up being mostly the same. This is good news for Joyce, but bad news for the older Americans who, not realizing their benefits will come back up to compensate, quit working to avoid the tax.
A 2014 Merrill Lynch study found that almost three out of four Americans over fifty say their ideal retirement includes some kind of work.7 And that’s their ideal—to continue to do what they love, or start a new chapter with some new balance of work and leisure. Other older Americans will have no choice but to work past retirement. In either case, to avoid punishing them, we should eliminate the Retirement Earnings Test altogether. It’s another low-cost, high-impact move we can make to ease the retirement crisis. One economist estimates that abolishing the tax would raise employment among early retirees by 5.3 percent, a significant increase for a reform that has no long-term budgetary cost.8
Another tax that provides a powerful disincentive for older Americans to continue to work is the 12.4 percent payroll tax itself. As the tax code is currently written, those who keep working past retirement age continue to pay Social Security taxes while receiving almost no extra benefits in return. The Social Security benefit is calculated based on a worker’s highest thirty-five years of earnings. One or two more years of work isn’t going to change what they receive. Seniors can do the math. Many of them choose to quit working because it’s just not worth it.
