On this episode of New World, Americans and the elected officials who represent them are worried about retirement.

Many fear a retirement crisis of inadequate savings and incomes as the US population ages in the real retirement crisis.

While almost everything you know about the US retirement system is wrong, Andrew Biggs provides economic insights and hard data to explain to America's retirement savings situation.

He argues the US retirement system compares well to those of other developed countries.

In fact, the typical US senior is among the richest in the world.

The retirement savings gap is overwhelmingly due to government's not funding benefits they promised.

I'm really pleased to welcome my guests, Andrew Biggs.

He is a Senior Fellow at the American Enterprise Institute, where he studies social security reform, state and local government pensions, and public sector pay and benefits.

Before joining AI, he was the Principal Deputy Commissioner of the Social Security Administration, where he oversaw the Social Security Administration's policy research efforts.

Andrew, welcome, and thank you for joining me on Newtsworld.

Oh, thank you very much for having me.

Happy to be here.

What drew you into what I guess now is over twenty years of work on social security?

What attracted you to taking this on.

I was out of grad school, I was working in Washington, d C.

And I started thinking about going back to kind of more research or hinted areas.

I remember at the time people were saying, well, do you want to work on taxes or do you want to work on social security?

And it just struck me.

Soci security it was some more interesting in the two issues.

It lets you be a generalist, I mean, just speaking as a researcher.

It lets you be a generalist while actually having a chosen profession.

Social scurity is so large.

It covers every area of government, every part of people's lives, and so it just gives you an opportunity to look at a whole variety of different areas.

And twenty five years later, believe it or not, I'm still working on it.

It's just been a fascinating issue to work on throughout my career.

When you work on something for a quarter century, I'm curious, how have your views changed during that period.

That's a very good question, I'd say, in two ways.

On social scarity, specifically, when I came into the issue, I was working at the Cato Institute, a very libertarian think tank, and that was the time when the sort of social security privatization movement was very active, and I was active in that, and I think that was a very interesting time and it sort of had to play out at the same time.

When I look back at it, I think I worked on the Jorge W.

Bush reforms in two thousand and five.

I think it might have been better if we had tried to cut a deal then rather than wait, since every day ten thousand baby boomers shift from becoming workers paying into the system who care about taxes, to beneficiaries collecting from it, who care much more about benefits.

But over that time I also learned a lot more about how well the US retirement systems work.

If you'd asked me twenty years ago, are Americans saving enough for retirement?

I would have said no, because that's what you read the newspaper all the time.

Later on, I started getting much more deeply into that issue, and you discovered, you know, Americans and the US retirement system are really doing very well.

That plays into how you think about social security reform.

If Americans weren't saving for retirement on their own, then any cuts to so security I think will be hard to justify.

But when Americans retirement savings are at record levels and poverty and old age is at record low, you could start thinking about things a little bit differently.

Given what may be the objective fact.

There was a survey done in twenty twenty three where eighty nine percent of the American people agreed that there is a retirement savings crisis.

The survey data on the so called retirement crisis are very interesting.

Almost every survey you conduct.

If you ask Americans is there a retirement crisis, they will say yes, and the one you cited is the evidence of that.

At the same time, if you ask retirees themselves if they would describe their own financial situations, is a crisis, as a survey by Vanguard did several years ago, only four percent of seniors say yes.

Similarly, when the Federal Reserve asks seniors, are you finding it difficult to get by again, it was only about four percent.

And today's workers are saving much more for retirement than people did in the past.

That's not equivocal and the data so it is really a perception.

I had a chapter, you know, a retirement crisis for thee but not for me.

There's a huge split in how Americans view the whole retirement system versus how they view their own retirement savings.

Why then, do you have this split between a general sense that it's a huge problem, we probably can't fix it, or the political cost of fixing it will be huge, versus the individual who's saying, well, you know, I'm actually pretty well off.

Well, there's a substantive reason why people worry about retirement.

If you're a thirty five year old saying, Okay, I'm really kind of getting started now saving for retirement, what do I have to think about?

Because I want to be able to maintain my pre retirement standard living once I retire.

You have to know, okay, what kind of standard of living are I going to have in my fifties.

That's hard to predict.

You have to know the rate of return on the investments you're going to make.

That's hard to predict.

You want to know how long you're going to live, and that's hard to predict.

So you have a lot of things that are really very difficult.

So it's understandable that people are worried about it when on top of that, you have I don't want to call it a conspiracy, but what I'll say is nobody has the incentive to tell Americans the truth, which is that our retirement system is working pretty well.

You know, if you're in the financial industry, you know, what is the chance that they are going to tell you you're saving too much for retirement.

They have a product to sell and they want to keep you buying it.

Likewise, the media, are you going to click on an article titled you know, retirement crisis coming?

Or are you click?

Americans doing okay?

So they have an incentive.

You know, they say if it leads, it leads, So they have an incentive to gend things up.

And finally, in a political realm, there are people whose philosophical views and I'll call it philosophical views because they're not really based in evidence, but they just really doubt that people buy themselves can make these sorts of decisions.

They don't trust private industry, and they would like to see it expanded role for government, make social security bigger, and so forth.

So once again, they're not going to tell you the good news.

I have no incentive either way, This is purely an academic interest.

For me, it really is surprising that people who know better will still use the scare language to try to motivate people.

In an article you wrote called We're going about Social Security Reform the wrong Way, you make a strong case that the very language, the very way we talk about it makes it hard for us to really work our way through what we need to be doing.

Could you expand on that.

Well, when you think about, say social security policy, think about almost any other thing the government does, many other policy issues.

What you want to say is how do we make this government policy or government program work better at lower costs.

So you're thinking about how the program works.

With social security policy, you're thinking almost entirely about the solvency of the Social Security prom And people are choosing from a list of items.

We can raise the retirement age, we can reduce costs to living adjustments, we can increase the payroll tax, we can reduce benefits.

And they're piecing these pieces of a puzzle together in such a way that they hope they get to seventy five here actual heal balance or whatever measure they're trying to get to.

And I argue that's just the wrong way to think about it.

It's unproductive because it assumes that the social security program is working perfectly, with the one exception that it is out of financial balance.

But what are the chances that a program that was devised in nineteen thirty five, when literally fifty percent of seniors we're living in poverty is the right structure for a program for twenty thirty five and beyond when not fifty percent of seniors are in poverty but six and a half percent, when we have four to one case, we have the Internet, we have all these innovations.

If you were inventing social security today, you would think about it much differently.

So, coming out of the failure of the attempted Bush Social Secure reforms in two thousand and five, I really thought it was worthwhile to go at SOI Secure reform from a blank slate approach and say, what would be the kind of program we would devise for somebody who's entering the workforce today, who might retire forty years later.

What would that program look like?

And so what we should think about that is, Okay, how do we get from here to there?

Not how do we patch together this system which is underfunded by twenty six trillion dollars.

Now, obviously we have to fix the solvency issue, but thinking more broadly about the Social Security program, what we need for what it does, opens up opportunities.

Just as an example, a high income couple retiring today can receive almost one hundred thousand dollars in Social security benefits.

That's two to three times higher than what they would receive if they were in Canada or the UK, or Australia or New Zealand.

Nobody would invent a pro today that pays one hundred thousand dollars a year at high income retire is they can just save more on their own.

But by the creep of the program, where it's all on an autopilot, we're not thinking about it.

That's where we got So what we should be thinking about is not simply what do we have to do to people's benefits to make the system solving?

But should we be paying that kind of money to people who clearly don't need it.

It doesn't mean slashing that of it's today.

It just means looking over the long term, do we want to refocus this program in a different way.

So it's thinking beyond this solvency box and just treating social security as any other program.

We want it to work, we don't want to have it with excessive costs.

Wouldn't anything like that lead to almost automatic attack by AARP unquestionable.

One thing I remember back from the two thousand and five experience in the Bush White House, I remember talking to somebody about the legislative strategy for Social Security Reform, which at the time I was very much a numbers crime so I was not in charge of that, but at the time AARP was the eight hundred pound gorilla.

And what I suggested to them is you either have to beat AARP, debate them and defeat them, or you have to figure out what kind of deal you have to make with them in order to get something to pass.

And the Bush strategy just did neither of those things.

I think that was part of the failure.

You just had to decide what you were going to do.

In literally anything you do on this you are going to be open to attack.

You know, even if you cut benefits by a penny for the highest income retire ARP is going to say something.

You know, they are the union for old people.

You just have to be open to that.

The only way you can avoid criticism by ARP and groups twitched to us are well to the left of ARP and social security would be simply to surrender to them.

So I think the key component for me in the book is that when we think about social security, we need to speak to Americans in English, not in sort of actual al numbers.

It's very tempting to just jump into how the social security benefit formula works and things like that.

We just have to think conceptually about what we want to do.

And you know, it's very easy to say we should have some minimum benefit to keep retirees out of poverty.

You know, we're a rich country.

There's not very many poor retirees.

That's something we can do to give people confidence to make the sacrifices that are involved with reform social scurity, say doesn't have a minimum benefit.

On the other hand, it doesn't really make sense to be paying on hundred thousand dollars a year to two high income retirees.

You know, nobody else does that.

There's no policy purpose for it.

That's speaking in English.

Often discussions about social security are just in this actuarial mumbo jumbo of the Bend points to the benefit formulas or the CPI W versus chain CPI, things that just don't make any sense to people.

It doesn't mean we lie to people.

It means you convert it to English to terms they can understand, and I think that makes for a more compelling argument.

Let's say we do nothing.

At what point is there a crisis?

Well, right now, the Social Care Trust Fund is projected to run out in the year twenty thirty two.

In last year, Social Caurity Trustees report they predicted it would last until twenty thirty four.

But Congress actually passed two bills this past year which made the insolvency happen sooner, which is the opposite of what we'd want.

But in twenty thirty two, when the trust fund runs out, Social Carey is still collecting a lot of money, over trillion dollars a year in taxes.

So the trust fund running out does not mean your benefits are zero it out, but under law it means the program could only pay out benefits equal to what it collects in taxes.

That would mean that benefits to drop by around twenty four percent.

Now, it doesn't mean necessarily you'd have to have an across the board benefit cut of twenty four percent.

A lot of people think that, and that would throw millions of seniors into poverty.

I think the president or the administration of the time would have some discretion, but the default position in when the trust fund runs out is you cut benefits.

Now, I don't think that's going to happen, but to avoid cutting benefits, if Congress says we just want to keep paying full benefits for everybody, and we're to raise taxes to do it, that would be the largest peacetime tax increase in US history, about one and a half percent of GDP.

Alternately, you know, nobody likes to raise taxes, so ultimately they could just borrow the money.

But when we think about the size of the debt, and when you think of the dynamics of financial markets, you can borrow until financial markets lose confidence in your ability to repay.

It could be any sort of trigger event which causes that loss of confidence.

Personally, think the federal government announcing as policy that our strategy for funding our biggest programs to borrow money we can't possibly repay might be the trigger.

So we face a number of very unpleasant choices, and the habit, the pattern for most of the past forty years has been simply to cover our ears, cover our eyes, and kick the can down for the next congress.

But we're running out of time to do that.

The nature of polemics is to avoid anything painful for as long as possible.

So I'm hearing you say that probably not in twenty eight, but certainly by thirty two, the presidential campaign may well be centered around this question.

I think so young.

Even for now, President Trump will be out of office before this insolvency happens.

So again, the incentives are just not to focus on it.

But you're having the senators who will be elected this year who will be in off us in twenty thirty two because they have sixty year terms.

So it is starting to become a more salient issue.

And the question, though, is how our political process handles this.

The difficulty we face on sol scary form or any large issue is a number of hurdles you have to come over to make anything pass into law.

You have to get it through the House, which means the majority.

Then you have to get sixty votes in the Senate.

Then you have to hope the President signs it, and then most likely somehow it ends up in the Supreme Court, it's just a very high hurdle to overcome.

In other countries with parliamentary systems, you know, it's a simple majority, and they've been able to reform their systems much better than we have.

With the exception of France, most countries have reformed their pensions, you know, in the past couple of decades.

So we really face a challenge.

Are there particularly successful structural reforms that you think we should look at and begin to think about this conversation.

In the look the real retirement crisis.

When I look at other countries, I try to say, what do other countries who are like the US do with pensions?

You could look at what is happening in France or Lichtenstein, but where they're just very different countries from the US.

What I think of countries that are similar, I think of certain Anglo countries like Canada, the United Kingdom, Australia, and New Zealand.

They're by and large free market, limited government countries.

The interesting thing is our social security program is very different from theirs.

They focus much more of their resources on preventing poverty in old age and much less on essentially running a pension system.

For upper middle class people.

You know the example I use.

You know, if you have a high income couple today retiring under Social Security, they could get somewhere on ninety six thousand dollars per year in benefits.

If that same couple were retiring in Canada, they get less than thirty thousand dollars a year in benefits.

Now, rich Canadians are not starving in retirement in Canada, they're just saving more on their own.

You know, if you were in the UK, or if you're in Australia and New Zealand, the benefits are more generous at the bottom, but they are capped at a much lower level.

And what that means essentially is you know, people say, well, that turns social Security into a welfare program.

Well, government is good at running welfare programs.

Government is terrible at running pension systems.

If you look around the world, the sort of retirement savings gaps that people reference are almost entirely a function of governments failing to fund the benefits that they've promised.

They run these programs, we owe trillion dollars in money, but we put nothing aside for it.

So government is good at running safety nets.

And you know every developed country has a safety net.

It's terrible at saving for the future.

So what we should do is simply expand for one k's and other retirement savings program To expand retirement savings on top of social security will refocusing social security more on its role as a safety program and less as an upper middle class entitlement.

That's how other countries do this, and there's different formulas.

For Australia as a means tested minimum benefit with universal fore and ks.

New Zealand has a universal benefit, everybody gets it.

It's not means tested, and if you want to save on top of that, it's voluntary.

So there's different flavors of doing it, but the key is simply focus your resources where they're needed.

Government shouldn't do things that people could would and should do on their own.

America, they're amply able to save for retirement on their own.

Savings have never been higher, so let's focus more on expanding that and refocus social security on its core mission.

In the current debate about COVID subsidies for health insurance, I think we currently subsidize up to nine hundred percent above poverty.

At that point, it's not a poverty program.

The bold proposal is to reduce that to seven percent above poverty.

In some ways, we've become addicted to upper middle class subsidies by the government, which are in a sense paid for by the very people who will get into subsidy.

You know, you higher taxes on rich people to have higher Social Security benefits to rich people.

It's very inexpensive to protect low income people via Social Security form.

You know, if you google Social Security form, everything will be about anti poverty or safety net or things like that.

We could give every senior a social scarity benefit set at the poverty line, so that literally no one has a sub poverty level income taking poverty zero.

That would cost about half as much as we're currently paying on the Social Security program.

Although all the language the discussion is about the safety net, all the money is actually for middle class, upper middle class people.

If you're just a middle income couple retiring today at the retirement ages now sixty seven, you would get around fifty eight thousand dollars in Social Security benefits for a safety debt program.

That's three times the poverty threshold before you've touched a penny of your own savings, which are at record levels.

So it's one of these things where the rhetoric just doesn't match the reality of where the money is going.

How deep do you think, How intense do you think the pushback would be if you tried to go to that kind of program?

Oh, I think it would be intense.

Where I think there is some avenue for progress is this.

If you ask progressives what would you do to fix Social Security?

Almost universally they'll say, we should lift the cap on earrings subject to the Social Security payroll tax.

This year you're taxed up to one hundred and seventy six thousand dollars.

You earn benefits on that same kind of cap earrings.

Anything above that you neither are tax nor your own benefits.

And so they say, let's eliminate that.

There's a variety of proposals to either do it immediately or phase it out.

Now, that's again the largest peace time tax increase in history, folks, and a very small number of people.

And you say, well, why would progressives be willing to combine on that?

Isn't this what they want?

The issue is that every other progressive priority depends on that very same money.

Probably the best argument I can think of from a conservative standpoint or fiscal conservative standpoint of fixing so scare a boy raising taxes and the rich.

At that point, the rich people are tapped out.

You're not going to have green new deal, you're not going to have Medicare for all, You're not going to have all these other things that the progressives want, simply because they've decided to use all that money to pay higher social security benefits to rich people.

When you talk to progressives, they kind of get this.

It's a standard thing in politics or public policy that every person work in their area thinks all that extra money is going to go to their priority.

There's somebody next door at the thing tank it works in some other issue thinks they're going to get the money.

Well, they're not all going to get the money.

There's an opportunity cost, even for progressives on this.

And I've noticed this, you know, as I've been talking about these issues over the years, Not just conservatives I talked to, but progressive policy people are like, yeah, you kind of have a point.

Anything on this would be very very hard politically, and so it's how do you manage the process.

I honestly don't think what you'd call the regular order can handle this.

I think you need some sort of commission or extrajudicial process or political process.

Just can't do this.

Peter Drucker used to say that if you weren't already doing something, would you start?

And if the is no, why are you still doing it?

If you had a blank slate today, given how the world has evolved, and you could design the optimum lifetime retirement program, what would it look like?

I think I've do two things.

I mean, the only reason we are going to pay one hundred thousand dollars in benefits so high in a couple next year is we're doing that this year.

Nobody would invent that from a scratch.

And so in the book, I go through this thought exercise of you know, if I were inventing Social Security from a blank slate, what would it look like?

You can't reinvent the program for people retiring today, they've paid their taxes, they've made their plans.

But for somebody's just entering the workforce today, they haven't paid anything into the system, they're not owed anything.

So for them, we can do whatever we want.

And then you sort of phase into it.

But the idea is you would want to have a strong minimum benefit so that people are not going to retire into poverty.

I mean, we are the richest country in the world, with the richest seniors in the world.

It's not too much to ask to prevent poverty in old age.

So you would have some sort of universal benefit set at the poverty threshold that just guarantees against that people can go their working lives knowing with certainty they will not retire into poverty.

That's something government is good at.

For retirement income on top of that, which is not anti poverty, but it's more sort of income replacement to maintain your pre retirement standard living.

That's where personal savings come in.

So I think that everybody should be offered a retirement plan at work, meaning you know, four to oh one K or similar.

Everybody should be enrolled in that plan.

That This could be what people call automatic enrollment where you have the chance to pull out, which is sort of what you have in the UK or New Zealand, or it could be mandatory enrollment, which is what you have in Australia.

And there's pros and cons to each.

Compared to something like fixing medicare, this is really a very easy problem to solve.

It's just common sense.

Aren't there a couple of programs ms like in Britain where at birth you get an initial grant of money that's in a savings account.

That's similar to what they're calling now the Trump accounts.

I have mixed feelings in the sense that a lot of the motivation for that is sort of a numbers game.

They're just saying, well, we borrow the money.

Yeah, we borrowed a five percent.

We can invest it seven percent or whatever and have some sort of arbitrage on it.

And you know, for reasons that economists care about that, most other people don't.

I could explain why that doesn't make a difference, but you know, I think the issue we face on that and this was sort of the motivation for the personal accounts for Social Security sake back in the Bush ear before.

At that point, social Security was throwing off extra money.

We're collecting more in taxes than we need and benefits, and so the question is what do you do with that money?

Government was spending it, and the accounts would have helped save it.

The idea of these accounts at birth baby bonds or Trump accounts is okay, you can get ahead of the game.

The problem you face financially is that does nothing for SOLI security in the short term, and members of Congress they're to have to come up with money to find these accounts for the long term.

But then they're still going to have to come up with money to address the social security problem that's staring us down in twenty thirty two.

You know, in the short term, it makes the financial problem harder, and the short term is what most politicians think about.

So I think that is the challenge.

So conception, I'm not against the idea, but the challenge is just members of Congress neither want to raise taxes nor cut benefits, but come twenty thirty two, they must rate taxes or cut benefits.

So it's precisely the thing they want to do.

The least, you know, are some combination thereof managing to piss everybody.

Off, which is why the threat is that you'll just borrow the money, which would really be rolling the dice.

I don't know whether financial markets will bear it, And for the last nine years I've been on an oversight board handling the bankruptcy of the island to Puerto Rico, they had a similar thing.

You can borrow until you can't borrow, and when the markets lose faith in you, then interest rate skyrocket.

And let's just say, going through a bankruptcy, even at the level of three million people in Puerto Rico, is incredibly difficult.

Having something like that at the federal level, that's not just the federal finance is that will destabilize the world economy.

And it just strikes these very strange that we would risk that simply because we don't want to tell people we've got to change how we're doing things.

Would Trump be smart to sometimes say in twenty eight a point a Blue Ribbon commission that could report in twenty nine and start the conversation.

I think he would be.

Both Democrats Republicans on Capitol Hill understand that their positions are not really politically tenable.

When I speak to Republicans, they know that they're in an incongruous position where, you know, the position now from the President is we're never at a county benefits, but it's also we're not going to raise taxes.

They know that that doesn't work, and they're kind of looking for a way out of it.

At the same time, in the Democratic side, you know, if you go back to the early and the Biden administration.

They had control of all of Congress and the presidency, and they had bills in Congress to fix sols Cree entirely by raising taxes.

It had co sponsorship by something like ninety percent of House Democrats.

They never brought it to the floor because they know that that kind of fix would be devastating to them politically.

So everybody has these very strong positions in public, we will always do this, we will never do that.

In private, they know their positions are much weaker.

Some sort of mission where I hate to say smoke filled rooms, but it's doing this stuff in the regular order.

It's just too difficult.

So I think the president has an opportunity there which really secretly both sides will be grateful for her.

That's fascinating, And I have a hunch if that happens, you're going to be one of the people testifying and helping design it.

So this is very useful.

That's every policy walk extreme.

There are moments in time when you actually have to have people who know something as opposed to know someone.

So Andrew want to thank you for joining me.

Our listeners can follow the work you're doing on SOFI Scritiform at AI dot org.

Your new book, The Real Retirement Crisis Why Almost Everything you Know about the US Returnment System Is Wrong is available now on Amazon and the bookstores everywhere, and I really appreciate your sharing with us.

Well, thank you very much, mister speaker.

It's been applied here.

Thank you to my guest Andrew Biggs.

Newts World is produced by Gingers three sixty and iHeartMedia.

Our executive producers Guernsey Sloane.

Our researcher is Rachel Peterson.

The artwork for the show was created by Steve Penley.

Special thanks to the team at Ginger three sixty.

If you've been enjoying neut World, I hope you'll go to Apple Podcasts and both rate us with five stars and give us a review so others can learn what it's all about.

Join me on substack at gangerstree sixty dot net.

I'm Newt Gingrich.

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