Mending the safety net

Our view: Retirement security is the goal

July 14, 2008

This is the summer of their discontent. Approaching retirement age, America's baby boomers are worried about their economic future and have a world of reasons for that fear. Taken together, the housing bust, credit crunch, soaring gas prices, rising unemployment and a slumping dollar portray a bleak economic outlook when significant weaknesses in the social safety net intended to protect older citizens are becoming apparent.

Both presidential candidates are promising to cure a looming shortfall in Social Security funding and take other steps to spark an economic revival. But each proposal has serious shortcomings. Sen. Barack Obama wants to increase Social Security and other taxes for those with higher incomes - a proposal that would eliminate only about half of the Social Security funding gap. His plan to increase federal spending to spur the economy could significantly increase an already deep federal deficit. Sen. John McCain has suggested diverting some Social Security taxes to private retirement accounts and reducing increases in benefits, but he offers no definite plan. His economic stimulus proposal includes holding taxes low and balancing the federal budget by 2012 - an impossible combination, economists say.

Broader remedies, new ideas and some significant changes in the lifestyle of ordinary Americans are needed to meet these challenges. But there's no getting past that Americans are living longer: Those age 65 can expect to live into their 80s. Social Security and Medicaid are in trouble. Within the next decade, the cost of providing senior health care through Medicaid is expected to soar by billions of dollars, requiring significant increases in withholding taxes or cuts in coverage for senior citizens. Traditional pensions that provided a dependable guaranteed income are disappearing, as is employer-provided retirement health insurance. Three out of five private-sector workers are now offered only market-based 401(k) retirement savings plans. Participants have watched the value of their savings in those plans drop by 20 percent or more in this year's market slide. At the same time, billions of dollars in home equity, another potential source of retirement income, has disappeared in recent months as home values decline.

The answers to all of this are likely to be painful. Among the possibilities: cuts in health benefits, more years of work for many, some form of universal health care, mandated retirement savings plans and tax increases. Those who would lead the country - in the White House and in Congress - should explain how they intend to mend the social safety net and restore middle-aged Americans' confidence in the future.

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