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The Problem With Cutting Entitlements is that Seniors Will Need More Help, Not Less

David Callahan

A proposal to adjust how Social Security benefit increases are calculated did not make it into the final fiscal cliff deal. Nor did various ideas for making affluent Medicare recipients pay more in premiums or deductibles.  

Don't be fooled: Proposals to trim entitlements for the elderly will be back -- if for no other reason than that's where big savings are possible (along with defense.) And now that 82 percent of the Bush tax cuts have been made permanent, the pressures to downsize government will only grow. Given the very low chances that Democrats can retake a gerrymandered House in 2014, we're looking at 2017 at the earliest before serious new revenues are approved. So get ready for endless attempts to cut government spending on seniors. 

There are many problems with pursuing this particular path to fiscal stability. But perhaps the biggest hardly gets any attention: Tomorrow's seniors are going to need more government help, not less. This point is one very ominous implication of a new report that Demos recently released with AARP on credit card debt among Americans over 50. The report found that "older households carried an average credit card balance of $8,278 in 2012" and that many of these 50+ Americans were using their credit cards to pay basic expenses or cope with a job loss -- in effect, leaning on a "plastic safety net."

The grim financial situation of middle-aged Americans is nothing new. As Senator Harkin's office pointed out in a study last year, half of all Americans have less than $10,000 in savings. This includes many Baby Boomers for whom retirement is not that far in the future. 

As Demos has extensively documented, the 401(k) system has been an utter failure. Too many people either don't have a 401(k), can't stash away enough money in their account, or see what nest eggs they do have eaten away by pernicious fees. Whoever thought it was a good idea to put America's retirement security into the hands of Wall Street money managers, who feast on fees, was an idiot. 

Simply put, tomorrow's seniors are going to be a lot worse off than today's seniors. In 2009, Alicia Munnell, director of the Center for Retirement Research at Boston College released a report that stated:

The majority of today’s retirees are able to afford a decent retirement. However, this group is living in a 'golden age' that will fade as Baby Boomers and Generation Xers reach traditional retirement ages in the coming decades. . . .  This gloomy forecast is due to the changing retirement income landscape. Baby boomers and Generation Xers will be retiring in a substantially different environment than their parents did.

The report found that some 51 percent of U.S. households were at risk of being unable to maintain their pre-retirement standard of living at age 65. Some 41 percent of early boomers, 48 percent of late boomers and 56 percent of Gen Xers were at risk.

The financial crisis, needless to say, is one reason for these numbers. And, as Pew has documented, households of color in particular had their wealth wiped out -- with African-Americans households seeing their net worth decline by 53 percent.

But even before that crisis the middle class faced stagnant incomes as most wealth gains went to the top 10 percent and found it very hard to save. While all the speculation during the housing bubble is typically seen as piggish behavior, it's safe to say that many homebuyers were throwing Hail Mary passes and trying to build enough wealth for their later years. 

It should be added that today's seniors are hardly living on easy street. Over 4 million seniors are poor and millions more live just above poverty. Nearly all seniors have huge out-of-pocket healthcare costs despite Medicare.

And that is nothing compared to the epidemic of senior poverty that awaits us. We are looking at a return to the early 1960s, when as many as a quarter of seniors lived in poverty. Medicare and big increases in Social Security benefits brought that rate down to around 10 percent by the late 1970s -- which, bizarrely, has been considered acceptable.

I'm sure some people in Washington see the elderly poverty epidemic heading our way. Senator Harkin certainly does. Yet many in that town -- including Obama at times -- are behaving as though it makes perfect sense to squeeze tomorrow's retirees. It doesn't.