A warning sign on retirement security risks

Policy measures should be considered as soon as possible for the nation to address an unacceptable trend: rising bankruptcy among senior citizens.

The Social Security Act, signed into law in 1935, was originally designed to provide for general welfare and to create a program of regular income for citizens in retirement. Social Security’s mission as an anti-poverty program is to aid senior citizens as well as individuals with disabilities.

Yet decades of change in the retirement system and a constellation of unpredictable labor, demographic, and health-care trends have served up an environment that is harming a growing number of our most vulnerable neighbors — our seniors.

The numbers tell the story

A recent report, “Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society,” found that the rate of individuals age 65 and older filing for bankruptcy has nearly tripled since 1991. For those age 75 and older, the increase in bankruptcies was nearly 10 times higher in the same time period.

The study cites several factors fueling this trend: fewer employer pension plans, inadequate savings, declining income as retirement nears, and higher costs of health-care expenses. Workers have to wait longer to retire to receive full benefits. Those who cannot wait see their benefits reduced.

The time to strengthen our retirement system is now

Broadly, the entire nation is facing a retirement savings challenge. While many workers with access to a workplace savings plan, such as a 401(k), are on track to have sufficient assets in retirement, more than 40 million American workers do not have access to any savings plan at work. Nearly one third of households approaching retirement have no savings at all.

Clearly, we need to strengthen Social Security for today’s retirees, while also opening new workplace savings options for future retirees.

We have the research, innovation, and talent to craft a comprehensive solution, and we need the political will to implement it. Meeting this challenge is our moral obligation as well as a legislative mandate.

In the near term, seniors on the verge of bankruptcy cannot wait. Among options to strengthen Social Security, we should:

• Consider raising the cap on income taxed under FICA to cover 90% of wages and slowing the pace of future benefit increases for those above median income
• Seek higher rates of return for trust fund assets through investments in our capital markets
• Establish a baseline payment of above poverty level
• Expand benefits for seniors over the age of 75

The longer we delay a fix for Social Security, the deeper and more painful tax increases and benefit reductions in the future will be.

Policy makers also need to be forward-looking and enhance retirement savings access for all workers. A very positive first step would be passage of legislation now before Congress that allows small businesses to form multiple employer plans — open MEPs — across industry lines. This could help millions more workers gain access to payroll savings plans, and could be done now, in the closing days of the 115th Congress.

For an in-depth discussion of this and other retirement issues facing Americans today, please see my book, From Here to Security: How Workplace Savings Can Keep America’s Promise.

?The opinions expressed here are my own and not those of Putnam Investments, Empower Retirement, Great-West Financial, or their subsidiaries, and are not intended as tax, legal, or investment advice.