According to the non‐partisan Tax Foundation, the average two‐earner family pays more than 37 percent of their income in taxes (to say nothing of the higher prices they pay as a result of corporate income taxes). After typical living expenses, says the Tax Foundation, that leaves such a family with less than 4 percent of their income to save. Even if they were disciplined enough to save it all, accumulating wealth at that rate for retirement would be a problematic undertaking.
While there are IRAs, 401(k)s, and 403(b)s to provide opportunities to accumulate savings, for the most part only those with significantly above average earnings are able to take advantage of these plans. For most Americans there simply is not enough disposable income available to invest after taxes. As a result, fully one‐third of Americans have no savings at all, while the next third have less than $3000 in savings.
Those Americans are forced to depend on Social Security for the majority of their retirement income. And that’s a very risky proposition — much riskier, as it turns out, than depending on the stock market. Since its inception, Social Security has increased taxes on 38 separate occasions, in each instance lowering the return on one’s “investment” in the system. Imagine a private investment firm offering an annuity that would periodically demand that additional capital be paid in order to keep benefits at the agreed upon level.
But that’s one of the dirty little secrets about Social Security. There is no contract, no guaranteed return. According to the most on‐point Supreme Court decision on the subject, the 1960 case of Nestor v. Fleming, Social Security is not an investment plan, but a social policy totally in the hands of Congress, which may reduce benefits at will, regardless of what has been paid in.
Given the importance of Social Security to the savings plans of the vast majority of Americans, it is more than a little absurd that the so‐called National Summit on Retirement Savings is charged with looking at savings without considering Social Security. That’s a little like looking at the history of basketball without considering Michael Jordan.