Dissecting Elizabeth Warren’s argument for expanding Social Security

Great post by Andrew Biggs of AEI. Excerpt: 

"One of the hallmarks of Elizabeth Warren’s writing is compelling facts and figures, and she brings this talent to bear in a new op-ed titled “Why We Must Expand Social Security.” But, as others have pointed out, these numbers and statements that sound so convincing may or may not survive the light of day.
And so here follows my annotated guide to Warren’s argument for raising Social Security benefits, with her text interspersed with my own notes.
 
“For a generation now, working families have been squeezed by stagnant wages and rising costs for housing, health care, and college. Even as families have cut back on expenses for things like food, clothing, furniture, and appliances, it hasn’t always been enough; many have been forced to take on more and more debt just to pay for necessities.”

As AEI’ Mark Perry devastatingly points out, today’s Americans work fewer hours to purchase more stuff than ever before. In 1958, for instance, an average American worked 136 hours to purchase  black and white television. Today, we can get a flat-screen HDTV with 13 hours of work. To the degree Americans have borrowed more, it’s partly because government has encouraged them to do so (think housing) and partly to purchase more cell phones, big screen TVs, and so forth than their incomes can produce. For most Americans it’s not necessities that that are driving higher debt.

“One major consequence of these increasing pressures on working people is that the dream of a secure retirement is slowly slipping away.”

According to SSA, the typical Gen X-er will have a retirement income equal to about 110% of his average, inflation-adjusted pre-retirement earnings. The typical person born during the 1920s and 30s had a replacement rate of 109% while the baby boomers had rates of around 115%. In other words, the best research doesn’t show a huge decline in retirement security for younger Americans.

“Families haven’t been able to save as much as they used to…”

It’s true that Americans save less than they used to, but is it because they “haven’t been able to save”? Americans in 1960 saved at over twice the rate they do today, despite having incomes only one-third of today’s levels? Academic research finds that the major reason for lower personal saving is the growth of Social Security and Medicare. Warren’s solution, to grow Social Security further, has it exactly backward.

“…and only 18 percent of private-sector workers have defined benefit pensions today compared with 35 percent two decades ago.”

Yes, fewer Americans today participate in defined benefit pensions. But, as I pointed out in recent Congressional testimony, only around 1-in-10 workers who participate in a DB plan end up collecting benefits from one. If you change jobs before vesting, you receive nothing; and even if you vest, benefits for today’s mobile workers may be tiny.

“Forty-four million workers have no workplace retirement savings plan.”

Progressives often claim that “only half of private sector employees have access to workplace retirement savings.” In reality, a 2011 SSA study of tax records shows that 72% of all private sector workers are offered a retirement plan and 58% choose to participate. In larger firms, these figures are even higher.

“With less savings and weaker private retirement protection, retirees depend more than ever on the safety and reliability of Social Security.”

Not really. A 2012 SSA study showed that retirees born in the 1920s and 1930s receive around 22% of their income from Social Security benefits, but projects that when Gen X-ers retire they’ll receive around 20% of their incomes from Social Security, a small difference.

“Social Security also protects retirees’ spouses and children, disabled workers, and family members who survive the death of the family’s earner. Whenever I visit senior centers in places like Malden and Medford, I hear from retirees about how much they rely on Social Security benefits to make ends meet. Here in Middlesex County alone, 236,275 people receive Social Security benefits.
“Social Security works; no one runs out of benefits…”

Until 2016, that is, when SSA says the disability trust fund runs out and benefits are cut 20%, or 2033 when the retirement fund runs out and the system pays only 77 cents on the dollar."