Volatile Markets Highlight Need For Social Security Reform

With all this volatility in the stock market, corporations are afraid to hire, people are losing jobs, and older people do not have enough money to retire. This past week was a historical one on Wall Street; we saw 240-point swings – a first in the exchange's history. But why does this all matter? One word: retirement.

While most people do not invest directly in the stock market, they are involved in a pension scheme that does. They pump money into their pension from their paychecks, which is then given to a broker who invests it. Employees are entitled to a considerable amount of money when they retire, but if there is not any money in the scheme when they plan to retire, there is a problem. Recent financial events have shown that Americans need their politicians to enact reforms that will strengthen current retirement programs.

Whether your political leanings are on the right or left, everyone can agree that math doesn’t lie. Now that that the baby boomer generation is retiring we have to figure out a way to pay for it. There simply are not enough people working and contributing to Social Security to pay for all of them. According to the Social Security and Medicare Board of Trustees, “Social Security expenditures exceeded the program’s non-interest income in 2010 for the first time since 1983. The $49 billion deficit last year (excluding interest income) and $46 billion projected deficit in 2011 are in large part due to the weakened economy and to downward income adjustments that correct for excess payroll tax revenue credited to the trust funds in earlier years.” That means someone’s benefits are going to need to be cut or taxes are going to be raised, scenarios that no politician or citizen likes.

The problem here is that if one or both of those policy options are implemented, it still won’t do enough to make sure retirees have enough to live comfortably. Social Security payments are currently $13,966 per year. That is below the poverty level in the U.S., and only 54% of older Americans have income from other areas, which is usually less than $1,000 per year.

Stronger pensions are needed because, for one, long-term investment in the stock market has always led to gains for the individual. If you invested your money in the 1920s, you received almost a 15% return, and in the 1990s you would have received a little over 18%. The only decade that saw people lose money was the 1930s, due in large part to the Great Depression. While we are in very similar circumstances, the New York Times posted an article explaining the differences. One economist said that comparing today’s problems with the recession of 1937 is “far fetched” mainly because we have learned from similar situations in the past.

It is also important to note that these short losses in the stock market only affect the super rich and big banks that do most of the trading. They are the ones who rely on it more than anyone else and lost more money than most because they have the most invested in it.

Even if the stock market goes up and the unemployment rate goes down, the average person won’t be able to make enough to retire and will need some sort of supplemental income to live at the standard they are accustomed to. If Washington is serious about making sure people are able to retire and future generations are able to raise their families, they should take actions that calm the markets. It will give more confidence to companies to hire and allow people to prepare for the future.         

Photo Credit: Wikimedia Commons