Posted on 06/24/2006 11:14:12 AM PDT by Incorrigible
BY TERESA DIXON MURRAY
This nation faces a massive economic crisis -- indeed a social catastrophe -- that some experts even say will be among the worst the country's ever seen.
Much has been said about how the looming retirement of 76 million baby boomers will stampede Social Security, which is expected to start running out of money in 11 years. We almost joke about senior citizens eating dog food. Maybe that joking is the only way we can keep from crying.
But Social Security is just one piece of a cruel puzzle. It's not until you look at the big picture that you realize how dire the crisis is. The pieces won't fit together without a lot of pain and anguish for a lot of people.
If you think it's time to stop reading, this is a wake-up call you can't afford to ignore.
By nearly every expert's forecast, half to three-fourths of the next few generations of retirees will live on the edge financially or in desolate poverty.
Today's children and most of today's workers almost certainly will pay steeply higher taxes to cover promises to retirees. Taxes will rise while workers are told they need to save more and work into their 70s to avoid the plight.
"The cupboard is bare compared to what we've dreamed of," said Phil DeMuth, a California investment adviser. He's co-written books with commentator Ben Stein. His newest is "Yes, You Can Still Retire Comfortably: The Baby-Boom Retirement Crisis and How to Beat It." But beating the crisis, he says, involves choices such as delaying retirement and tapping home equity.
"It's a terrifying problem," DeMuth said. "Politicians don't want you to think about it. Your employer doesn't want you to worry about it. ... It's very depressing, and it's not going to get any better."
By most estimates, about a fourth of future retirees will be in good financial shape. They have significant savings, insurance, pensions, good health and are married and own their home, said John Rother, director of policy and strategy for the AARP in Washington.
Another fourth face an impossible future because of little savings, no home, no insurance and no spouse, he said.
The remaining half will be "on the edge," he said. Best case: Many will struggle. Worst: Most will collapse financially.
Study after study shows roughly the same bleak outlook. An analysis this month by the Center for Retirement Research at Boston College found that, under the best assumptions, 43 percent of households will have trouble making it in retirement. That assumed people worked until at least 65 and lived partly off the value of their homes. And it didn't add health-care costs, which researchers said were too unpredictable to even estimate.
"Unless Americans change their ways, many will struggle in retirement," said Alicia Munnell, director of the study.
Cleveland certified financial planner Ken Robinson is just as grim. "We need to get ready for parts of America to turn Third World and where you need your extended family to support you financially," Robinson said. "I hope I'm wrong, but I don't see us on a course that protects us from that."
Survival for Paula Tinsley, 53, of Maple Heights, Ohio, will mean delaying retirement until she's about 80. That's when she'll pay off the house she and her 70-year-old husband bought three years ago.
Tinsley, a manager of a Shell convenience store in Willoughby, Ohio, has a small 401(k) and small pension. "If I had it to do all over again, I would have started saving earlier," she said. She'll depend heavily on Social Security -- which is the most prominent part of this crisis.
Social Security is on course to start paying out more than it takes in by 2017. The money built up before then will be gone in 34 years, just about the time today's 30-somethings start reaching in their mailboxes for a benefits check.
Even now, Social Security pays an average of only about $12,000 a year to a retiree.
The Medicare system that retirees rely on for health coverage starts to run out of money this year. It'll go broke in 12 years.
"We may have already committed more physical resources to the baby boom generation in its retirement years than our economy has the capacity to deliver," Alan Greenspan said last year, when he was chairman of the Federal Reserve.
Pension plans, which about 40 percent of today's retirees rely on, are crumbling. While about the same percentage of people are covered by some kind of work-related retirement plan today as in years past, the type of coverage has changed. Only 25 years ago, 80 percent of private-sector workers in retirement plans had pensions. Today, that's only one in three, with most of the rest instead given the chance to save in an individual investment plan.
Even workers who have pensions are at risk, given how many plans have run into trouble.
Personal savings will be even more important to future retirees, but last year Americans spent more than they brought in -- meaning no savings -- for the first time since the Great Depression.
A third of all workers aren't saving a dime toward retirement, according to the Employee Benefit Research Institute. Most who are saving don't have nearly enough. Among workers 55 and older today, 52 percent have less than $50,000 saved for retirement, the institute found. (You need $350,000 to $400,000 at retirement to have an income of $30,000 a year.)
Only a fourth of workers 55 and older have $250,000 or more. If that much money sounds good, stomach this: It's projected that a 65-year-old needs $210,000 in savings just to pay for out-of-pocket medical expenses and supplemental insurance.
Maybe dying early doesn't sound bad about now.
But wait: The typical man who makes it to 65 has a 50 percent chance of living until age 85. A 65-year-old woman has the same chance of living until age 88.
That's 20-plus years of a life that's far from the warm-and-fuzzy images of spending our golden years traveling and playing golf.
The game plan for many is to work into their 70s or 80s. Those will be the lucky ones. About 40 percent of people retire involuntarily because of illness or layoff.
Social Security is 40 percent of the income of today's retirees and the only income for one in five retirees today.
How did we get to this horrifying point? It's the convergence of five phenomena -- all of which were preventable or, at least, foreseeable:
-- The flood of baby boomers and a slowing birth rate since. Between now and 2030, the number of people over 65 will double. The number of new workers paying into Social Security and Medicare will increase only 20 percent.
-- Longer life spans. Life expectancy is about 13 years longer for children today than when current retirees were born.
-- A stock market that lost value for three straight years -- also a first since the Great Depression.
-- Procrastination by political leaders. Washington saw the warning signs in the 1970s and 1980s, but passing the buck has always seemed easier than real solutions.
-- Procrastination by individuals. Experts have begged us to spend less and save more. But the median retirement account holds $10,000 -- barely more than the average household has in credit card debt.
Between 1946 and 1964, the number of U.S. births soared. Instead of two children for every woman on average, there were three or four.
Births declined rapidly after 1964, when birth control pills became widely available and women entered the work force in greater numbers.
Since then, the birth rate has been about half as much as at the height of the baby boom. That means fewer new workers to support Social Security for the growing number of retirees.
Meanwhile, old people are living to be really old.
The age for receiving full benefits like Social Security and Medicare had always been 65. That was no big deal at first, because until 1950 the average life expectancy for male babies was less than that.
Now life expectancy is 75 years for men and more than 80 for women. Credit medical advances as well as healthier lifestyles.
All this adds up to far more people living in retirement. In 1950, Social Security had 16 workers paying in for every retiree. Now, the ratio is three workers for every retiree. By 2030, it will be 2-to-1.
Unless benefits are cut sharply, which isn't expected, workers will lose a bigger chunk of their paycheck to support retirees, said Matt Moore of the National Center for Policy Analysis. "People in their 20s and 30s will be most affected."
Social Security always has collected more each year than it pays out. But the government borrows from that surplus to pay for other things. When Social Security starts paying out more than it collects, it will need money back. The government will have to raise taxes or borrow more. Or it could cut benefits.
To fix the problem now through the bluntest methods, we would have to either raise Social Security taxes 16 percent or cut benefits 13 percent, said Bob Rosenblatt, a former journalist who focused on retirement issues and is now with the National Academy of Social Insurance in Virginia, a nonpartisan group of more than 700 experts in government benefit programs.
The longer we wait, the more drastic the fix.
Most experts believe Social Security will get fixed, no matter how bitter the medicine. If you look really hard, you can find a couple of other rays of hope.
-- For retirement-age boomers who want to keep working, there should be jobs available. Today, there are more people who want to work than there are jobs. By 2014, it'll be the other way around, the government says.
-- Younger workers save more than their parents did at the same age.
-- More people overall are saving money than a decade ago. Among workers of all ages, the percentage who have something saved for retirement has increased from 57 percent in 1994 to 70 percent in 2006.
Fat lot of good that saving did for some people. Just when the first baby boomers were within 10 years of retirement, the stock market tanked. Not only did most investors suffer 30 percent to 50 percent declines (which they haven't fully recovered since), but economists and financial planners were spurred to rethink projections.
For stock investments, they used to forecast annual returns of 10 percent to 12 percent a year. Now, most project 7 percent to 9 percent, said economist LeRoy Brooks of John Carroll University. "That's a huge difference," he said.
This is bad for pensions and individual investments.
Brooks calculates that a 30-year-old could invest $840 a year at 12 percent and have an income of $50,000 a year in retirement. But if the return is only 8 percent, she'd have to invest $2,700 a year to get that same income.
The same principles apply to pensions, so many employers are caught without nearly enough money in their pension funds based on lower earnings projections. That includes the government. Standard & Poor's said federal employee pensions are short about $4.5 trillion. Taxpayers could be forced to pay that bill.
John Strangfeld, vice chairman of Prudential Financial Inc. in New Jersey, believes many pension plans will be in trouble in the next 10 to 20 years. The trail already includes IBM, General Motors, Hewlett-Packard, Sears, Delta Airlines, Polaroid and Goodyear.
Mark Iwry, a senior fellow at the Brookings Institution in Washington, said shutdowns or freezes are rare and most pensions are going along OK. What worries him, though, is that the freezes -- in which workers no longer accumulate pension benefits, though they may be instead given the chance to save in a 401(k) -- have spread from sick companies to healthy ones.
And many pension plans could go bankrupt. The Pension Benefit Guaranty Corp., which insures workers whose company plans go bust, could be under a "mega-threat," Iwry said, because it wasn't designed to bail out whole industries.
Retirement experts are most vocal and exasperated about what Washington hasn't done.
Once it became obvious 20 or 30 years ago that the birth rate was slowing and life expectancies were increasing, researchers waved warning flags. Changes could have come then with minimal pain.
Brooks, the economist from John Carroll, said politicians "have been playing to the populace by giving them what they want. People always say they're paying too much in taxes and so we cut taxes. They say they want more benefits, so we increase benefits."
Any solutions now will be extremely painful and unpopular, but politicians need to face the crisis, he said.
Americans who are angry about the government's role should look in the mirror.
With one out of three people not saving anything toward retirement, and most of the rest not saving enough, we must be waiting for the retirement fairy.
Saving for retirement is a fairly new phenomenon. As a society, we're just not good at it, said Kevin Myeroff, a certified financial planner and author of the 2001 book "Countdown to Retirement."
What we are good at: spending.
"We carve out so much of our money for things we didn't used to need," said Robinson, the Cleveland planner. "Is it so hard to imagine life without TiVo?"
For those who don't have the money, it's easy to reach for the credit card. Charge-card debt (an average of $9,300 per household) has hit millions of people.
Myeroff isn't sure what it will take for Americans to face reality. "People think this is all just going to work out," he said.
It's now obvious it won't, Brooks said.
"We've known this for decades," he said. "We're getting closer and closer to the day of reckoning."
June 23, 2006
(Teresa Dixon Murray is a reporter for The Plain Dealer of Cleveland. She can be contacted at tmurray@plaind.com)
Not for commercial use. For educational and discussion purposes only.
Not anger, but the immorality of the attitude is appalling. What kind of conservative thinks they are "owed" the blood and sweat of their children? When the liberals do it, we call it socialism. Apparently wealth transfers to conservatives is peachy as long as they are old enough.
I don't have to worry about my own retirement, but it is the height of sociopathy to extract vast sums of money from younger generations to fund one's own retirement while telling them to piss off and work harder because they'll have to (gasp!) save for their own retirement. It does not affect me in a significant material fashion, but it is a gross injustice nonetheless and being perpetuated by many who claim to be virtuous.
How do you justify the message? "We are going to steal your money because we are foolish with ours, so you steal money from someone else or go work harder and longer and shut the hell up." Fine conservative values, that.
As a Mid 30's guy, with a family, working 2 jobs, let me say this with all due derision to the Baby Boomers-- Let Them Starve...
That's right--cull the herd...
We all knew this was coming since about 1982...
Hey Boomers--failure to prepare is no one's fault but your own...indeed, America will be a much happier place when the last of the libs from that bust out generation has faded... though the scars that they put upon our nation's soul will not soon be faded...
"No way!! Gen Xer's were only 8 years old when Roe v. Wade was decided. And in the Northeast, WWII Generation was legally aborting early Gen Xer's even before that."
Indeed they were. And just a few years later, they started having abortions right and left. In the meantime, their Boomer parents had stopped making so many babies because they'd already done that earlier.
The bulk of the millions of abortions that have been performed in the USA have been performed on Gen-Xers, my friend. Now the Gen-Yers are having their abortions.
Not that many Boomer women have had abortions. Instead, they used birth control, or had babies. Lots of babies. The Gen-Xers are their babies.
The abortion boom was purely a Gen-X thing.
Perhaps, but with more maturity and moral sense than you -- years can't buy that. So if I live long enough, I will come to understand that theft is moral? I see we have another atheist among us, with their inevitable socialist agenda.
"I see we have another atheist among us, with their inevitable socialist agenda."
Atheism has nothing to do with it. I have my retirement set up. I'm helping care for aging parents. It has nothing to do with my particular philosophy regarding deities.
Go find another group to demonize, OK?
My big fear (at age 58) is the implementation of some type of "wealth tax" to bail out social security in about 10 yrs. I've got a stout 401k in addition to a nice pension (with a shaky company - PBGC here we come) and maxed out on SS.
I'd be fine on the 401k by itself but am worried about its future vis a vis future govt taxation.
"I think the soy-lent green solution is more likely.
If you can't support yourself..you will be eliminated.."
You think so? Guess what the average age of the membership of the NRA is. You think the Boomers are a bunch of helpless old geezers? Think again, my young friend.
It does seem that way to me too. I knew a lot of GenX girls who had abortions in their teens and early 20s. That said, I don't know of any among those that I know after the early '90s. All the later accidents were carried to term.
It sure is, and you sound like you have a terrific family. Caregiving alone is very difficult. I did it for 2 years 24/7 for a friend who had no family, so I know how hard it can be.
Both of my parents are dead, but my inlaws, especially my father-in-law who must be taken to dialysis 3X a week, are having problems. They had 11 kids and thankfully, many still live close enough to help on a daily basis. We live in another state, but are only 3 hours away and my husband went down this weekend to visit and help out.
I'm grateful that my own kids work well together and know they will be a godsend in the coming years.
Abortions did not really become a fad until the early-to-mid seventies, after most boomers had already started having their families.
I on the other hand am an Xer who is still paying off student loans and paid my own down payment on my house. Same story for most if not all of my friends. I've had jobs since I was 11 years old to pay for my own gas money, my own music lessons, and my own trips.
This is after watching my sister-in-law have to pay for her own darn college because her divorced parents renigged on their promise to pay for hers and after all of us grew up as latchkey kids.
My parents did they best they could with what they had. But that's a load of crap when you people try and paint us as a bunch of lazy slackers.
Lots of us Boomers are caring for aging parents these days, or at least helping to care for them. Sadly, there are an awful lot of people in nursing homes with nobody visiting them. It's a shame.
Anyone who can avoid the whole nursing home thing should definitely avoid it. My dad-in-law will die in his own home. There's no way he will die in a nursing home. It's just too sad.
"You think so? Guess what the average age of the membership of the NRA is. You think the Boomers are a bunch of helpless old geezers? Think again, my young friend."
Yep, I wonder what the best BBQ sauce is for GenX? Should we use hickory or mesquite to smoke their sorry carcasses?
My employers and I have paid in over $300,000 to the SS and Medicare system, the money that will be paid out has been an interest free loan to the government for 30 years. I see no reason not to expect drawing from that pool when the time comes. Even if I don't need it, I'll take it to spite the selfish generation that you are a member of. The generation of never having made a sacrifice to the country or apparently to family. Keep crying and whining, you have no moral high ground to stand on.
Last post before Alaska, I promise.
So you were in college from 63-65. I thought Viagra hadn't been invented back then, either.
Ba-dum Bum!
Cheers!
LOL!
I wouldn't be so sure of that.
Here's a chart where I've highlighted the appropriate cells that relate to Gen X. While atrocious, I would say Baby Boomers took much greater advantage of abortion.
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"I thought Viagra hadn't been invented back then, either"
HaHa! Wasn't needed back then. It's a good invention, though, I must say!
I agree. Bush tried to do it, but couldn't get it through Congress. This was the plan AlGore described as a "risky scheme." Gore was pushing for a system where the government, rather than the individual, would make the investments. The problem with this is that the Federal Government would immediately become the biggest investor in the stock market, and Congress would immediately start threatening to pull investments from companies that didn't do what Congress wanted them to do.
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