When sisters Edith Detviler and Audrey Webb arrived at the U.S. Capitol last Thursday to testify about a snafu in their Social Security benefits, more than 500 senior citizens crowded the hearing room to protest injustice in America's mandatory retirement savings system.
Webb, 70, and Detviler, 15 months younger, live in Bell Gardens, Calif. Both went to work on the same day, at the same company, in the same job, for identical wages. After 25 years on the job, side by side, they retired. Now, the sister born in 1917 receives $152 less each month from Social Security than the one born in 1916 -- an inequity caused when the difference of that single year is cranked into the bureaucratic formula.
To the 500 graying demonstrators, it was yet another example of a clunker retirement mechanism that has often reneged on promises. But experts who calculate eventual retirement incomes of Americans age 25 and older say the problems of today's retirees are minor compared to what tomorrow's generation of retirees can expect: widespread financial inadequacies that will scramble retirement nest eggs.
"The two sisters are a classic case of inequality and injustice," says Fernando Torres-Gil, staff director of the U.S. House Select Committee on Aging. While committee chairman Rep. Edward Roybal (D-Calif.) pushes Congress to correct that wrong, Torres-Gil tackles "the big retirement picture." Immediate problems, says Torres-Gil, "really need to be resolved because they lessen the credibility of the system for younger people."
Some experts say public confidence in the retirement system is eroding, that young people doubt they will ever be repaid the lifelong investment regularly subtracted from their payroll checks. The fear is that wavering confidence could translate into resentment, even conflict, between generations of retirees whose futures add up differently -- especially if the economy were to hit hard times. And that, they say, could be a loose thread that pulls apart the social fabric of a nation quickly growing older.
"The inter-generational conflict -- is it myth or reality? That's what we're trying to figure out," says Torres-Gil, who prefers to avoid framing retirement issues in terms of young versus old. "The trends, however, are real and serious. We will have problems with the future retirement of the younger generations, unless we start doing something about it now."
When Jerry Kieffer was deputy commissioner of Social Security during the Ford administration 10 years ago, he once tried to track the processing of Social Security benefits from start to finish. "I told them to monkey up the figures as if I were 65 and figure my benefits," recalls Kieffer, now 63. "I wanted it computed before my eyes." What he saw was general confusion for most of a day before being told they "really weren't all that sure of the benefits."
That experience and an actuary report warning that as people live longer the system would go bankrupt convinced Kieffer the future of the next generation of elderly in this country was at risk. He says last week's federal cut in military pensions of future soldiers and the continuing reorganization of civil service retirement are just the latest signs of the mounting crisis.
"Most people have a short-term view of this problem," says Kieffer. "It's like the curvature of the Earth -- you have to be on the moon to see it."
As staff director of the 1981 White House Conference on Aging and, today, chairman of Fairfax County's Task Force on Strategic Perspectives on Aging -- a group chartered by county supervisors to forecast the effects of a growing elderly population -- Kieffer has kept tabs on Americans' retirement prospects. Dismissing the argument that the system is falling apart, he says central to the coming crisis is the inability of retirement systems, both public and private, to keep pace with converging demographic changes and a technological revolution that is altering the nature of the American workplace.
One of the generational stumbling blocks, says Kieffer, is our national dependence on Social Security for retirement income.
Though unintended by its founders in the 1930s, Social Security has become the primary retirement plan for an overwhelming majority of Americans. More than 124 million workers, or 95 percent of all U.S. workers, contributed up to $2,791.80 each of their 1985 income to the Social Security system. Employers match the contribution. Yet twice in the past five years, the system has had to be bailed out by Congress; most recently, in 1983, by increasing payroll taxes and employer contributions, cutting back future benefits and setting a later eligibility schedule.
The degree of our dependence on a propped-up system facing increasing demands, says Kieffer, is frightening. When the Reagan administration lobbied last year to freeze Social Security cost-of-living benefits, for instance, the American Association of Retired Persons conducted a study that predicted a one-year freeze would shove more than a half million Americans below poverty level within the year.
Kieffer contends that while Social Security adequately fulfilled its obligation to its first group of recipients, retirees now aged 75 and over, and proved even more generous to its second generation of retirees, Americans aged 55 to 75, the next block of recipients will be slighted.
"If you look at the younger end of that group, we're talking about the baby boomers -- a huge surge in births," says Kieffer. "Think of it as a tidal wave coming to shore in 10 or 15 years. That huge surge of retirees is going to be hitting the retirement age with very inadequate retirement income resources. And it is scary."
Inevitably, the ratio of workers to retirees will drop as the brunt of the baby boomers moves into retirement. The prospect of raising taxes and lowering benefits, coupled with declining birth rates and lengthening life spans, means fewer future workers around to pay more into the retirement system for more retirees.
Besides a short-sighted system that "simply has not focused on the problem," Kieffer points to "major dislocations in employment in that age group," particularly among the heavy industries such as manufacturing, farming and automobiles where 11 million jobs have been lost.
"When whole industries collapse in size and function," he says, "masses of people shift from being annual income earners building points toward retirement income, to people who have lost crucial years. If you are suddenly unemployed for three, four or five years, you aren't building retirement income. Large numbers of these people were thrown into part-time work, too, and in many cases, lost pension eligibility."
In addition, Kieffer says people in the 25 to 55 age group -- and especially the younger ones -- typically aren't saving money, aren't participating in Individual Retirement Accounts (IRAs), aren't building other retirement resources, and are actually depleting them.
While Social Security officials talk about stability of the system, at least for the next three or four decades, Kieffer sees the crisis striking as early as the mid-1990s.
Torres-Gil says Social Security is not in imminent trouble, but he agrees the challenge is larger than keeping it solvent. "All projections and actuary analysis from this office and from Social Security indicate there will be sufficient surpluses to take care of estimated outflow easily to the year 2020," he says. "Unless the Congress or the people make radical adjustments to it, we have the money.
"The real problem is whether baby boomers will do what Franklin Roosevelt wanted people to do when Social Security was formulated -- have several sources and assets that prepare them for retirement. Our worst fear is that baby boomers may not be deliberately or consciously preparing other retirement income."
The IRA, currently under debate as Congress attempts to hammer out tax reform measures, says Kieffer, is a prime example of how both Congress and baby boomers are ignoring the problem. Some legislators want to eliminate tax deductibility for buying one of the few retirement investment plans available, because IRAs rob the Treasury -- estimated by Congress at $96.7 billion in lost revenues over the next five years. And, says Kieffer, those who most need to invest in IRAs simply don't.
Two out of every three dollars contributed to IRAs came from taxpayers earning more than $30,000 in adjusted gross income and four out of five taxpayers with adjusted gross incomes above $100,000 claimed IRA deductions, according to the Congressional Joint Committee on Taxation.
"It is a vehicle of the upper and middle incomes and not of the young and lower income people," says Kieffer. "Joe Zilch, who is a young professional or worker, rarely can sterilize money until he is retired. He needs it now for kids or cars or rent. So Congress is saying it is a major drain on the Treasury -- and it is -- and the benefit isn't really reaching the mass of people. But for Congress to go after the IRAs isn't helping anyone save money."
Unfortunately, says Torres-Gil, while IRAs aren't meeting the expectations of Congress, "we as a nation have not developed other retirement alternatives -- other than private pension plans provided by corporations and employers. And corporate pensions, he adds, may be more bad news for baby boomers.
"The pension system is shot -- it's a dinosaur and we haven't replaced it with anything either," says Kieffer of the private retirement plans that, in theory, cover about half the American workforce. But as Kieffer points out, most pension plans pay only workers who stay long enough to become vested -- typically 10 years with the same company. And in an age of worker mobility, the 10-year-or-lose-it basis appears to be outmoded.
"The pension plan system is in retrograde -- not everybody under a pension system actually will get their pension," he explains. "Enormous numbers of women, for instance, lose blocks of years toward a pension just by taking time off to raise children."
Kieffer says there are other problems with pensions. "We are now witnessing that employers are duressed about pensions. Many have attempted to cut their pension exposures. Some have cut off whole classes of workers from entitlement. Some have cashed in their pension plans, which is allowed under law, but results in minimal benefit payments with no cost-of-living increases to pensioners -- in other words, nowhere near what workers had been told they'd be getting."
While a few corporations are experimenting with innovative pensions, such as BankAmerica Corp.'s "cash-balance plan," which permits employes to own graded percentages of their retirement with each year of employment, neither Kieffer nor Torres-Gil are optimistic that the private sector will generally pursue different ideas.
What about Congress? "There is no consensus on these issues on the Hill either," says Torres-Gil. And our political system is not structured to do long-range planning -- that's a real problem and a barrier."
Kieffer agrees the political system is, at best, five to 10 years behind in problem solving. Meanwhile, the best solution he and Torres-Gil offer is individual action: Invest annually in IRAs (deduction or no deduction), take advantage of 401K tax-deferred savings plans when offered by employers, and know your corporate pension plan.
And most importantly, says Kieffer, adjust your thinking about working later in life, because most Americans will, to increase their later-life incomes: "Early retirement will be a thing of the past."