A recent report from CNBC reminds us that strengthening our retirement system for low wage workers is not only a moral obligation; it's a patriotic duty.
Although retiring with dignity remains an integral part of the American Dream, it turns out the United States isn't doing as well as its peers when it comes to retirement security. Many economists view public retirement benefits in the U.S., including Social Security, as less generous compared to other wealthy nations.
"We're always neck and neck with the U.K., but other than that, I think we are among the stingiest," says Alicia Munnell of the Center for Retirement Research at Boston College. She reminds CNBC reporters that the United States ranks below average for its support of retirees with the 34-member Organisation for Economic Cooperation and Development.
The OECD's international reports compares public pension spending and net replacement rates⎯ retirement income as a percentage of pre-retirement income. These comparisons depend in part on whether public or private pensions are considered, and on which aspects of retirement are measured in its overall score.
The U.S. retirement system performs relatively well for public pensions, but with no mandatory private sector pension system, it's difficult to boost our income replacement rate.
U.S.'s International Retirement Systems Given Grade of "C"
The Melbourne Mercer Global Pensions Index, which compares retirement income systems around the world, doesn't call the U.S. retirement system stingy. However, the United States did rank 10th in Melbourne's 2011 global index.
Countries were graded on a scale from A to E, with E being the worst. The United States along with France, Singapore, Brazil, Poland and Germany received a C for having "a system that has some good features, but also has major risks and/or shortcomings that should be addressed."
Making the Grade
The fastest, most efficient and fairest way to improve retirement security in the United States is to strengthen Social Security. Social Security is often the sole source of retirement income for low wage workers who are less likely to have access to an employer-sponsored retirement plan. The problem with Social Security is that its retirement benefits are less than $1,200 per month for millions of low wage workers.
Social Security benefits typically substitute less than half of the income earned on the job while similar benefits provided in Europe often account for at least two-thirds of pre-retirement income. We can strengthen Social Security by eliminating the taxable wage cap so that all workers pay the same percentage of their pay into the Social Security Trust Fund.
If everyone paid their fair share now we could improve benefits for current retirees, ensure Social Security's solvency for future generations and show the world the American Dream of retiring with dignity is still alive.