Retirement's Unraveling Safety Net
Sunday, May 15, 2005
MIDDLE RIVER, Md. -- If it's a clear morning, you can count on seeing 80-year-old Junior K. Paugh strolling streets that tell his life story: Propeller Drive, Fuselage Avenue, Cockpit Street, Compass Road. He's been here more than 60 years, ever since aviation pioneer Glenn L. Martin put him to work making seaplanes and bombers at the defense plant down the road. Franklin D. Roosevelt was president and Martin himself walked the factory floor, urging on workers as the nation went to war.
Out of that perilous time came Paugh's now predictable world. He never is short of money, thanks to Social Security and his company pension that will last as long as he does. Health care costs him next to nothing, thanks to Medicare and retiree health insurance. His Baltimore County home is long paid for, thanks in part to a below-market price of $4,400, a result of wartime subsidies for defense-related housing construction.
"I feel completely secure," says Paugh, no small triumph for the third of 13 children born to farmers in Depression-era Appalachia. The triumph is not only his but also the country's -- the fulfillment of a New Deal vision of cradle-to-grave security, underwritten by the federal government and large industrial employers.
That vision is being supplanted by one President Bush calls the Ownership Society, in which the burdens of economic security -- and, the president hopes, the rewards -- shift back to individuals. Social Security is only one aspect of the shift. The safety net big companies wove for Paugh's generation -- long-term employment, pension security, retiree health insurance -- has been giving way for so long that its unraveling is mere background accompaniment to Washington's noisy debate over Social Security. But in the lives of most middle-class families, it stays in the foreground, inseparable from the Social Security discussion.
This becomes clear in the company of Junior Paugh, his three children, all in their fifties, and five grandchildren, ages 18 to 35. Their three-generation journey has taken them from Appalachia to suburbia, from government relief to an assembly line to a management track at Sears. Yet, despite the apparent progress, their expectations are sinking: The grandchildren, all three generations agree, have it worse than their parents and grandparents -- most dramatically in their prospects for retirement, when all gains and losses come home to roost.
Until now, financial planners have likened retirement security to a three-legged stool: employee pensions, personal savings and Social Security.
For the Paugh grandchildren, the savings leg is effectively gone, reflecting a plunging personal savings rate nationally. In place of Junior Paugh's pension, they have 401(k) plans, under which they -- not employers -- bear the risk and responsibility of investing enough for retirement. And under Bush's Social Security proposal, their promised benefit could drop significantly.
This is a new order with new givens. Paugh and his co-workers came of age as Democrats who felt protected by their union, their party and their government. His grandchildren are all registered Republicans who feel largely on their own in a world full of risks and responsibilities, and no guarantees. They are willing to give Bush's Ownership Society a try, saying they have no hope that government or employers can or will protect them.
The president is counting on the Ownership Society to do for the Republican Party what the New Deal did for the Democrats -- that is, make it the nation's majority party. For now, it is easier to measure what has been lost in security than has been gained in opportunity. But the grandchildren's story is only beginning.
The War Generation
If childhood in Western Maryland's Deer Park community during the Depression exposed Paugh early and often to life's hardships, adulthood became one encounter after another with protections government and businesses were erecting against risks his parents had battled on their own.
Paugh got his first job through Uncle Sam, driving a truck for the Civilian Conservation Corps, the New Deal agency that put unemployed people to work preserving natural resources. By the time he went to Glenn L. Martin Co. in 1942, wartime wage controls had led most industrial employers to provide pensions and health insurance -- in part to secure their workers' loyalty in an exceptionally tight labor market.
Paugh's job even came with a home. The entrepreneur built whole communities to house his burgeoning workforce, which topped 52,000 in 1942 as military orders soared during World War II. The government subsidized the construction as part of the war effort, and Martin passed on the savings in cheap rent and later, low sales prices.