i come from west virginia where a lot of people face these problems. they are stigmatized. they have to live with it. this system is stacked against them. a lot of people are making money out of it. one of them is data brokers. the bell just went off. i'm here to say this is a serious situation. i think everyone agrees this has not been talked about. we've done investigation. ftc has looked at it. you have looked at it. we have to continue on this thing. know, the slogan of one of the companies became a -- the committee reviewed in this castigation says it lives by the following words, " just because you can does not mean you should." thise been thinking about because of today's testimony and

the inquiry shows the industry is falling are short of that standard. it appears to be falling far short of that standard. it seems the motto of data brokers is, "we can, and indeed, we will." we heard about the lists generated by data brokers from genetic disease sufferers, dementia sufferers, payday loan responders. products that seem tailor-made for businesses seeking to take advantage of consumers. i hate that. i am revolted by that. i have seen it in the treatment of coal miners and their safety. i have seen it in every aspect of life in the state i come from and elsewhere. i do not like it. our job asis government to minimize that possibility and ring out into the sunlight what is going on. knownator booker does not

this is happening, he does now. he does not like it. mccaskill nailed something that could not be responded to. we will continue on this track. i think it is serious. it is a dark underside of american life where people make a lot of money and cause a lot of people to suffer even more and have even lower self-esteem, which is not the america we want. this hearing is adjourned. [captions copyright national cable satellite corp. 2013] [captioning performed by national captioning institute] >> we're learning more about a u.s. aircraft that was fired on in south sudan earlier this

morning. the associated press reporting four u.s. military service members were wounded in the attack. the aircraft was attempting to evacuate american citizens in the region which has seen violent protests and fighting in the last week over a political dispute among its leaders. turning to our programming, "the communicators" examines the future of segmentsn featuring from the past year with regulators, innovators, and association representatives from the media industry. that is tonight on c-span. after that, our weekly encore presentation. tonight's is the first in our series featuring america's first first lady, martha washington. that is at 7:00 eastern, also on c-span. >> the c-span student cam

competition wants to know the most important issue congress should address next year. spanure to include c- programming for your chance to win the grand prize of $5,000 with $100,000 in total prizes. the deadline is january 20. next, members of the senate finance subcommittee examined the fiscal state of social security as well as ways to encourage more individuals to save money for retirement independent of the program. this is two hours.

subcommittee comes to order. and ie to ranking members think others will join us. this is likely the first of a series of hearings that senator to me and i would like to do on the issues of retirement security and social security and all that it relates to and i

appreciate his cooperation as i do senator hatch's. i will begin with an opening and other members that come are surly welcome to do the same. retirement security in america as we know from history's and fdr another stories from the new deal on, traditionally thought it was a three legged stool. social security, employer- provided pensions and personal savings and investment. the first leg social security guarantees a modest but stable income during retirement years, but not just for retirement security. social security provides basic financial security in the face of unexpected tragedy and provides a vital safety net to the disabled, the orphaned and the widows and widowers, something traditional retirement plans often are unable to provide. the other two legs of this three legged stool for personal savings and pension plans, build upon the bedrock of social

security and allow families maintain the standard of living that they approach the standard of living they enjoyed while working and protects seniors but also allows families to use their resources to buy homes, star families, and pay for education. without retirement savings, aging parents become dependent on working aged children, preventing us children from saving for their own retirement from perpetuating the cycle of economic distress for far too many families in those retirement years. for far too many workers, we assume social security is the the leg left standing on three legged stool. the percentage of workers covered by traditional defined benefit plans, those were you pay in and get a defined benefit likely for the rest of your life , has been declining steadily over the past 35 years. there are now only some 30,000 private-sector defined pension benefit plans down from over years0 just less than 30 ago. from 1979 to 2011, the

proportion of private workers with retirement plans covered by defined if it pension plans fell from 62% to 7%. the same time the percentage participated in defined contribution plans much more, now, which inherently upholds more challenges for the beneficiary and perhaps others, increased from 16% to 66%. only half of america's divine parkervision plans of auto enrollment. aretime we are told we charge of our retirement futures, only one quarter of american workers have automatic access to a defined contribution plan. about half the us workforce today is covered i an employee- sponsored retirement plan. many are not participating in any employer-sponsored plan. working families are increasingly squeezed from every angle. wages are stagnant. home values have declined. tuition cost for children are increasing at a time we begin to care for our aging parents.

middle-class and low-income seniors rely on social security for majority -- close to two thirds of families overall. the middle-class and knowing cap families rely on sosa security for the majority of retirement income. -- the middle-class and low- income families rely on social security for the majority of retirement income. the economic aim middle-class workers haven't shared an economic gains, by large missing an increase associated with increased productivity and higher corporate profits, meaning costs go up, the ability to save has declined. the picture gets bleaker when considering racial disparities and well. -- and wealth. these factors are why most

americans have saved only a fraction of what they need for retirement. irk is approaching retirement age of an average savings of less than $27,000. one third of americans leading retirementl security age, one third of americans 45 to 64, have nothing to zero, saved for retirement at all. the numbers are only slightly better for those with a retirement plan. in 2010, 75% of americans nearing retirement age had less orn $3000 in their ira retirement accounts or 401(k). these facts illustrate how great the deed is, in my mind, maintaining and expanding social security. the only source of guaranteed lifetime benefits on which most retirees can rely. , as hisnsurance unemployment insurance and medicare, social insurance you pay in and get benefits out. social security or social insurance doesn't does provide much needed financial support literature's hard-working middle-class people can retire

with dignity. for the majority of recipients, these modest benefits provide over half their income lifting over 20 chilean americans out of poverty. -- over 22 million americans out of poverty. on social security, close to one third, for socially their entire income. the program is not only retirement insurance, but family income. one third goes to widows and children. rather than asking how we should scale back the program, we should be asking ourselves how we can strengthen it. that seems too often to be the howte on the talk shows is we can scale back the program and save money for budget reasons, not the debate, which i think it should be, of how we make -- how do we do with the fore issue of security financial security, retirement security for people. that means not reducing benefits or raising retirement age.

maintaining sosa security is the single most effective thing we can do to prevent economic ruin and poverty for millions of senior citizens. the budget debate creates a vacuum. it doesn't take into account the economic impact. have written on that, primarily mr. biggs and aarp. it would decrease our 10 year deficit with budget cuts. i don't think it's under the impact on seniors, their families would support them, and current and middle income workers. fors a macro economic issue shifting the cost from the federal budget does not resolve our retirement and savings programs. social security reform should be considered as part of the examination of the burgeoning retirement crisis. i want to yield to my ranking member toomey.

i think we will learn a lot from today's hearing and i look forward to your contribution. >> thank you very much, chairman brown. i appreciate your having this hearing. no question, it is extremely important topic and we all agree on the importance of addressing retirement security. as you pointed out, mr. chairman, americans rely generally on three main vehicles for financial stability. private savings that often comes in the form of tax preferred accounts. there is employer pensions, which as you pointed out, are increasingly defined contribution plans. there is the social security program. government the policy should focus on protecting all three of these pillars of retirement security. a couple of ways we can approach this, one, recognize the strengths of the current retirement system and preserve what works. the other thing we need to do is acknowledge the hard truths going toorms that are

be necessary to protect programs that seniors depend on. i think it is generally good to adopt the approach of first do no harm. one of the advantages of our current system is the diversity of saving options whether it is 401(k) or ira or pretax accounts from a roth sell accounts. giveange of options taxpayers greater flexibility, more choices, and more opportunities to accumulate savings will help them in their retirements will stop i think we ought to defend and encourage these provisions that help people to say. some suggested we should reduce the amount that americans can save in tax-deferred accounts. i think that is a bad idea and would diminish savings. while that would have adverse consequences for individuals attempting to save and provide further on retirement, i think it would also be counterproductive from an economic point of view. the most important long-term driver of economic growth is the investment of accumulated capital.

be accumulated before it can be invested. encouraging a savings over time it maximizes economic growth. the second point i would make is that we've got to make sure social security is going to be there for future generations. it is extremely important program. we all know this. seniors with a guaranteed source of income and kept millions of americans out of poverty. the fact is, the program in its current form is insolvent. it has gone into a cash flow deficit position in 2010. --efits now routinely benefits paid routinely exceed payroll taxes paid into the system by very large sums, which are only projected to grow. i know people often like to invoke the assets and trust fund, but we will probably get into this discussion. there are no assets backing up anything in the trust fund. this is a filing cabinet with certificates that have no real

assets to back them up. therefore, the trust funds to which we routinely prefer -- refer do nothing to enhance or enable the federal government to honor the commitment it has made , so we should not be under the illusion that somehow make things ok. the challenges facing social security are not a partisan observation. i want to quote mr. chairman briefly from the social security's trustee reports of this year 2013. in which they state "both the social security and medicare programs face substantial financing shortfalls that require legislative corrections. it is important to grasp the amount of time remaining to enact a financing solution is far less than the amount of time projected before final depletion of social security's combined trust funds. if lawmakers take action sooner rather than later, more options and more time will be available to phase in changes so the public has adequate time to prepare. also helption will

elected officials minimize adverse impacts on vulnerable appellations including lower income workers and people already dependent on program benefits." the final point i would make his tax increases don't solve this problem and would be a mistake to go down that road. actuaries and analyze the proposal some have suggested we completely lift the cap an income that is subject to the payroll tax. idea-- that is a radical to change the program that fundamentally and in the process taxeser the link between paid in and that is its -- benefits received, but even if that step were taken, it would only provide to bury relief. the cash flow deficits would return in just 11 years. mr. chairman, thank you for agreeing to do this hearing. i look forward to hearing from our witnesses and having a discussion. >> thank you for your comments, senator casey. >> mr. chairman, i will move to the witnesses. thank thewant to

chairman for calling this hearing. this probably -- there's probably no more important subject for us to be talking about. everybody talks about the housing bubble and all the bubbles we have had, the big bubble coming is the pension and retirement security bubble for america. my hometown of atlanta, georgia, and finally faced the music reformed their pension fund to try to make it sound for its beneficiaries in the future. by reforming benefits and contributions that go into the plan, but they finally faced the music. i want to associate myself with senator toomey said. we have to face the music, too. we have to preserve those entitlements for which people have paid. most people in america who have paid taxes that paid more for the retirement security than income taxes. and paid into payroll taxes deserve the protection and deserve a congress looking into the future, not just for them, but their children and grandchildren. as policymakers, we have to be

aching difficult decisions but make them in a context of our obligation to people we represent. called is most appropriate. the solutions are not easy, but senator toomey plus, it's about preserving the tax benefits and incentive of government policy to direct people towards more private savings are absolutely essential. people have to become more dependent on themselves and less on government, but we need to incentivize that process a disease ear for them to accumulate benefits over time and accurately capital over time. i look for to participating in the hearing and appreciate your calling. >> thank you, senator isakson. the major dues the witnesses. the first is robert romasco, president of aarp. he had a distinguished career in the private sector and written expensively -- and has written extensively. andrew biggs, thank you for joining us. research -- he is devoted

his career to researching retirement savings and pension issues and served as a principal deputy commissioner of social security ministration. welcome. , published extensively on these issues and on the tax treatment of retirement benefits and one of the foremost experts in the field. his research is readily cited in major outlets. welcome. finally, john sweeney, executive vice president of fidelity. he is responsible for portfolio, advisory services for fidelity's develop some of the best research available in america's retirement security. thank you, mr. sweeney for joining us. your written statements will be entered into the record. mystery moscow, please begin. romasco, please begin. >> we thank you for holding this hearing on social security's

role as one of the nations most important family protection programs. i name is robert romasco. all a member of the volunteer board of directors of aarp. when we think about social security, we tend to pitch a retired people and they are indeed the majority of those receiving benefits. that alone is a critical and important function, but social security is far more. it protects working men and women throughout their lives from the risks that can lead to loss of livelihood such as from death or disability. we may not think of social security as a family income protection program, but that is exactly what it is. picture this. more than 4 million social security recipients are children. in fact, social security -- >> could you move your microphone a little closer? >> house that? security pays more benefit to children than any

other government program. social security coverage also protects more than nine in 10 younger workers against the risk of death and disability. something that one in three workers will face before they retire. is an insurance policy with benefits worth hundreds of thousands of dollars. social security is critically important for millions of children to live with her grandparents. without these benefits, many grand families would sink into poverty. it is disaster relief that is there for families when catastrophe strikes. less than three weeks after the september 11 terrorist attacks, social security ministration sent the first checks to survivors of workers killed in new york from a virginia, and pennsylvania. today, eligible children and surviving spouses or people killed and disabled in the attacks are still receiving monthly benefits. picture for a moment you're 33- year-old mother of one with the baby on the way who learns her

husband was just killed in an accident at work. imagine you have no idea how you're going to feed your family. now imagine the relief of discovering a program that will help you support your children until they become adults. that is a blessing social security and that family was mine. my dad died before i was born. my mom worked incredibly hard as a seamstress for the social security benefits, survivor benefits, was a big help in putting food on the table, clothing on our backs, and a roof over our heads. yes, social security is a genuine lifeline for families for every generation. it is a lifeline for the young and elders. as i travel across the country, people of all ages, especially those over 50, express their passion and commitment to leaving the world a better place for their children and grandchildren. as i visit college campuses, students talk about making sure their parents and grandparents are secure and independent. social security, young and old can understand is a vital part

of the intergenerational context. we're sometimes the young and army for finite resources. i don't see that. i see those who depend on each other. i see americans at different stages on life's journey. older people helping younger people. later, the caregivers become the caret four. one day the young will need the retirement protection of social security every bit as much as seniors do today and perhaps even more. social security is one of the pillars of retirement security of the three legged stool senator brown talked about. we could once depend upon along with the employer-provided pensions a personal savings. unfortunately, social security is the sole remaining dependable leg. traditional defined employee- based pensions have gone the way of the floppy disk. retirement savings have shrunk. real wages for most americans are stagnant or going down. health-care costs have soared. no wonder more than one in three

working households from 21 to 64 years of age have no retirement savings. half the workforce has no employer-provided retirement plan. for most -- those who do, the amount and our 401(k)s would pay them a retirement benefit of less than $80 a month for life. financial security for many americans is in jeopardy. unless we reserve the current trends of stagnant wages, no pension, social security will be even more important. and in many cases, the only source of retirement income for and loved ones. we have to make sure sosa security is strengthened as a critical source of income they can rely upon. we also must help the american public understand that social security is not just a critical piece of the retirement security, but also a powerful engine in our economy. state and local economies, businesses and workers benefit from every sosa security dollar paid out. ,t aarp, we just did a report

which i respectfully request to be included in the record, that count each dollar paid to beneficiaries generates daily two dollars in spending by individuals, businesses, adding about $1.4 chilean and a total economic output in the year when he 12. this applet generates tax revenues for state, local, federal government exceeding $220 billion. the discussion the nation needs to have about social security and retirement is more than about deficit numbers. it is about family protection and community support. it is about real families trying to make ends meet and afford the necessities of life. it is about children making sure their parents and grandparents can live with dignity and independently. nots about our parents wanting to be a burden on our children. it is about my sister and me having enough to survive as children so we could change the trajectory of our lives and make a meaningful contribution.

theal security belongs to people who worked hard all their lives and future but it from every paycheck. the people who are promised it would be there for them and their families. it is a critical part of protecting our families throughout our working lives. it belongs to the children and grandchildren whose lives have been touched by the misfortune. it protects all our families today and in future generations. we are all in this together. thank you very much. >> thank you. mr. biggs? >> thank you very much, chairman brown, members of the committee, ranking member toomey. for the opportunity to testify today. i wish to make three main points. first, social security benefits are more adequate but it is financing less healthy than many suspect. financial advisers generally recommend the retirees have an income equal to 70% to 80% of their preretirement earnings. the typical new retiree today receives a social security benefit equal to around 69% of their current earnings and

mckinley preceding retirement. does this mean the retirees are living high on the hog from social security? of course not. there are many low-income retirees who clearly receive inadequate benefits from the program. but it is not clear that social security benefits are altogether too stingy. yes, some european countries pay our pension benefits than we do come a but if you look at countries with similar political and economic cultures to our own, say the u.k., canada, australia, or new zealand, their pension plans offer replacement rates that are pretty close to what social security pays. security's finances are weaker than commonly understood. to make the program sustainably solvent without reducing benefits would demand immediate and permanent 29% tax increase. if these tax increases are delayed, they only grow larger. some have been willing to propose such tax increases come in particular by illuminating the 113,000 dollars ceiling which payroll taxes are levied. this seems like a tinting and easy solution.

but let me point out several downsides. first, eliminating the so-called tax max would raise the top tax rate earned income for around 43% today to about 55%. and state income taxes in the top tax rate generally rises above 60% and in some states, closer to 70%. eliminating the so-called tax max would effectively cap out higher earners before we fix the larger financial problem facing medicare and medicaid. current proposals to illuminate the tex-mex would also increase benefits. as a result, they would fix only around half the 75-year shortfall and extend solvency they run 16 years. third, an international context, our tax max is unusually low. in the u.s., payroll taxes are around three times the average wage. the average oecd country, cap to run twice the average rage. -- wage. i believe talk of raising sosa

to 30 benefits before solvency securityed -- social benefits before solvency is restored as a responsible. some look at how defined contribution plans over the past several decades. participation in a traditional pension doesn't mean you will receive benefits from one. while long-term employees did very well from dp pensions, only around one in 10 participating in the system actually ends up collecting benefits from them. for instance, the average employee today hinges jobs every 4.6 years. such an play would not even invest in a traditional defined benefit plan. even employees who do invest often don't receive much. despite our nostalgia for the these plans, i would wager dp pensions were the only ones available today, retirement security in the u.s. would be considerably worse. havely, while dp pensions important benefits, which i

outlined my written testimony, many of these of images can be transferred to d.c. programs. consider a defined contribution plan which had automatic enrollment at a healthy contribution rate invested in a lifecycle portfolio which automatically shifted from stocks to bonds over time, with investments composed of low-cost index funds, and at least harshly annuitize benefits retirement. such a plan would address most of the concerns with limited downsides for individuals and no risks of it the taxpayer. moreover, nearly all of this would be allowable under current law. retirement policy massive ramifications for individual retirement security, the federal budget, and their broader american economy. we need policies that encourage americans to work and save and delay retirement. such policies will enhance individual retirement security as well is boosting the economy which is the ultimate source of retirement income for all of us. thank you for your consideration. >> thank you very much.

mr. baker? >> thank you very much, chairman brown, senator toomey for inviting me to speak here. i want to make three main points of my testimony. first off, emphasizing the comments mr. or chairman brown made at the beginning that social security is the main source of income for most retirees. secondly, it is projected to become an even more important ,ource in the decades ahead primarily as a result of the disappearance of defined benefit pension plans, inadequate replacement a 401(k), and stagnant wages. third, briefly i want to comment on proposals to change the index asian formula for social security. i would argue switching to the elderly price index is for much keeping in context with congress and argue the opposite with the chain price index as a way to

cut the program. first, i want to make a couple of comments quickly that ranking member toomey said social security was cash flow negative. that is not the case. the portion of cash flow interest on bonds followed by the trust fund is under the law. a business that had trysting income and a beacon sitter cash flow negative if that put it into positive territory. another point i want to make quickly in terms of the size of the tax increases, i think it is important to realize two points. the the extent to which shortfall facing social security tointervertebral redistribution. 90% of wage income was covered by the cap after the greenspan commission set it in 1983 because of a large awkward redistribution, we now cover less than 82% of wage income. if we had covered 90% of wage income over this whole period, that would've cut the shortfall -- by more than

40%. we talk about the same with tax increases, keep in reference. we have seen stagnant wages over the last three decades for most workers. if workers wages were the same rate as projected average wage growth, in other words, all workers shared equally in wage growth, the tax increase needed to make the fund a fully solvent would be about fighting percent of projected wage growth over the next three decades. 5% rejected wage growth over the next three decades. chairman brown did very well and laying out the basic argument about how well important sosa securities for most retirees. it covers 32% or 36% of income over age 65. 50 2.2% of non-wage income. 90% or more of the income for 35% of seniors. 45% of nonmarried seniors. one of the facts about seniors i think is very striking, the poverty rate, the supplemental poverty rate which most people

use to measure better for seniors, is now 14.8% compared to 15.5% for the adult population as a whole. the story there is social security has been effective in lifting huge numbers of seniors above poverty. so their poverty rate is basically the same as the adult population. very different from the story we saw before we had sosa security. the second part of what to make middle income people for that is projected to rise hugely over the next two decades. if we look at the people 68 -- the current generation of retirees, sosa security accounts for 34.2% of the total income projected to rise to 37% for workers who hit 67 between years 2033 and 2042. it is more dramatic at nonwage income. if you look at nonwage him and on rental income, we have treated housing income and that, the rise is from 46.4% to 54.8%.

this just illustrates the fact because of the collapse of defined benefit pensions, social security is projected to be a much more important source of income in the decades ahead. something i think we all have to be very aware of. the last one i wanted to make was in reference to the elderly consumer price index. if you go back to the decision to index social security for the cost of living, presumably congress did that in 1975 with the intention of preserving their living standards. the prices paid by the elderly is consistently risen more rapidly than the overall cpi, primarily because the more rapid growth in health-care costs. by contrast, if we look at the proposal to switch the indexation to the chained consumer price index, there's literally no evidence to my no one claims that is a more accurate measure of the cost of living as seen by the elderly.

there are features of that that are desirable. but looking at substitution for the population as a whole, not for the elderly. if the intention of congress is to have an index that accurately tracks the consumption patterns of the elderly is construct the statistics to set one up, and frankly, i don't know that would show a higher measured rate of inflation but i can't say which are more accurate one. thank you. say it would be more accurate one. thank you. >> thank you for having a speak to you today on this very important topic. my name is john sweeney, executive vice president, responsible for the investors we serve. of the privilege of helping more than 20 trillion american safer return to the workplace and personal savings retirement accounts. 401(k) and ira's for my for example. we want to help americans for

more confident and make their financial decisions and achieve better results for the families when it comes to retirement. thisdelity we are passing on with customers. every day working americans ask is how to divide their families paycheck in order to meet multiple financial obligations including mortgage, saving for college, possibly caring for an aging parent. one goal which is common to all of our customers is being ready for retirement. this includes the young investors in rolling the workplace savings plan were to older couple nearing 65 and asking if they have saved enough to contemplate retirement. these investors need help navigating the multiple accounts and investment choices available to the middle stages of life. we believe the private retirement system is working well for those who utilize it as designed. people are not saving enough to ensure they will have a comfortable retirement. young investors face especially difficult road ahead. at the highest level, americans need to save more and we need to incentivizing to do that.

as you know, workplace savings plans have become one of the primary ways most working americans save for retirement. and for those who enroll early in their careers, save as much as possible to increase their savings as they earn more, stay the course and markets cap volatile than the results are generally good. in fact, our latest data shows for those who could use the saved for 10 years, the average allen's in a 401(k) has reached war than hundred $23,000. 33,000 yearmately go. we surveyed several thousand american households to understand how prepared people were to cover basic expenses like housing, food, and health care and retirement. or results in aggregate sobering. 55% of americans were in fair or poor conditions and not on track to cover their essential expenses. we colored in red and yellow and

our measure which you will see on page seven of our written testimony as well as on the chart to my right. on the other hand, one third of the households we surveyed are on track to cover 95% of essential expenses. we have given these people a green score and for these people, the system is working well. are generallymers doing well, generation y workers significant challenges. with longer life expectancies and if you're pensions available to them, gen-y will need to anticipate working longer and save more. that is why we believe we need to encourage higher levels of savings now. we know especially with younger investors, the most powerful way to improve readiness is to save more, if even a small amount. a 25 euros earning 25,000 does hereby increasing savings just one percent year can mean up to -- a 25-year-old earning $25,000

with just increase of one percent more can make a difference. these firms are leaders in helping their employees it on the path of retirement security. instead are should doubling the default savings rate from 3% to 16%. our research shows people need to save two to 15% annually in order to retire securely. by starting a 6% with an auto escalation feature, you can get in favor on track to successful retirement in a few short years. taking the step now would mean a world of difference for younger generations in particular. finally, we need to continue to find ways to provide investors with more guidance and education, not less. at fidelity, people come to us to help navigate some of the most complex decisions of their lives. the demand for education and guidance has risen dramatically in the financial crisis. we take fiercely our obligation to simplify the complexity to do everything in our power to help them. our data shows workers who in retirement planning session either online or on the phone increase the amount they saved

by number to five percent to six percent. we take great pride in offering these resources to anyone. we would encourage this committee to work with the administration to ensure that people can continue to have access to the kinds of resources they need to make good for responsible decisions for themselves and their families. we recognize there are major challenges solving these issues. with your partnership, we can work to increase the savings rate in the workplace and help moore reckons be better prepared for retirement and meet the challenges that lie ahead. thank you for the opportunity. i am pleased to take your questions. >> thank you, mr. sweeney. efforts toed enhance or increase also security and a variety of ways as a war between the generations. why are they wrong? is it is athe issue false premise. basically, it says we have a finite amount of resources that

are limited to these and we have to fight over it. the issue is we all age. when you're 20 and you enter the workforce, you have hopefully a long life for retirement and so forth. if you look at the intergenerational activity, your concern about your life and her family and her parents and her grandparents. and vice versa. of notion is not one intergenerational conflict. it should be solidarity. if we look at the data, the data doesn't say the transfer of wealth to old to young, it is kind of like different. it is bottom to top. we assume the most massive wealth distribution in this country over the last 30 years. is a false premise. we care for our children. our children don't want our parents to be burdened and we as grandparents and parents don't want our children to be burdened. you look at the dynamics for families intergenerational, protecting workers, we have an

idea based on social insurance. we're all in this together. we all contribute. we take the benefits as appropriately. as they're designed to protect us all for the journey of life. >> thank you. mr. biggs, i want to ask you a series of questions. them sort ofanswer together in each of you take a shot at them if you would like. generally, thoughts on our current social security levels adequate or should we enhance social security and if so, how should we do it? and if you believe that we should modernize social security, what is your definition of modernizing the system, mr. biggs? give us general thoughts about those three questions and then each of you respond also, please. testimony, i to my believe the benefits are on average more adequate than any people think. here,lking point you which comes from social security itself, financial advisors recommend you need to replace

70% to 80% of your retirement income, social security offers the average retiree 40%. the problem is those measurements are measured in different ways. financial advisors measure benefits for replacement rates will it into final learnings and social security to the wage indexed average. apples and oranges. if you measures also security benefits the way financial advisors would relative earnings were before retirement, social security benefits on average are not clearly inadequate. at the same time, the big problem is for folks at the low end. it is not social security benefits are not adequate on average or progressive enough, the problem is there is an enormous variation in the replacement rates people received even if they have the same lifetime income, the same contributions to the program. for example, if you take the husband and wife, a couple, the benefit they get 10 buried based

on whether they split the earnings evenly -- very based on whether they split the earnings evenly. likewise, if you have an individual or to individuals with the same total lifetime earnings, if one puts them under 35 years and the other is a longer career over 45 years, there will have the same lifetime earnings, but get a very different benefit will stop for low income people, social security is a risky benefit. it is an uncertain benefit. highly uncertain. you have enormous variation in the benefits received. it recently reduce that variation and give a better target a more uniform benefit which is something i've written about fairly extensively, you could reduce poverty in old age and provide a much more reliable social insurance program. you could do it at the same price we are currently paying. the problem was social security is as a social insurance program, it is like housing insurance policy that may or may not pay off if your house burns down.

you cannot be assured of having a high replacement rate if you're a low-income person. i think the simpler, better argeted program, one that is better social insurance policy for people on the bottom it but to be frank, high-income people will be helped him a they have to save more. the social security is an important component of income even for middle income and high income people in the u.s. some people say, that show so importance also security is. what that tells me is we have a lot of people who could, should come and would be saving more but they are not because they're getting social security benefits instead. low-income people need a better social security program but higher income folks really do need to save more on their own. cooks mr. baker, your thoughts on this questions? >> a couple of points. i would say are low income, moderate income people, i think social security is inadequate. it is easy to make a big difference with reforms that

don't add a lot to the cost. some women's groups put together program some years back that call for making the survival benefits 75% of the combined benefit. a lot of the poorest elderly are surviving spouses, most often women. it is a letter -- you could cap that so it doesn't add a big expense. also raising the bottom tier from 90% to 100% me you could take that back so higher income beneficiaries don't benefit from that. that would limit the cost and increase the pay back benefits of new order of 11% for lower income people. i think there are some things we could do very low-cost. i think i'm agreeing with andrew little bit. i think it is important to make it easier for people to save. that is unfortunate that so many workers as it would because we plans andthe benefit

many don't have contribution plans or they don't stay there long enough, there been a number proposals i think mueller -- some are joined by bipartisan support them to set up a savings plan opens everyone from a portable system, low-cost system. the minister at a cost make a very big difference. mr. sweeney's outfit does have very low cost but many do not. it makes a big difference in someone's ability to accumulate for retirement. if everyone had the option of a certain amount deducted and you could have that as a default contribution, could opt out of and put into a thrift savings type plan, though administered of cost, take that wherever they that,again, option out of that would be the default, i think that can make a big difference for middle-income retirees and how much they're able to save. >> mr. sweeney, your thoughts? solvesal security longevity and printable income for people for during retirement. -- protectable income for people during retirement. we asked people to figure out their expenses and cover those

essential expenses -- food, shelter, medical care with predictable stream of income as possible. do counselhing we them is if you continue to work longer the benefit you will receive on an annual basis increases possibly a percent here. that is one of the trade-offs. we asked people who have a cumulative sum well to think about spending down their current personal wealth to for they cap and is also security in order to receive a higher annual heyman from social security if they can do for the time they again taking it. >> inc. you. -- thank you. >> thank you, mr. chairman. i want to delve into the solvency issue facing social jaeger -- mr.r. baker objected to my categorizing as saying it was cash flow negative. technically, he is correct. we have what i consider a series of accounting devices that

obfuscate the reality of this program. one of them is the interest income. treasuryertificate the hands over to the social security administration which is probably filed in a filing cabinet and has no more real asset behind it then any other certificates in a filing. so when we look at this, we can look merely at what we deem to be -- narrowly at what we deem to be the social security trust fund and i think we would miss the essential point which is this. what is the ability of the federal government to honor the commitments that it is made to current retirees and future retirees in the social security program? mr. biggs, i am wondering if you would agree with my characterization that for the purpose of evaluating that question, the ability of the federal government as a whole to actually honor its commitments, the cash flows

coming in through the payroll taxes and the benefits that are being paid out an intergovernmental transfers of certificates don't have any internal impact at all on the fundamental ability. do you agree with that? >> here's one wouldn't think about it. imagine if we had no social security trust fund. if that were the case, a couple of years when social security started running negative cash flow, we would face the choice of raising taxes and issuing more debt, or cutting benefits. those would be the three choices. when you do have a trust fund, you have the same three choices essentially. and it will bias you in one direction. as long as you're a positive trust fund balance, the default position the federal government is, well, we will raise taxes or borrow to pay full benefits. once the trust fund runs out, the default position of the federal government is, we will cut benefits back to whatever level we can pay with payroll taxes. the trust fund has a legal significance and pushes your policy in one direction or the other i'm a at the choices you

phase them at the resources you have available, where you have to get them from, those are the same whether you have a trust fund or don't have a trust fund. >> is it fair to say no realally there are assets backing up the certificates in the trust funds and the existence of the trust fund does not have any impact whatsoever on the overall ability of the federal government to honor its commitments? >> exactly. the trust fund is a commitment to pay, not money that enables you to pay. it doesn't make it any easier for taxpayers to finance social security. income,his interest which i view either as an accounting device, isn't that like taking $1000 out of my savings account and moving it to my checking account insane, i have another $1000 of income? is important we focus on is because i think we are kidding ourselves if we say everything is fine for several decades

novel trustave this fund we treat as though it were real asset and it is fundamentally not. i want to ask another question because you made a really interesting series of points about how defined contribution plans could have the advantages that we often associate with defined benefit plans. i think people sometimes mistakenly think of or even characterize defined contribution plans has been very risky and they think of the person who takes their accumulated life savings and invest it in enron the day before it all goes to nothing. what you characterized, especially lifecycle investing in at least partial annuitization, really eliminates that risk. could you explain in particular what the lifecycle investment profile is all about and how that works? , some get the lifecycle call it a lifestyle fund, available in the savings plans

today, available in a number of 401(k) plans. they try to tackle the problems that a lot of people don't pay much attention to their investments. they don't reallocate their investments as they get older. myy don't think about how different investments fared. these are plants that automatically shift you from stocks when you're young to bonds as you get older. the idea is when you are younger, you can afford to bear more risk. an older, you want something that is or predictable. it does this automatically over time. if you have this application working using low-cost index funds, it is a simple and low- cost solution to a problem. i think more broadly, when people think aboutdb versus dc, you think about who bears the market risk. i think that is a less important thing to focus on. are youerences of automatically enrolled, the differences in the contribution rates or the savings rate, the differences in terms of

annuitization, those are by far the more important differences to make. those are things we can do today through d.c. plans enter certain degree, we are ready are. clearly have problems. but they are problems that can be fixed. the state andk at local, are problems i think in a lot of ways are much, much more difficult to fix. >> thank you very much. i see my time is expired. >> senator isakson? >> in 1983 when reagan and o'neill changed the soso security rules, i was 39 years old and they passed a new rule that said if you're born after adding 40 three, your eligibility went from ages 65 day 67. i was born in 44. i was the first generation of america to have -- to lose a year of my salsa security eligibility. it is going to age 67 in a few years. there are a lot of people it out in and pushing

for children and grandchildren. what would be your position on that, mr. romasco? >> what we advocated and have been strenuously vocal for over a year, let's take this conversation out of the depth of discussion and have a retirement discussion. among them, the possibility is raising the age along with a series of others. but we have to look at the financial issue of the circumstantial issue, as well as a value issue. i think there are challenges with raising the age. i think one of the challenges is, clearly, it will become very difficult to ask a coal miner to go down in that mind when he is 68 or 69 or 70 or waitress who has been on her feet for 30 years. i think there are issues with it and i think that should be part of the larger conversation about social security's role in a broader retirement system. we have heard a lot of suggestions worthy of consideration today. but let's think -- let's have social security as part of our retirement conversation. >> what do you think about

raising the age, mr. biggs? >> he cited the coal miner. go back to 1950 one we had a highly industrialized economy. you had coal miners and farmers and factory workers. the average age of initials also security coming in was 68. today when their biggest on-the- job risk is carpal tunnel from your mouse or something like that, it is 63. in a proposal i did a few months ago, i did not propose raising the retirement age. i think the idea we can't have a higher retirement age, i think it just lies in the faith that people did in fact retire later in the past and today's jobs are less physically demanding than they were in the past. it is not something that has to happen, but i think it is something that people should at least be open to. >> mr. baker? >> a couple of points. there's been a growing gap in life expectancy. people often point to the fact we are living longer and that is

true, but is not quite the same for everyone. as proportionally, the gains in life expectancy have gone to the top quintile, not in the bottom half of the income distribution. longera they will enjoy retirement is not necessarily true. the other point, we did analysis looking at labor department classification. we found post to half of workers and close to 60% of workers in the bottom quintile were jobs that were classified with the labor department is physically demanding. the blue working as custodians, which is is, on their feet pretty much eight hours a day. the idea we are worried about carpal syndrome with our mouse, that is not true. i would be hesitant to raise the age. >> >> we try to quantify how impactful retirement would. they got a 12 point improvement it will he characterize the measure. with folks working part-time

past 865, we saw a seven point improvement in their scores. it is a choice that people can make. we will have several different jobs during the course of our working 10 your and those jobs may not be the same kind of jobs. people want to work longer. today's 65-year-old are more healthy than our parents' generation. >> probably the single biggest investors the lack of and knowledge of the average ingrican in terms of sav for their retirement in the first place. you probably deal with that every day at fidelity. it would've been easier if they done that 25 years earlier.

promote resolution to the tax benefits of retirement savings in government programs that incentivize people to save. easing of thehe pressure will be one individuals are taking better care of themselves. get anyounger we can employee engaged at saving at a higher level and they should continue to save, the more likely we will be successful in the future. some of the comments that mr. begs made, we saw that to very successful. we need to have more employees make that a mandatory option. auto escalation. today people default in at about 3%.

we think that number should be double to 6%. a real target is somewhere between 10% and 15%. we want the auto escalation so that people get to that target savings rate of 10% to 15%. >> thank you very much. i want to thank senator brown for calling the hearing and for the work that he and senator toomey did to bring this hearing about. i wanted to start with mr. romasco. i had a couple of questions repaired. the wayning statement, , sometimeslized it the kind of testimony we do not hear too often in this room. yourw this is somewhat,

answer is dependent on so me bit of extrapolation. if you could project to the present the scenario you described that your mom was facing. how do you compare what your mom was facing in terms of the dependency on social security and the effectiveness of it with what a 33-year-old mother would face today who lives with her husband and has one child and one on the way. >> it is hard to do that. i can tell you that if we look at the circumstances, if that were happening today, i would suspect she would have twice as much difficulty finding and keeping a job and paying the rent. it was a working house suburb of boston. the economic forces in the late

1940's and the late 1950's were not lavish but they are more severe now. all the costs have increased tremendously. i would suspect they would be even more challenging, particularly with what has happened with wages over time. i am just rejecting that. having some level of security that we can pay the rent makes an enormous difference in the way the family unit stays together. i did not realize it until i started to look into it. i always assumed my life was fine. i had a sense of security and that a check was coming in and that she wasn't pulling her hair out every night. i suspect that would be significantly different. 20% of us in this country are doing ok.

1% are doing really ok. most members say, rob, i am just trying to get to friday. >> you do not need to have a or a lot ofonomics advanced learning to look at the data on what has happened to the middle class over the last four years, the last 10 years or the last 45. the hammer blows the middle class has endured. and folks who are just a little the middle class. you talked in your testimony about the idea that social security has become the primary source of retirement income. you point out that 70 million

americans do not have access to a workplace retirement plan. that is a stunning number. we can debate how that happened. what would you hope that congress would do in the next two years or so if we had an opportunity to make changes? i think all of us in either party, as much as we debate, i think we'll have a pretty serious obligation to get this right. i just want to get your thoughts on what you would hope we would do. >> let's make sure we do not conflate this conversation with the deficit conversation. social security plays a huge role in that. we hear a lot of suggestions about how to look at work and savings as part of the three

legged stool. how do we restore those two legs? social security is about advocacy as well as solvency. and number of suggestions are part of that conversation. at the same time, let's not look at social security as a piggy bank to solve the deficit. what kind of country do we want? what can we afford and what are we willing to pay for? >> the red light is on. i am asking your indulgence. may be just to a lightning round with the remaining witnesses on what you would help we would do in the next two years. we will not allow you to have much time. >> i agree we want to think about social security reform in a far-reaching way.

it is not simply about solvency. republicans think social security is doing fine except we do not want to raise taxes. democrats think social security is doing fine except we do not want to cut benefits. if you make it do those things better, you get a more effective system. i think you want to look comprehensively at social security. if you look at in isolation, you are going to miss something. would you fix social security differently if there were not deficits in medicare and medicaid? you have to think about all of this stuff together. how do we make these things said? --how do we make these things fit?

you cannot tell somebody to pay for their health care benefits. we have to think about this in and integrated way. >> in terms of something that could be done quickly is raising benefits for those at the bottom. that would make a difference for retirees. in terms of how we think about the longer-range story, it is the economy. much of the shortfall for social security is because of the upwardly redistribution of wage income. social security faces a more difficult situation. that is money for people who need it. we have to hope for better economic outcomes. and getting back to medicare and medicaid, we have had a sharp slowdown in health care costs.

that has made more differences than deficit projections than anything congress is likely to do over the next two years. that affects the environment about how we think about social security in the long-term. >> i would suggest increasing financial education guidance. making the ability for people to make complex decisions simple. autoecond thing, the features are very beneficial. improving upon those. and thenllment, default enrollment. they have shown to yield very strong results. >> thanks very much. >> senator white. >> thank you, senator brown.

i commend you for it. i am struck by how many folks come up and described accounts that invariably get into the question of their pension melting away. they are talking about hopes and dreams they had had for years essentially it operating because their pension is not going to be there. there are a lot of pieces to this puzzle. the recession is a factor. the aging workforce is a factor. it is hard to follow how some of the changes at the state level affects private pensions. there are a host of issues that go into this mix. --e in the private sector businesses --seem to be doing

some wheeling and dealing with pension funds. we came across the work of a wall street reporter who had done a fair amount of writing on this. she is not talking about all of the businesses in the industry. she is saying there are some who have taken billions of dollars from pension funds to finance down siding and a sold the assets in merger deals. loopholes and discrimination rules that permit pension plans to be tapped to pay for executives, executive parachutes. they talk about the exportation --exploitation of new accounting rules and cutting benefits when there was an argument that pension had enough money.

account and by this clearly this reporter is not saying this is every business where everyone in the retirement industry. i would be interested and start you, mr. mr. baker and biggs. how serious is this problem of siphoning dollars from pension ofds to finance, the kind wheeling and dealing that was described and specific kind of instances. effortnd of enforcement could be put in place to deal with this? this really looks to me like it is way over the line if not looting of private pension funds is pretty serious financial

misconduct and should not be tolerated. we will start with mr. baker and then mr. biggs. >> i do think it is a serious problem. i do not think that explains the issue in terms of workers facing in adequate retirements. you have a number of instances where certainly people were violating the intent of the law. ite money is in a pension, is supposed to stay in the pension. she gives several accounts in which companies were able to pull money from those pensions to finance a merger or downsizing. that should not happen. that requires greater scrutiny and probably greater penalties so when you can determine that someone has violated the law it

is not just a slap on the wrist. you might risk some time in jail. >> let's have your colleague it into this, mr. biggs. >> one of the problems with defined benefit pensions is it is easy to not do their -- it is easy to promise benefits but nobody wants to pay for them. defined benefit plans are very complex and require a whole range of assumptions about what is going to go on in the future. it is easy to avoid doing the right thing. if your employer says i am going to put x into your 401(k) this year, they are either going to put x in or not. that is not to say there are not

similar problems with 401(k)'s. one group was accused of funding contributions into stock. that kind of thing can happen and i think it should be punished. it is not a major explanatory factor. >> let's do this. i ask it the way i did because whatreally is useful about senator brown and senator casey are trying to do. this is the kind of fact-finding effort we should be doing more of. is an award-winning journalist. she is not saying this is going on with every cup at a plan -- with every company plan. ofyou have the kind

documented examples here and you do not have enforcement against those kinds of instances, that is an invitation to others to try to skirt the rules. mr. baker, have you done some suggestion with respect to penalties and consumer protections for workers that should be put in place? >> i have not written directly on this issue. i do have to say i look at this as part of a set of malfeasance and probably criminal actions that were taken. almost no one has gone to jail in connection with that. that raises a serious issue. the question of incentives. people think they can violate the law and the company at worst

faces a modest fine. you are not discouraging that behavior. >> i am over my time. thank you. i would be open to suggestions. its truck me as an important -- it struck me as important for this debate. people talk about the recession and aging workforce. then people talk about their pension melting away. they have questions about how that happened. i think we should be looking at some of those issues. >> thank you, senator wyden. senator nelson. >> there is nothing like focusing the mind when you realize that you are facing the situation.

a lot of americans do not face the fact of retirement until it is way on down the road. and the question is, i would going to have enough money in retirement? have we saved enough? several of us are sponsoring the .ifetime income disclosure act way of showing people what the savings would look like in retirement as a way to get them to save more money today for retirement. i want to ask mr. sweeney, can you explain the innovative tools that fidelity has in order to show your clients what their savings will look like at retirement? and what else you think you need

from the government to get people thinking about this so that they can plan for retirement. >> i would say we develop a lot of tools we make available for customers who work with fidelity and also to the general public. will allow them to aggravate holdings that are kept at other forms. es of ae find two halv couple that comes in. both halves are gearing towards a common retirement and they want to be able to see how they can achieve those goals. we conducted a retirement preparedness measure and calculated the readiness for people to attack you wait exactly what you say. that is an important disclosure. we are doing a lot to educate

investors. our job is to simplify those problems. rates,ing saving particularly for younger investors. we think they have to save more on their own. them or we can help people with copperheads of education, we will have an america that is better prepared for retirement in the future. >> what are the savings rates in america compared to other industrialized countries? >> australia has a mandated system which people are forced to put into a private system of their choice. the thing that is perhaps mask is they have higher debt rates. this seems to be some correlation. we think there is an opportunity for people at all income levels to take some money aside and

save. it is a difficult decision for a howg worker and they say, can i possibly save 10%? they would make some trade-offs that they would figure out how to live on $.90 on the dollar. >> your particular tools other than aggregating all of their savings so they have a comprehensive view, what does it basically do? savings their composite and then project at their retirement age how much that is going to give them each year for the actuarial length of their life, is that what it is? >> we have several different

tools. we have planning tools and we have investment tools. i want to make sure i am saving enough so i am accumulating a nest egg. for a 25-year-old, they are much more focused on accumulation. more 65-year-old, it is about managing expenses. we look at the accumulated benefits they have either through the dc, and we say how can you clear your monthly hurdle each month? we want to plan for the retirees. 1/4 of a couple will live into the early 90's. >> let me just take a pure hypothetical. agerson who is retiring at 65 that has a salary in the

range of $150,000. ok? see if you can't interpolate this for me. what basically is the nest egg of savings that they need to take them in their average situation of lifetime expectancy? a nest egg ofwith about eight to 10 times their salary. you would want them to be about million, aon to $1.5 pretty substantial number. we find that customers at the higher earning levels do not need those hurdles to clear -- the hurdles are not as high. we assume people at those income levels are actually saving. if i am saving 10% of my salary

before i retire, i only need to clear a hurdle of $.80 on the dollar. if i paid off my mortgage, that you do notbig nut need to clear. the dollarom $.68 on and up into the 90's for people what lower income levels. >> ok. thank you very much. you directly answered what i wanted to find out. thank you. >> good to know. >> we have a lot of witnesses that do not answer. >> this is a very good panel. thank you, senator nelson. casey'siated senator comments about your personal

story. paint a picture of a couple of stories that are not as personal for me as there were for you, mr. romasco, but of people i've gotten to know. 10 years ago, i lived next door -- i was in my late 40's and early 50's. he was about my age and had been a carpenter. not union carpenter so is retirement was not organized and lucrative, not as generous. he had worked for 30 years. there were a lot of things he could not do. he had trouble lifting things. he was doing pretty well with his income but his body was breaking down. i was in youngstown.

a woman put her hand up. "i have worked all my life and now i am working two jobs. i just have to live another year and a half so i can get health care." imagine somebody thinking -- she had no insurance. her goal was to live long enough to get health care, not to see her grandchildren or to complete some hobby or work twice success, but just to get to. when we think about retirement age, we need to think in terms of personalizing. we know that the gap in life expectancy. those two people i mentioned. on the average they will live not nearly as long as those of us who dress this way and have jobs like us.

we know those same people, what they represent a much less havey than seven of us to leg oft the three -- the stool of social security but some other kind of pension and some significant savings. the increase in jobs in this country is mostly in low income areas. fast food workers, health-care workers, people who often do not have insurance. most of them want to have insurance because of the aca. they are unlikely to safe or have some kind of employer pension. with all of that, we are seeing to raise the

retirement age. raise the we should retirement age. talk that through. what do we do about people that are retiring, people that are low income, do not live as long, do not draw as much social security? they live longer and have had more comfortable lives, are living longer and getting higher social security. how do we deal with this in light of low income workers generally? >> we have to understand what the reality is. you have corporate executives arguing to raise it to 70. they should go to lake erie and toledo and talk to these people. all those who want to live on $14,500 a year, raise your hand.

that is the average social security benefit. we need to ground people on what the reality is. we have to be aware of averages. i think that is so important. i think you parse the numbers correctly. dean made the comment there is a very uneven situation going on here. if you are white, well-educated and affluent, you're going to live longer and benefit more. if you don't have those tools, you'll be challenged. younger workers have a one in three chance of not reaching retirement age because of some problem. that goes up in communities of color. let's get the reality and the data out there.

retirement. strengthening the system at the low end. we should look at that. we can all do a better job of saving. what are the mechanisms that 's toe in mr. sweeney encourage savings and build on that foundational piece, which is social security. it is the foundation piece. we have to face the reality of what is going on. savings under and challenge. think about what we just had. the average income in this country is $50,000. $400,000 into have order to take care of themselves in a lifetime.

>> what is the reality of that? a vast number of americans are not close. some are. >> others in the, want to respond to that? >> the point he made about the affordable care act is an important one. there are going to be people who are struggling who now will be able to get health care insurance. that is going to make a huge difference in their life. there are these huge differences. people are indifferent circumstances. we could work until 70. it is a different world for most of the workforce. if you read the bowl system -- bowls simpson, they say we

should not raise it for them. that was the thing that greece was ridiculed for when they had that huge deficit. you could retire at age 50. i have no idea about the truth of that. that was the kind of thing that bowles and simpson were proposing. at least they recognize the problem. i give them credit for it. >> this goes back to the example from senator nelson and mr. sweeney and the comments that you made. somebody making $50,000, they need eight times their savings. they are getting social security . it is a big heart of their retirement.

retirement planning is really complicated. it depends on how many kids you have, all you single, are you married? it is easy to take these rules of thumb and misapply them. you how much savings a person should have. it is not eight times. we lower the retirement age back in the 1960's for precisely the reasons you pointed out. they cannot make it to 65. for those folks, i agree with you, 62 is fine. what do we do then? i propose limiting the social security payroll tax for workers aged 62 and over.

the point is to give people a carrot as well as a stick. >> that would mean their monthly check would not grow. i understand the difference now 66.3 and a 70 oh gets more because they have paid in. >> that is not true. i did a study looking at a 62- year-old who chooses to delay retirement and pay an extra year of taxes. for each additional year of tax, s back inabout two cent additional benefits. >> do it so there is no penalty involved. is that the case? if you retire at 66 and you're paying into social security those four extra years, does that mean your retirement does

not go up? >> it goes up because you delay claiming the benefit. it goes up almost nothing because of the additional taxes you pay. social security is based on your highest 35 years of earnings. is likely to raise your benefits. if the spouse works longer, they essentially get nothing. i was shocked when we ran the numbers. the fairest thing is to illuminate the payroll tax. that is something that would have a real big response in terms of labor supply. these are folks that can work a little bit longer. might help somebody, they might

say, i do not want to be a walmart greeter. they could stay in the workforce a little bit longer. try to use a carrot as well as a stick. i understand people need to retire early. how do we encourage that? >> thank you. comment?u want to >> we look at retirement plans. i sat with a client in california who retired at age 62 and came in to talk about his options. pay down his living expenses so he could take social security at 65. "this is going to be really challenging.

oft will put the tail end your retirement plan at risk." he has already decided to retire. he could have work for another three years and have been in a good place. he could have downsized his home and paid off his mortgage. >> thank you. senator casey. >> thank you very much. i was looking at your testimony on page two. startling numbers on a couple of segments of the population. we look at the unemployment rates monthly or poverty rates. the data you have here indicates or senior nonmarried women, it is 16.3%. 27.3%. have improperly --

african american seniors, 28%. i think the same calculation, poverty and near poor for hispanic seniors, 20.2%. just startling numbers and another reminder as to why social security it's so important for folks across the board. anything you want to say about that. >> i appreciate you bringing that up. increasing benefits for those at the bottom can make a big difference. if you could raise benefits for people at the bottom, that makes a huge difference in their standard of living. the cost for that is very low. i know the long-term projections

for social security, that is affected very little. indicatedgs, you benefits for low earners probably should be enhanced. >> i have argued for a more far- reaching reform, some are -- similar to what you have in new zealand or the u.k. you take poverty among seniors. if you want -- we need to sign people up for ira's or something along those lines. social security -- i am not going to say it is not cut poverty. is it the most effective way to reduce poverty? no. we can give every senior a benefit for half of what we spend on social security. we can do better.

it is saying who is being poorly served? why are some people not receiving the benefits they should? ses your benefits on the lifetime earnings. lifetime earnings were not the most important determinant of your benefits. it is not i well targeted and if it. is a risky benefit for low- income people. >> mr. romasco, i want to commend you for doing calculations for our states. in pennsylvania, social security 470,422 jobs, and for billions in local state and tax output.

that is very helpful to have that information. your calculations will be used at another time. we are grateful for that. sometimes it is difficult for people -- and sometimes for elected people to clearly in aulate the benefits broader based way. for the to use bang buck calculations all of time. we appreciate that. mr. sweeney, i'm not going to go through too many questions for you. mr. sweeney went to the greatest undergraduate into tuition in the world, holy cross. >> with a name like sweeney, that is shocking. >> i have four daughters.

chart,alizing with your you indicate generation y, i realize our oldest daughter is generation y and the next three are millennials. gen ye chart you have on tells a lot and you have a lot of red there, the likelihood of saving is not very high on this scale. what would you say to the gen y's and the younger folks? >> that was surprising. >> so i can tell my daughters. >> we were surprised to find gen y was so red.

they had more time to correct the trajectory they were on. it meant they were not on track to recover or cover their essential expenses in retirement. they are not saving enough. there goalpost has been moved further down the field. they are not going to be covered by defined benefit plans to the degree that today's retirees are covered. your daughters will live longer than your parents. the time frame is going to be longer. those are the biggest drivers of success or predictors and factors. andeed to make sure gen y the lineals -- and millennials start saving today. >> thank you very much. >> a couple more questions.

the generalyou know statistics. respondents were asked if there will be enough money to provide social security and medicare benefits at their current levels. 41% answered likely. 36% answered likely. heard for some years the line that young people feel -- this was a survey. young people feel more likely they will meet elvis presley then to draw social security. not particularly funny, i think. thature us, mr. baker, that is not going to be the case. questions, dothe

you think you can get social security? nobody raises their hand. at some point we will stop paying benefits and they start nodding their heads. we still have congress? yes. military, roads? and retirees will be twice as large and you think members of congress will vote to get rid of social security? most of them are convinced no. the shortfalls, it is easy to make the sound very large. they talk about tens of chileans and hundreds of trillions. these shortfalls are not very large relative to the size of the economy. we are talking about a shortfall of about one percentage point of gdp. hardly trivial.

spendingse military and it did not wreck our economy and we have a longer time frame to adjust to this. we do face large costs with health care. we spend more than twice as much per person as people in germany, france, canada. the key is fixing our health care system. , then theot fix that costs are easily manageable. there has been a sharp swelling of cost over the last five years. if that does continue, health care is going to be very much a manageable problem. we can make these scary numbers if we express these shortfalls as a share of income. these are expenses we have dealt with in many other contexts.

>> thank you for that. let me ask a question of all of you. you have testified about the challenges. you have disagreed on some things. you have laid out the issues and the options pretty well. give me a couple of minutes each. center casey asked a question, lightning round squared on short-term what do we do now? for usfor us -- paint on what a retirement system in this country would look like five years from now. what you would like us to work toward. mr. sweeney, why don't you start? >> the education and guidance issued is of paramount importance. help."say, "i need

take a to make sure we client-oriented view to that. how can we solve the multiple needs that we have. what do we think about these features are successful and we want to do more of those. we want to create another round of that, which will put people in the right products and help them stay invested in equities. people who have stayed the course through the downturn are in much better shape than those who panicked and pulled out. the more we can help people understand the timeframe is fairly long and the better we can do to get them enrolled and be well invested, the more successful our american workers are going to be. >> a couple of points.

i think we can do steps to enhance social security, particularly with low income workers. the other point, i think we can set up a system of portable universal accounts with a strong default contribution. people can carry these place to place. have very limited option at no cost. there has been support in a number of states. some states were stopped passing them because of the recession. the main supplemental vehicle for middle and upper middle income people. one final point that does not get appreciated. we see huge fluctuations in asset prices that dwarf the

deficit and debt on future generations. it is great news for your kids. same story with the stock market. greate with a 401(k) is to see the market go up. anyone investing tomorrow can see lower returns. percent realen return in the stock market. overan count on roughly 5% the long term. the somerset return will get you $16,000. five percent would get you 8000. people are worried about generational equity. they should be looking at the stock market. >> i would agree with dean and john with starting to enhance

the savings done by folks to their retirement plans. the auto enrollment, lifecycle, these sorts of things we talked about today. that is the easiest way to ensure people's adequate savings. we have done the research. we know more about what goes into retirement savings today that we did 10 or 20 years ago. that would solve the vast majority of the problems we face. if people just saved as they should. it makes life easier for social security. social security doesn't then have to worry about paying a big benefit for somebody making $150,000 a year. that is the first thing that is achievable today. in terms of social security, i think we need a more robust safety net on the bottom. we agree that it should be a better safety net.

the country should not be allowed so many people to retire into poverty. i think we need to make middle and high income folks rely on themselves a little bit more for their retirement savings. the challenges of medicare and medicaid are still out there. >> thank you, mr. biggs. mr. romasco. >> i think we have seen a broad set of ideas. we have to change the conversation, as these hearings are designed to do. let's look at social security. people need to understand social security. that is a step first. unless we clarify that, people will still have misperceptions. we have to clarify social security. we have to ask the right questions. it is not about solvency only.

we have to look at the other two legs of the stool. i have heard suggestions to make that personal responsibility as robust as possible. until we come to a place where we put the conversation certainly, we look at retirement as a whole and understand the value of social security. this together throughout our working lives. we will be dealing with a lot of unnecessary noise. the clarification of that in terms of the reforms that we have heard. we can have a good conversation. i have confidence will come to a good resolution. >> senator cardin. >> i was following your comments. >> three rounds of questions. >> let me apologize for not

being at the hearing. challenges is that they put you on a lot of committees with a lot of hearings. i think this hearing is very important and i thank senator brown for convening this hearing and the importance of not just social security but private savings and retirement, which is critical. then congress and parliament worked on these issues when we were in the house. during the most robust time of our economic growth, american saving ratios were incredibly low. in fact negative in many years. at that time we were told do not worry about it because people were saving through their equities in their homes. we saw what happened to that. i just wanted to thank the

witnesses and thank the chairman. it is critically important that we not only preserve the strength of social security. it is the only guaranteed lifetime inflation proof annuity that people cannot outlive and they do not have the check to see how the stock market is doing to know what the benefits will be. is important we preserve that. it is important we improve incentives for retirement savings and it starts with doing no harm on the tools that are currently available and to build on that. 6 million americans have taken advantage of the saver's credit. we can strengthen that. as has been pointed out, there has been discussion about the need for middle income and lower income working families, how they can do better in the retirement. isfound the way to do this

to make it easy for people to save for their retirement is that the tax incentives are important what you need to but something else on the table. that is why employer sponsored plans are important. where i work, we have that. federal employees take advantage of that. they do not want to leave money on the table. the saver's credit is money on the table and 6 million americans have taken advantage of that. two factors i would mention is that it is important to strengthen these tools. americans make a lot of decisions by inaction. automatic enrollment programs work. people get involved in the programs. the the fold investment options which are sensitive to their age provides for the rebalance, which they do not do on their own.

the second point is if we were fortructing the incentives private savings and retirement today, i think we would have done a better job to put incentives in for a lifetime income options rather than the ease of taking money out of retirement plans today. there are two areas we should look at as ird's for improvements -- as priorities. i have a minute and 21 seconds left on my first run and i still rounds.r more about income for life. we talk about longer life expectancies that people need to for.for -- need to plan

we try to have a core foundation in building from the employer- sponsored retirement plans. with the concept of private annuities, we find about 14% of americans have an annuity. the challenge is i have to write you a fairly large check. people who won't annuity fine great benefits in them -- >> annuities are one form of lifetime income. is it is easynt to take retirement money and use it for other purposes today. without penalty. having different incentives. retirement.nt is

have outlive their ever -- all of a sudden that 90 they are still active and do not have income. this should have been greater concentration on lifetime income rather tha allowing them to take out the money due to economic recession, they wanted to buy a home, or grandchild needed money for school, there were other ways to deal with that. >> it look like you were agreeing with me. -- we have taxto incentives in place place to encourage retirement. in a taxus weak deduction, not tax deferral. making that more robust might make sense. i think the saver credit is a good idea.