Amen, Part 2

Josh Barro at Bloomberg:

Back in December, I wrote that applying chained CPI to Social Security is the wrong solution to our budget problems: It’s just a way of dressing up a cut to retirement benefits at a time when retirement insecurity is rising. Despite its problems, Social Security is the best-functioning component of the U.S.'s retirement-saving system. Instead of cutting, the federal government should be expanding its role in retirement saving.

I'm always struck when people talk about Social Security as "just" an insurance program, when it's in fact the most important retirement-saving vehicle. The chart below, adapted from a 2012 paper by Boston College Professor Alicia Munnell, shows the financial situation of a "typical" pre-retirement household. These are the mean holdings of a household in the middle net worth decile among households headed by people age 55 to 64. 

Source: Center for Retirement Research at Boston College 

Social Security is dominant: Forty-nine percent of this household’s wealth is in the form of the expectation of drawing government benefits in the future. The next largest slice, 23 percent, is accrued benefits in traditional pension plans. But that figure is skewed by a handful of workers who are lucky enough to participate in such plans; as of 2010, only 14 percent of U.S. workers were earning benefits in such a plan.

We're not psyched about how Barro wants to finance this (Medicare cuts), but at least he's identified an important issue.