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.
No. You young people will be turned into Soylent Green...
In reality we have a large scale addiction in this country, an addition to "other people's money." All of us have it to one extent or another. Face it, we all expect world-class medical treatment for little or no medical premiums. Hey, I'm worth it! Soak the rich! /sarc>. I am particularly disguted at the TV ads for these motorized scooters - "at little or no cost to you!" Guess who is paying for these.
At the same time, I sympathize with jude24's generation's plight. They face the very likely prospect of a standard of living significantly lower than previous generations, even for those who work hard, get a good education and skills. Lots of motivated, skilled Indians, Chinese and Koreans who can and will work for a lot less than Americans can afford to work are creating great downward pressure on salaries. Add to that the bill for our generation of politicians largesse, pandering, and lack of backbone and you get a predictable result - frustration and anger. An answer of "just suck it up, pay your taxes, and quit your whining" just doesn't cut it.
As a nation we have two choices. We can work and sacrifice together and make the best of this tough situation called "life." We can be neighbors and family who work hard together to help one another and share the burdens. That will include "tough love," - saying those who won't do what they are able to do will suffer.
Alternatively, we can each be selfish and say "I want MINE and screw everybody else." That route will lead inevitably to armed conflict, and we will ultimately all be losers.
"Waaaah....we gotta help support our parents and grandparents when they get old. That sucks. I wanted to buy a new car and a new boat....Waaaah!"
How about fixing the 7 year old car, buying groceries, and figuring out if there's enough left to put any in the savings account this pay period. For some of us it's not about extravagance - it's about need.
You all think we're being selfish? Who is going to take care of us when you're all gone, and we have no Social Security even though we've paid in all our working lives, and then our kids will have to take care of us. You'll draw your checks and not worry about what is to come after your gone -- that's what I call selfish...
Perhaps if we start thinking about future generations and somehow take the lumps between the two of ours we can end this BS program.
I'm willing to give up what I've put in so far - are you willing to give up half of yours to end this ponzi scheme?
Perhaps from here on out we should take the Social Security payments and give them out on an as needed basis, and then phase it out over the next decade or so. That's the only solution I can possibly see.
WE NEED AN EXIT STRATEGY FOR SOCIAL SECURITY!!! LOL
I can see your point about the nest egg being grabbed. It's time you younger people voted in younger representatives across the board. Why do so many Gen-Xers insist on being represented by the likes of Ted Kennedy, John Kerry and Mr. Byrd? Maybe there just aren't enough of you.
My youngest brother, who is a Gen X-er, says he's not planning on getting ANY Social Security. Wonder if he thought of a way to keep it safe. (I happen to be a Boomer)
U bet - I'm gonna stuff my Winnebego with your money!
Guess I'm a Generation Jones. Whatever that means. Isn't that a fairly large span to kick out of the Boomer Bunch?
Have two other siblings sharing that category and two more who are Gen-Xers.
Don't blame the people that have been paying into the system for the last 40 years...We tried to get the politicians to put a lock on social security for decades...
And now your lead politician wants to pay illegal aliens the same benefits out of the non-existant fund...
Boomers are '46 - '65 so they say....That's quite a time span if you ask me. Google generation jones and read about it. It makes sense to me. One of my dearest friends and co-worker turns 60 this year, but we don't have anything in common generationally speaking. I was born in '61 and just turned 45.
It's more like a split between those who were of the Vietnam Era/Served in Vietnam and those just younger who missed it and later.
Which reveals why I, at 47, had nothing what-so-ever in common with John F'n Kerry who made a big deal about serving in Vietnam. You did know he served there, right? ;)
(BTW, it's not that I don't appreciate those who are Vietnam Vets, quite the contrary.)
>Lots of motivated, skilled Indians, Chinese and Koreans who can and will work for a lot less than Americans can afford to work are creating great downward pressure on salaries.<
I've worked with dozens of Indians. A lot less money in India buys a princely standard of living there. The Indians who came here to stay have NO expectation of getting paid less than home-grown Americans.
I'm a boomer, and I have NEVER expected SS to take care of me. Back in the 1970s it was obviously not to be relied upon. I do weary of whiney Gen Xers bleating...I've paid and paid into the system with no expectation of getting anything back, and some of these Gen Xers are ready to tell us all to die for their convenience, or even to round us up to kill us. Some of the comments here make me wonder about the stability of the people making them--perhaps they are simply selfish beyond anything I have known before.
I've worked with dozens of Indians. A lot less money in India buys a princely standard of living there. The Indians who came here to stay have NO expectation of getting paid less than home-grown Americans.
As have I. Yet the "offshoring" to India, China, and Korea is what is driving down opportunity here. Note that Microsoft set up a world-class research lab in China. Such strategies reduce opportunity for scientists and engineers of all nationalities who who would live and work here and pay the taxes to finance the current obligations. Similar price pressures face other professions. You and I have paid and paid out of salaries that are higher than we can expect in the future. Add that to the demographic shift and our children face real pressures. Don't underestimate that. Trite answers don't cut it for them.
Some of the comments here make me wonder about the stability of the people making them--perhaps they are simply selfish beyond anything I have known before
I think you are seeing frustration. Out of curiosity, what was your debt level for your education? Mine was low. Look at the college debt many of these young people incur. They get out and have such debt to repay and see estimates of 70% tax rates to pay for our generation's largesse. What do you expect them to say?
You're alright RochesterFan.... For a Boomer!
:-)
You're comments make a lot of sense. Thanks!
As one of those Generation X people who is actually saving for my retirement (though I plan on working 'til I drop), my concern is that spendthrift Baby Boomers will empower the government to grab my nest egg in order to pay for those who didn't prepare. Thus making my efforts pointless.
Baby boomers will be fine!!! Number of them will help them. All I can say about us Gen X'ers is God Help Us because we have been ignored our whole lives and will be continued. The new generation might now even be as bad as we will. Hopefully you will be able to get some sort of pension because I believe that might be our only saving grace. Don't think for a moment that the baby boomers will suffer. They own the place and always have.
>I think you are seeing frustration. Out of curiosity, what was your debt level for your education? Mine was low. Look at the college debt many of these young people incur. They get out and have such debt to repay and see estimates of 70% tax rates to pay for our generation's largesse. What do you expect them to say?<
My debt level was low, but the payoff has been equally abysmal, and my degree is technical in a field that is alive and well. The young'uns can say what I said and say:
"I was stupid for going to college."
Other than that, life is tough. If they think I am going to roll over and be processed into hot dogs, they can think again. My frustration with the unhappy hand I have been dealt never included wishing anyone dead.
And whatever do you mean by "our generation's largesse"? Most of my adult life post college has been barely middle class, and includes some scary passages through poverty. I know how to not go into debt and how to survive on next to nothing.
Yes, they will.....here is how (from the article):
"Maybe dying early doesn't sound bad about now."
>All I can say about us Gen X'ers is God Help Us because we have been ignored our whole lives and will be continued.<
I have had to deal with several of them who seemed shocked --shocked-- that showing up sometime between 7 and 10 AM, when they felt that way, was adequate.
They cannot alphabetize, either, and have only the fuzziest idea about things like the difference between London, Ontario, and London, UK.
When you're this lost, and need so much help to get up to speed to be useful, expect to be ignored.
God help you when we all are gone and aren't there to fill in the gaps of your frequently (not all, but frequently) utter lack of general knowledge. How many of you know which way is north right now?
Yadda yadda yadda. I just know all you youngsters out there in freeperland will continue to work your behinds off and pay your taxes so ol' Lancey can live out his years comfortably on the gulf coast of Florida.
A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury.
The real concern on the part of GenXers and those of us Boomers who have lived prudent, productive lives is that there will be this great pressure to heavily tax productive citizenry to bail out senior boomers (and others of various ages) who, through sloth, intemperence, and imprudence did not live responsibly.
We have discussed this extensively during our lunch breaks at work. Most of use agree that we are willing to sacrifice for those, who because of disability or illness could not provide for themselves. We also agree that those who were irresponsible must live with the consequences of their actions. Charity toward the irresponsible should be voluntary, not an "entitlement."
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