Their View | Pension disaster can be avoided

Older workers seen more and more frequently working at fast-food restaurants and big-box stores aren’t there for the fun of it. They need the paycheck. Consider them symptoms of a retirement crisis in its initial stages.

About 75 million baby boomers began turning 65 in 2011, only to learn that many don’t have enough income to retire. More are due to learn that painful lesson. Altogether, Americans are $6.8 trillion short of what they need to retire. Imagine the consequences when the 13 percent of the population over 65 now becomes 18 percent by 2030.

The resulting crisis will ripple through families, society, and the economy as more adult children have to support their parents and more young workers can’t move up the career ladder because boomers are afraid to leave the workforce. Expect more seniors to fall into poverty.

This situation has been brewing since the 1970s, when wages began to flatten even as expenses continued to climb. Spouses entered the workforce, which helped make up the difference, but the buying power of two-income households never seemed to match the cost of living.

By the 2000s, many in the middle class were financially under water and borrowing more to get by. Average savings fell from 13 percent of net income in the 1980s to 2 percent in 2005. Then came the 2008 recession, making matters worse by devaluing savings and homes.

Even as families struggled, companies shifted more of the cost of retirement to employees. The portion of the workforce covered by pension plans has shrunk from 35 percent to 18 percent since the 1990s. Public-worker pensions, once considered inviolate, have become unsustainable burdens for more state and local governments.

Retirees are worried about the precedent set by a judge’s ruling that declaring bankruptcy will allow Detroit to cut pension benefits along with other debts.

Defined contribution plans such as 401(k)s, typically financed by workers with help from their employers, have not become a good substitute for defined benefit plans because they rarely cover retirement expenses and only about half of the workforce has access to them.

One partial solution to the pension crisis would be to enhance Social Security. It has a $2.7 trillion surplus and can pay out full benefits for another 20 years unless Congress cuts it. Instead, Congress and President Obama should find ways to boost Social Security benefits to help reduce the nation’s retirement income deficit.

The first thing they should do is remove the earnings cap on the payroll taxes that higher-salaried workers pay into the system. A Senate committee chaired by by Sen. Tom Harkin recommends paying Social Security recipients more by changing the formula to calculate benefits. The committee also called for a more accurate formula, based on seniors’ actual expenses, to calculate cost-of-living raises.

America isn’t alone in trying to deal with the economic realities of an aging population. Other countries may have good ideas to help prevent our pension crisis from becoming a disaster. The goal, as it was in 1935 when Social Security began, must be to help seniors afford to retire.