"A Secure Retirement for 21st Century Seniors"
Remarks As Prepared For Delivery
National Press Club
May 13, 2014
My mother turned 80 the day I was elected to the U.S. Senate.
For me, that night was the culmination of a year and half in a difficult campaign. One that many people, including on occasion myself, had doubts I could win.
But for my mother, that night wasn’t just an election, it was a living affirmation of the promise of the country she had come to love.
When she and my father came to America in 1956, they came with little more than their dreams of a better life. But even with the constraints of their old lives removed, they struggled off and on throughout the years.
The service jobs they took were not glamorous. But their hard work was dignified, because it allowed my parents to earn what they wanted most: a life of security in the great American middle class.
That night as she stood on stage with me, what she saw was the promise of America. Because just a few decades removed from poverty and struggle, her son had been elected to serve in the Senate of the most important nation in the history of the world.
That night would never have been possible without America. And it would never have been possible without the years of sacrifices my parents made for me. To allow me to pursue my dreams, they both worked well past retirement age.
My father still worked late nights as a banquet bartender until I graduated from law school, got my first job as an attorney, and was finally able to help them with the monthly bills. And even then, he still wanted to work, serving as a crossing guard at a grade school.
They never earned enough to have significant savings or a pension. It was Social Security and Medicare that allowed them to retire with comfort and security.
My father passed away just a few weeks before my election. In the last months of his life, Medicare allowed him to receive the palliative care he needed to die with dignity surrounded by the people who loved him.
My mother is still with me. In recent years her health has declined as well. Medicare pays for the care she now receives that has not only extended her life but also preserved its quality.
And Social Security continues to provide for her financial needs as she lives with my sister and her husband in the house my parents moved us to almost three decades ago. My mother is blessed to have come to a country where a life of hard work could be rewarded with a dignified retirement.
Now, almost four years into my service in the Senate, a question enters my mind from time to time. What would life have been like for me, and for my mother, if she had arrived in America as a young woman in 2006 rather than 1956? Could my parents still have found good paying work and made it to the middle class? And would Social Security and Medicare still be solvent by the time they were ready to retire?
I believe the American Dream my parents lived is still possible. But among too many of our people, there is now a nagging sense that achieving it has become more difficult than ever. Financial security has faded for millions of Americans – and with it the hope of a stable and secure retirement.
The troubles of the last few years have forced millions to put retirement on hold indefinitely. It has even forced some to cut their retirement short and re-enter the workforce.
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 is caused by a variety of factors, yet they all share one common cause of decay: the lack of sustained economic growth.
This stagnation prevents wages from keeping pace with costs, affecting the ability of our 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.
Economic stagnation has dealt an especially staggering blow to the retirement prospects of those middle aged and younger. Americans born after 1955 have a good deal more debt than generations before them. And late boomers and Generation-Xers – who already had low levels of assets – suffered significant losses during the Great Recession.
We all hear financial experts talk about how we should save for retirement. I remember not so long ago I would read about people my age who were "maxing out" to their 401Ks and saving for the future. I wondered how they could afford it. Between my student loan, car and mortgage payments, plus groceries and the kids’ school tuition, we were living paycheck to paycheck.
I took comfort knowing that at least my home was rising in value and that we could one day sell it and use the profit to provide for us in our later years. But now many homes have lost much of their value. In fact, 9.3 million Americans now owe more than their homes are worth.
And even for those able to put some money aside for retirement, persistently low interest rates have made savings accounts about as useful as piggy banks.
For many, their only hope is that Social Security will give them enough to get by. But the startling truth is that with an aging population, a sluggish economy, and chronic fiscal irresponsibility in Washington, the Social Security trust fund is drying up. It will be insolvent by 2033. For Medicare, that moment of truth will come even sooner.
Taken together, these factors have created a real and looming crisis. Fortunately, it will spare current retirees like my mother. But for my generation – and especially for my children’s generation – the future of retirement is very much in doubt.
I turn 43 years old later this month. If nothing changes, by the time I reach full retirement age at 67, Social Security and Medicare will have been insolvent for years. This is not a scare tactic or a doomsday scenario concocted to spur action. It is a mathematical certainty if things remain unchanged. And the longer we wait to address this, the harder it will be to fix and the more disruptive those fixes will be.
Yet there appears to be no urgency about any of this. Instead, too many politicians lie in wait for their opponents to raise this truth so they can pounce. So they can accuse them of wanting to take away Medicare or Social Security.
I have no doubt that my suggestions today will be used against me, to try and convince seniors that I would change the benefits they worked so hard for and paid into all those years. It wouldn’t be the first time I’ve had such attacks hurled in my direction. So let me address that here and now.
First, my mother depends on Medicare and Social Security. I will never support anything that would hurt my mother or retirees like her.
And second, anyone who is in favor of doing nothing about Social Security and Medicare is in favor of bankrupting Social Security and Medicare.
With these two things in mind, I have come here today to share a few ideas on what can be done to avert our retirement crisis.
At the outset, I would mention that an agenda that cuts government spending and spurs economic growth is the single most important step toward stabilizing the three legs of the retirement stool. All of the reforms I’ve proposed so far in 2014 aim to create dynamic economic growth and, as such, they combine to form “step one” of my plan to ensure a secure retirement for 21st century seniors.
These reforms have targeted our federal anti-poverty programs, our higher education system, the factors inhibiting a secure retirement, and the policies keeping us from innovating and creating modern jobs. All will lead to growth, which will help Americans earn more and save more. No plan to avert a retirement crisis will work without robust and sustained economic growth in the years to come.
But while growth is essential, growth alone will not be enough. For the retirement system we have in place does not line up with the needs and realities of our post-industrial economy. In this new century, most people will live longer and voluntarily work longer. And many people will change jobs countless times, often in business for themselves or working for companies that do not offer retirement savings plans or pensions.
Therefore, our retirement programs must be modernized and restructured to address the new economy that is here to stay. Today I am proposing that we do so by pursuing three broad reform goals.
The first goal is to make it easier for people to save more and work longer.
The best way for Americans to guarantee security in retirement is to gradually build a nest egg of savings. If planned carefully and started far enough in advance, there is simply no substitute for this method in ensuring a comfortable retirement.
Social Security was never designed to be the sole source of retirement income. It was designed to serve as a supplement. For people in my generation and younger, this will not simply be the design of Social Security, it will be its reality.
Calculating how much we need to save for retirement can be tricky. And with wages stagnant across many industries, finding the financial latitude to start putting away that money can be even trickier.
As growth has slowed and millions have been left to languish in a failing job market, saving has started to look like a luxury rather than a standard practice. In fact, 36% of Americans have less than $1,000 saved up for retirement – many of them with nothing saved at all. This problem is especially prevalent among African-Americans and Hispanics.
Even those who have maintained steady employment often don’t make enough to allow for savings. One study last year found that 76% of Americans are living paycheck-to-paycheck.
Making matters worse, the nature of work in America is rapidly changing, yet our retirement programs and savings plans have failed to adjust accordingly.
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 50 years, and then retire with a pension. Our retirement programs were originally built with this reality in mind.
But times have changed. Today there are 75 million Americans working for employers that do not offer a retirement plan. And those who do have access to an employer plan probably won’t for their full career.
This is because the average worker today stays at each job for only about 4 and a half years. And that’s only the average worker … 91% of the Millennial generation say they only expect to stick around each job for two or three years. This means they could have 15 to 20 different jobs over the course of a career.
Many Americans figure the unpredictability of modern careers has made employer sponsored plans a thing of the past. Even when these plans are offered, many employees are not made aware or choose not to go through the trouble of enrolling.
Given this, it’s no surprise that 80 percent of people ages 30-54 believe they won’t have enough in the bank when it comes time to retire.
But ironically – and I believe unfairly – there is one group who does not have to worry about this problem.
Members of Congress and other federal employees have a retirement savings and investment plan called the Thrift Savings Plan, or “TSP.” The TSP, which is similar to a traditional employer-sponsored 401K, allows federal employees to save pre-tax money for retirement. And it is one of the most efficient savings plans in America. It charges fees which are a fraction of those in most private defined-contribution plans, allowing beneficiaries to 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.
That is why I propose we give Americans who do not have access to an employer sponsored plan the option of enrolling in the federal Thrift Savings Plan. Opening Congress’ retirement plan to the American people will allow us to bring the prospect of a secure, comfortable and independent retirement into reach of millions of people.
After dealing with the savings crisis, we need to ensure that older workers have the ability to work as long as they need or want without being punished for it.
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. This encourages some seniors to quit the workforce before they would otherwise.
In order to remove this disincentive to work, we should eliminate the 12.4% Social Security payroll tax for all individuals who have reached retirement age. These seniors have already paid their fair share, and we shouldn’t punish them for choosing to keep working rather than immediately cashing in.
Eliminating this tax will also help seniors accelerate their savings by letting them keep more of their money. And it could also make older workers more attractive to employers, since the employer’s half of workers’ payroll taxes would also be eliminated.
Eliminating the Social Security payroll tax for seniors will likely result in older Americans choosing to work longer, which in turn will lead to an increase in federal income tax revenue. And seniors who choose to keep working will improve their personal retirement security and decrease their dependency on federal assistance programs.
This payroll tax on older employees isn’t the only way we discourage seniors from voluntarily continuing to work. Those who choose to claim their benefits early while they keep working are subject to what’s called the Retirement Earnings Test. Under this test, benefits are reduced approximately 50 cents for every dollar a person between the ages of 62 to 65 earns in excess of $15,000 a year.
This essentially equates to a 50% tax on benefits on top of all other taxes being paid, such as the payroll tax I just discussed. The result is that Americans often work right up until the age of 62, and then enter retirement before they start incurring this penalty.
Here is what is even more puzzling about this policy: it doesn’t save any money. Because when a senior hit by this tax finally reaches 65, their benefits are hiked way up to make up for any loss caused by the Retirement Earnings Test.
In the end, the benefits end up being mostly the same over the course of a retirement with or without the Retirement Earnings Test. But most people aren’t aware of this, so many leave the labor force when they turn 62 to avoid paying the 50% tax on their Social Security benefits.
We should eliminate this test altogether. One economist estimates that abolishing the Retirement Earnings Test would raise employment among early retirees by 5.3%, a significant increase for a reform that has no long-term budgetary cost.
I have heard some suggest that with unemployment so high and jobs so scarce, we shouldn’t be pumping the labor force with more workers. They reason that if seniors don’t stop working we won’t have enough jobs for younger workers. It’s an interesting theory, but this is not how it works out in practice.
Studies show that an increase in older workers actually boosts the number of jobs for younger workers. For every percentage point that the employment rate for older workers rises, youth employment rises by 0.21 percentage points.
Taken together, these reforms will help more people save for retirement and allow more seniors to choose to work longer. This will foster a balanced retirement, and leave fewer Americans solely dependent on Social Security.
But while Social Security should not be our only source of retirement income, it must remain a significant supplement to our post-retirement income if we are to prevent a retirement crisis in America.
That is why our second reform goal for guaranteeing a secure retirement for 21st century seniors is to enact reforms that save Social Security for future generations.
The country has changed enormously since the passage of Social Security. Yet the basic benefit rules have failed to adjust accordingly.
Rather than pass reforms, many in Washington think the answer is to double-down on the current program and simply infuse more money into it. But failing to modernize Social Security will eventually lead to an outcome we can’t buy our way out of.
My answer is to build this outdated system into something that’s worthy of the 21st century, and that’s designed to sustain all seniors and last for generations. This requires taking into account modern realities.
Take for instance the retirement age. Many now choose to work well past the age of retirement. If you have any doubts, I encourage you to come see the United State Senate at work!
People are working longer because people are living longer. If you turned 21 in 1940, your chances of living to retirement age were only about 55 to 60 percent. But if you turned 21 today, your chances of reaching retirement age are around 80%.
What this means in practical terms is that we now have a record number of Social Security beneficiaries. And these beneficiaries, on average, are living another five to ten years longer than Social Security’s earliest recipients. But in the past 80 years, Congress has only increased the retirement age by two years, from 65 to 67. This simply won’t be enough in the long run.
The answer is to gradually increase the retirement age for future retirees to account for the rise in life expectancy. And if we act soon, we can do this without changing the retirement age for people who are currently over the age of 55.
We also need to look at how we calculate initial benefits. Social Security needs to provide a stronger safety net for those at the bottom of the income scale. When my parents retired, they didn’t have a nest egg of savings to rely upon. They leaned on Social Security to help them through – in fact, my mom still does. We need to make sure that seniors like my parents – who worked low wage jobs their whole lives – aren’t consigned to poverty in old age.
On the other end, however, are retirees with very high-incomes. For wealthy retirees, their monthly Social Security benefit is a less significant portion of their monthly finances. The answer is to reduce the growth of benefits for these upper income seniors while making the program even stronger for lower income seniors. This isn’t a cut, it’s simply a reduction in how fast the benefit will increase for wealthier retirees.
Doing this will add years to Social Security’s solvency. It is one of the best ways to save the program for high-income and low-income beneficiaries alike.
Our third and final goal is also the most difficult, and that is saving Medicare.
As I stated earlier, Medicare is deeply personal for me. When my father got sick, Medicare paid for his numerous hospital stays. And as he reached the end of his life, it allowed him comfort and dignity by paying for his hospice care. And like most 83 year-olds, my mother has several age-related ailments. Without the quality healthcare that Medicare pays for, I cannot imagine what life would be like for her.
So when talking about Medicare, two facts need to be made clear from the outset. One, the program is absolutely essential to maintaining a secure, healthy and comfortable retirement for seniors. And two, if we do nothing to reform it, Medicare hospital insurance will go bankrupt in about 12 years and cease to exist.
Again, this is not a scare tactic, it is simple math. In 2012, Medicare spending grew by 4.6 percent – to about $580 billion. And between now and 2022, this growth rate is expected to accelerate to around 7.4 percent per year. By 2026, the Medicare trust fund will run dry.
There was once a time when talking about Medicare reform was a third rail of American politics. But as we get closer to impending doom, it seems more people are at least willing to discuss serious ideas about how to save Medicare. And any serious effort to save Medicare needs to first take a hard look at what recent reform efforts tell us about what works and what does not.
ObamaCare turned four last month. It raises the iconic question: Are you better off than you were four years ago? The answer is an unequivocal ‘no.’ Jobs have been lost. Hours have been cut. Employers have been forced to drop coverage. Premiums have skyrocketed. Millions have lost coverage they were happy with.
ObamaCare has even hurt Medicare recipients by cutting about $156 billion out of Medicare Advantage. This cut was a grave miscalculation. Medicare Advantage is a shining success story that millions of seniors like my mom rely upon. In short, it allows you to receive coverage from a private provider using funding from Medicare.
This has encouraged providers to compete for business by tacking on all sorts of value-added services for seniors. For example, one of the reasons my mom picked her current provider is because, in addition to good doctors, they pick her up and drive her to appointments.
This sort of competition in the marketplace invariably leads to two very good things: a decrease in prices and an increase in choices. Choice and competition are also at the heart of another Medicare success story: Medicare Part D. Through this market-based program, seniors have at least 28 different prescription drug coverage plans to choose from, and competition has worked as a powerful cost control mechanism.
This has made Part D a booming success by every conceivable measure. The CBO found that total program costs are on track to be 45 percent – or $348 billion – less than initial 10-year projections. Average monthly premiums are expected to be $31 in 2014, which is less than half of the $64 originally predicted. Not only does it save money, seniors love it. 95 percent of seniors enrolled in Part D find it convenient to their needs.
So when it comes to a broad and comprehensive Medicare reform plan, let’s learn from the mistakes of ObamaCare and the successes of programs such as Medicare Advantage and Medicare Part D. Let’s dramatically expand health care choices for seniors, spur competition in the marketplace and extend the solvency of the Medicare trust fund – all while making sure traditional Medicare remains an option.
To do so, I propose we transition to a premium support system, which would give seniors a generous but fixed amount of money with which to purchase health insurance from either Medicare or a private provider. The choice would be theirs to make.
My friend Paul Ryan is a leader when it comes to Medicare reform. I supported a couple key proposals to fix the program that were detailed in his Roadmap during my campaign in 2010. Since then, he has teamed up with Senator Wyden to propose a bold bipartisan plan to institute the premium support model.
Under this plan, the government contribution would be fastened to either traditional Medicare or the average bid — whichever is cheapest. This way, if seniors choose plans that cost more than that benchmark, they would have to pay the difference. If they choose cheaper plans, they would get to keep the savings.
By driving competition between private plans and traditional fee-for-service Medicare, we could spur choice while controlling costs. It would also lead to innovations that are specifically focused around the needs of beneficiaries.
The increased efficiency brought about by free market competition will allow providers to offer the same health benefits as traditional Medicare but for less money. The CBO predicts that by 2030, Medicare spending under a premium support plan would be 7% less per person than under the current system.
Most importantly, this new system ensures that Medicare continues to extend an impartial hand to all seniors for generations to come.
As I mentioned earlier, I’ll be turning 43 later this month. It seems like just a few days ago that I was graduating high school, or standing at the altar, or welcoming our first child home.
The older I get, the more I am reminded of how quickly things move, and how it’s never too early to start planning ahead for the next phase of life.
As a citizen and a husband, this means saving for retirement. It means seeing what it’ll take to be ready when the time comes.
But as a member of the United States Senate, I also share another responsibility: the responsibility to save the time-honored institutions that have long been at the service of the time-honored among us. That allowed my mother and father – and so many millions like them – to retire with dignity and live out the final years of their American Dream with comfort and peace of mind.
The responsibility to save these programs belongs to all who are elected to serve. Yet many seem to have forgotten that we are here to pass policy, not posture politically. They forget that issues such as these are the ‘why’ of politics, not merely optional dirty work.
Partisan politics in America has always been contentious. But throughout our history, on issues of generational importance, our leaders have agreed to put aside politics for the sake of our people.
If ever there was an issue worthy of this solidarity, preserving a secure retirement for 21st century seniors is that issue. And should we fail to address it, history will point its finger at all who stood aside or stood in the way.
Today, I have presented an agenda for addressing this crisis head on. I am eager to work with anyone – Republican or Democrat – who will work in good faith on these reforms.
Ultimately, I believe we will solve the retirement challenge before it is too late.
We will because rising to challenges is what we’ve always done. We will because we must for the sake of our children, and our children’s children. And we will because, once we do, the American Dream will be brought within reach in this new century – and the greatest nation in history will continue to shine for many generations to come.
Note: The speech as delivered stated, “The CBO predicts that by 2030, Medicare spending under a premium support plan would be 14% less per person than under the current system.” The version above has been corrected to say, “7% less per person.”