Downhill From Here

Karen Newman

336 pages, Metropolitan Books, 2019

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Katherine Newman’s new book, Downhill From Here: Retirement Insecurity in the Age of Inequality, analyzes the United States’ failed retirement system in ways most academic studies do not. And, that is a good thing. Newman, a distinguished sociologist and anthropologist who is currently serving as the interim chancellor of the University of Massachusetts at Boston, reports on the decline of the American retirement security system with a breadth of qualitative data, including interviews of workers, academics, and policymakers. She analyzes this data in comparison with a review of American policy history. Through this study, Newman reveals the human and social costs of people who, at the end of their work lives, discover they are not receiving their promised pensions and face downward mobility in their old age.

Newman’s findings contrast with current expert opinion. For example, American economist Richard Thaler, who won the Nobel Prize in Economics in 2017, pins the pension system’s failure on flawed humans who make poor short-term decisions. Thaler’s argument in his 2016 book, Misbehaving, represents many economists’ and policymakers’ beliefs that Americans do not have enough retirement savings because they are impulsive: “Humans have self-control problems,” Thaler contends, like “eat[ing] too much” and “consum[ing] now rather than put[ting] money away for later.”

Thaler’s perspective ignores the drastic changes in the American social contract. America’s commercial, individual-directed, do-it-yourself retirement savings system asks people to do what they simply cannot do: save voluntarily out of every paycheck, invest professionally, find the lowest fee, and annuitize their lump sums effectively. Although 401(k)-type plans became available in 1980 and were hailed as cheaper and more flexible than defined benefit plans, coverage in any type of retirement plan has fallen over the last 40 years to about half of the labor force. According to my research, even coverage for workers in the top 10 percent of the income distribution fell from 85 percent coverage in 1983 to 75 percent coverage in 2017. The vast majority—81 percent—of workers near retirement (age 55-64) had some kind of pension in 1983, but in 2017 the share of older middle-class workers with retirement coverage fell to 71 percent, and coverage for the bottom half was lower, falling from 54 percent in 1983 to 49 percent in 2017. The median retirement balance for older workers is $60,000, and half of workers approaching retirement have nothing but Social Security. The median retirement balance for older workers in the top 10 percent (with annual incomes of $115,000 or more) is only $200,000—just a little more than a year’s salary. And only half of working-age households are on track to maintain their standard of living in retirement—a number down from 70 percent in 1986.

Newman’s persuasive argument and findings are buttressed with compelling stories. The book begins by introducing the reader to several blue-collar families, whose experiences help frame the book’s argument that pensions were systematically reduced over the last 40 years and millions of the 75 million baby boomers retiring soon will face broken promises for their economic security in old age. For example, Leon Burnett, a 69-year-old retired truck driver and Teamsters member who, in 2015, was told his pension would be cut by 45 percent for the rest of his and his wife’s lives. In late 2018, two years after Newman interviewed Burnett, a special congressional panel formed to find a solution to the financial shortfalls in joint employer and union pension funds—which cover 10 million workers. However, the panel missed deadlines to reach an agreement. If the plans fail, the Pension Benefit Guaranty Corporation can’t pay insured benefits.

The import of Newman’s analysis is that the Burnetts’ current retirement situation is not a consequence of inadequate financial knowledge or gratuitous and indulgent behavior: “I mean, for almost 30 years we’re talking no holidays,” Burnett’s wife explained. “We didn’t complain. It was his job and it was worth it because at the end I told him, I said, ‘You guys have your pensions.’”

The experience of downward mobility from middle-class comfort to elder insecurity is not limited to union blue-collar workers. Nonunion, white-collar workers had no way to organize to protect their pensions. Verizon’s downsizing in the 1990 and 2000s made white-collar workers vulnerable to losing their jobs before they intended. The upshot is that employers can’t provide social insurance to all workers, and we shouldn’t expect them to be solely responsible for the social care. The structural problem is that government can pool risk better than individual employers, and, unfortunately for workers in deindustrialized and deregulated sectors, American social insurance programs are weak. The consequence is that the employee is left to bear the risk.

Government employees—from firefighters and police to librarians and inspectors—are marginally better protected than private sector workers, but the particularly dramatic case of Detroit’s bankruptcy in 2013 and 2014—caused in part by the slow exit of auto manufacturing and crushing structural racism—meant promised pension and retiree health benefits were cut for civil service workers. Most city and state pension funds are not poorly funded, but all cities are vulnerable. Again, the broken life of an old and vulnerable person living in an economically declining region has nothing to do with personal thrift.

Newman adds to the pension analysis literature by focusing on what people do when they don’t have adequate pensions. Instead, they work and expand the growing ranks of a demographic known as “gray labor.” She interviews 70-year-olds working in the retail and service sectors. Most workers over the age of 65 are not working “in their chosen careers”; if they went back to work after a period of retirement, they were likely downwardly mobile.

Academics abetted the “working longer” campaign with research—research that has since been discredited because many researchers and observers in the 1970s and 1980s falsely linked retirement to death and sickness. When future researchers controlled for health before retirement—many people who retire are sicker than the average—retirement seems to make people healthier, especially women. Newman concludes, and I agree, that working longer is not a sustainable solution to the erosion of pension benefits or the slow death of Social Security. Yet, Newman doesn’t discuss the economic consequences of inadequate pensions when 17 million people over the age of 55 are forced to compete in the labor market. These repercussions include the loss of bargaining power of workers and consequent downward pressure on wages, hours, and working conditions.

The loss of pensions for union workers, white-collar workers, and public-sector workers, in addition to the inadequacy of the solution of delaying retirement, casts a long shadow over younger workers’ futures. Gen Xers—a majority of whom are in their 40s today—have much less income than the boomers had in their 40s. Generation X will be the first generation to survive in older age having worked under the do-it-yourself 401(k) system. “Their generation just happened to coincide with the complete sea change,” Newman explains. Her bottom line: It is downhill in financial security for this generation from the heights of social insurance and retirement security the older boomers accomplished.

Newman plumbs the struggles of the elderly poor in America with a fascinating survey of 200 years of American history that highlights slavery and culminates with the elderly living in a poor Louisiana town. Opelousas, which is close to the state capitol, Baton Rouge, has a population that is 75 percent African-American. In 1992, Governor Edwin Edwards based Louisiana’s economic recovery on gambling and tourism—not industries that voluntarily provide pensions. Foreshadowing the future of old-age poverty, Newman describes how older residents in Opelousas live on Social Security benefits that amount to less than $1,000 a month. Louisiana municipalities rely on regressive sales taxes, fees, and fines for jaywalking and parking tickets, among other income sources, which especially burden the poor and are inadequate to provide affordable housing and needed services. Natural disasters such as hurricanes Katrina and Harvey reveal the acute vulnerability of residents in nursing homes and poor neighborhoods.

Chapter 7, co-written with Elisabeth Jacobs, senior director of family economic security at the Washington Center for Equitable Growth, illustrates the power and limitation of self-help and charity. For example, the Mormon church in Ogden, Utah, creates strong communities with codes of mutual assistance, which ease the lives of elders. But a national model based on Mormonism—with its deeply religious ties that obligate members to voluntarily give a substantial share of income and time to help others in the community—is not a realistic answer to America’s retirement crises.

The last chapter looks ahead to potential solutions. Increasing Social Security revenue by raising the earnings cap or increasing the payroll tax would help restore full solvency. But Newman rightly points out that Social Security isn’t enough. Providing middle-class and white-collar workers with a livable retirement income requires raising Social Security payroll taxes to over 25 percent from 12.4 percent. In my book Rescuing Retirement, coauthored with Tony James of the Blackstone Group, I propose alternative solutions, including a federal public option to current commercial IRAs and 401(k) plans, a supplement to Social Security called Guaranteed Retirement Accounts (GRAs), and a refundable tax credit deposited in all workers’ retirement accounts. 

Newman’s flair for combining individual stories with legal and policy analysis counters the moralizing of behavioral economists who blame human frailty for the rise of financial insecurity among the elderly. Ultimately, the coming crisis in retirement security is the result of a flawed system, not flawed individuals.