Beware of the one-legged stool, it isn’t enough to live on


By Al Norman

In 1934, when President Franklin D. Roosevelt first pitched the idea of a Social Security program to Congress, he referred to “three principles” of the program:

•Non-contributory old-age pensions for those who are now too old to build up their own insurance;

•Compulsory contributory annuities, which in time will establish a self-supporting system for those now young and for future generations;

•Voluntary contributory annuities by which individual initiative can increase the annual amounts received in old age.

alnorman_headshotSocial Security was never meant to be the sole source of support in retirement. As Roosevelt said when he signed the program into law: “None of the sums of money paid out to individuals in assistance or in insurance will spell anything approaching abundance. But they will furnish that minimum necessity to keep a foothold; and that is the kind of protection Americans want.”

FDR years later depicted Social Security as “only a base upon which each one of our citizens may build his individual security through his own individual efforts.”

As of 2012, 77 years after the passage of Social Security, the average monthly Social Security benefit for a retired worker was roughly $1,230. That’s $14,760 a year. The federal poverty level that year for one person was $11,170. So Social Security is just enough to stay above poverty — but $40.44 a day is not what FRD called “abundance.”

When I was in college, we were told that the three legged stool was made up of Social Security, pensions and private savings. But since the 1970s, many employers shut down their defined benefit pension plans, which gave retirees a guaranteed monthly payment based on years of service and salary.

Instead, employers began offering defined contribution plans, which shifted the pension burden from the employer to the employee, leaving it up to workers to finance their future alone. For low- and middle-income workers, the three legged stool became a one legged pole: they made too little to save, and their employer pension was gone.

To stimulate more private savings, the White House is now proposing automatic IRAs, which would be funded by workers. President Obama’s 2014 federal budget includes a proposal to require small employers (those with less than $20 million in annual payroll) and with 10 or more workers and no retirement plan, to automatically enroll employees in an IRA, from which they could opt out. “About half of American workers have no workplace retirement plan,” the president said. “Yet fewer than one out of 10 workers who are eligible to make tax-favored contributions to an (IRA) actually do so.” The president’s new treasury secretary said automatic IRAs would help people “get in the practice of saving for their retirement.”

But this is the same administration that just proposed cutting the Social Security cost of living adjustment, which will take $130 billion out of retirees’ pockets over the next decade. Instead of putting more burden on cash-strapped workers, the White House should drop the chained CPI proposal, and impose higher Social Security payroll taxes on people earning more than $113,700. Congressman Bernie Sanders (I-VT) has proposed raising the FICA tax on salaries over $250,000.

One thing is certain: most workers don’t earn enough to put much away. If we are down to a one-legged stool — it’s better to shore up the Social Security leg, than to expect workers to “automatically” finance their own retirement.

Al Norman is the executive director of Mass Home Care. He can be reached at 978-502-3794, or at