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Brookings: Stock Market Fluctuations and Retiree Incomes – An Update

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Stock Market Fluctuations and Retiree Incomes: An Update – by Gary Burtless, The Brookings Institution

  • Social Security was created in the middle of the Great Depression. The recent dive in stock prices and home values offers a painful reminder of why government-guaranteed pensions seemed like a good idea in the 1930s. President Franklin Roosevelt proposed creation of the Social Security program in 1935, a bit more than five years after the stock market crash of October 1929. The collapse of stock prices and the bankruptcy of thousands of farms, businesses, and banks wiped out the lifetime savings of millions of retirees and aging workers. Many industrial and trade union pension plans became insolvent, leaving former pensioners with no dependable source of income in old age. In view of the precariousness of private savings, it is not surprising that the President, Congress, and most American voters thought a public pension plan, backed by the taxing power of the federal government, was preferable to sole reliance on private retirement savings…If Congress does not raise the contribution rate or trim benefits in the next three decades, the reserves of the system will be depleted shortly after 2040. At that point Social Security pensions will have to be cut or contributions into the system increased. If all of the adjustment takes the form of a benefit cut, monthly pensions will have to be trimmed about 25% around the time the Social Security reserve fund is exhausted.”
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