Borrowing boom imperils retirement for millions

CHRIS FARRELL: Earlier this year, I did a 12-part series for our sister program Marketplace called Buy Now, Pay Later. It looks at the trend of people entering retirement with a lot of debt. And as I fill in the next two weeks on Minnesota Now, we're going to share part of this series. We'll start by looking at the changes over decades to America's social safety net.

The risk of living in poverty in old age was high for much of US history, yet social safety net innovations and collective risk-sharing dramatically changed the economics of old age. Social Security in 1935 and Medicare in 1965. Large organizations offering employees pensions. The mass of older Americans embraced a new lifestyle-- retirement. Mark Miller is author of Retirement Reboot.

MARK MILLER: Risk-pooled solutions play a really important role as a buffer or a cushion to protect us from too much risk.

CHRIS FARRELL: Yet risk-sharing by business, government, and other major institutions started eroding in the 1980s. Deborah Thorne is Professor of Sociology at the University of Idaho.

DEBORAH THORNE: There was a big push towards individual responsibility. That means shifting the risk for so many things onto the individual household and the individual.

CHRIS FARRELL: The social transformation was labeled The Great Risk Shift by Yale University political scientist Jacob Hacker. Although a complex story, heightened international competition and technological innovation pushed companies to unload much of the cost of pensions, job security, and health insurance onto workers. Collective responsibility was out, individualism ruled. Professor Thorne.

DEBORAH THORNE: I am convinced, based on my 30 years in academics and everything I've read, have been sacrificed for this very interesting social experiment to see what happens when we say, you are on your own, and let's see how that works for you. It's not working.

CHRIS FARRELL: A classic example is the shift from defined benefit pension plans, where employers absorb the financial risk of retirement income for employees, to defined contribution plans like 401(k)s where the employee is responsible for saving for retirement. Other examples include workers paying more for health insurance, and heightened job insecurity with employers embracing mass layoffs. Mark Miller adds the high cost of living to this story.

MARK MILLER: Here, I'm referring to big-ticket items-- housing, health care, the cost of college. Inadequate income growth and income inequality, the lack of good career opportunities in too many parts of the country where the economies have been hollowed out for a variety of reasons, if you apply this to the generation that is now retiring or getting close to it, economic volatility during their working years has just played an enormous role that gets people to a position where they arrive at retirement carrying a lot of debt.

CHRIS FARRELL: Most household balance sheets are too brittle to absorb risks like these without taking on debt. Risk-sharing institutions include Social Security and Medicare. Miller says these social insurance programs are social because they bring us together.

MARK MILLER: We call them insurance because these programs protect us from certain kinds of risks, so everyone who contributes is protected. And so together, we pool our risks and our responsibilities. That's the essence of this concept.

CHRIS FARRELL: There are a few signs that the social insurance approach is regaining traction. With employers and government sharing less of the downside hazards of old age, is it any wonder that more older people are in debt?

This project was produced in partnership with Next Avenue, a nonprofit news platform for older adults with Twin Cities PBS.