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.
And whatever do you mean by "our generation's largesse"?
I mean our collective guilt in continually electing politicians who have spent us into oblivion, saddling us with financial obligations that we cannot pay.
They cannot alphabetize, either, and have only the fuzziest idea about things like the difference between London, Ontario, and London, UK.
Sounds like another episode of Jay Leno's "Jaywalking" features. Everytime I see one, I wonder how he finds people who are so eager for "15 minutes of fame" on TV that they would ignore the "normal" emotion of intense shame for their incredible ignorance. There were college graduates on the other night who couldn't identify the significance of July 4th for the US. Then there was the social studies teacher who couldn't identify the author of the Star Spangled Banner, even when told it was a "Key" question.
>I mean our collective guilt in continually electing politicians who have spent us into oblivion, saddling us with financial obligations that we cannot pay.<
Speak for yourself.
>Everytime I see one, I wonder how he finds people who are so eager for "15 minutes of fame" on TV that they would ignore the "normal" emotion of intense shame for their incredible ignorance. <
Shame once provided serious motivation towards a lot of positive activity and avoidance of much unwise behavior.
Shame has largely vanished--people aren't ashamed of ignorance, in fact, being ignorant is cool, and knowing something, anything, is bad, since it makes the ignorant appear...ignorant. People aren't ashamed of absurd gambling debts, since they can now think of themselves as victims of compulsion. We're all victims, right?
The shame of failing a grade in school used to be the dark dread lurking in the hearts of kids, but now, it doesn't much seem to matter. In the early 1990s, I knew a 10 year old who refused to read signs...mostly he couldn't be bothered. Over the summers, he'd forget how. He was enrolled in what was supposed to be a good school & his parents got him tutors, but the kid didn't care. I attended an ancient elementary school in a blue collar city neighborhood, and don't recall ever hearing of even the dullest kid not being able to read signs. I asked a buddy of mine if she could recall anything like that--she's my age, but she attended a segregated school in Kentucky & you know money was not being thrown at that school. She didn't know of anyone at her elementary school who couldn't read.
So, we're not ashamed anymore by ignorance, by sloth, by imprudent behaviors, or by having 5 children with 5 fathers. I think it's time for a good dose of shame.
Also operating here is the misconception that camera time = celebrity, even glamor. That's why there are women who correspond with and eventually marry convicted serial killers--they think they are becoming associated with a celebrity, who focuses a good deal of time and attention upon them. [If these guys are ever released, these marriages fall apart, because the motivation was the association, not the reality of a marriage.]
Agreed 100% BUMP! Reduce the risk by legally putting as much as you can into extraterritorial untouchables now. Claim the taxes now, too, don't get into trouble with the IRS while you do anything. But you are right to NOT be fooled by promises that money will come out of the 401Ks and Roths without the taxman wetting his beak. There is simply too much waiting to be taken, too much that the government will need to take, if it is to pay off Boomers.
Of course, there will be Boomers that will try to make Americans pay those taxes because America made them a 'commitment.' Forcing Americans to stomach the level of involuntary servitude necessary to meet the demands of 'The Greediest Generation' will be more difficult than they think.
"1. The Social Security fund is not "on course to start paying out more than it takes in by 2017." It's been paying out more than it takes in for years -- since FICA tax revenue has been allocated to the general Federal treasury going all the way back to 1969.
2. Which means there is no 'money built up before then,' either."
100% accurate post BUMP!
"Actually he really should be whining about the many legal immigrants in this country who haven't paid a dime toward medicare benefits and yet recieve them.
It is my understanding, some of them receive social security payments as well."
That is my main gripe. We wouldn't have this problem if we didn't have to deal with the many who don't contribute, but take take take. If not for them, there would be a large pile of wealth for our retirees.
That is, of course, that we're not about to put up with the intolerable tax level necessary to provide the Social Security they expect. They fear we will pay them all back when they can least defend themselves, aligning with their grandkids to end this grand national Ponzi scheme once and for all.
But I think most Gen Xers are perfectly willing to let them have back what they put in. Unfortunately, most of the Boomers REALLY want far more than they put in, given their actual income tax payments for the benefits they got, and given their ever-increasing life expectancies. And there lieth the rub--the folks here tossing the grenades at GenX are probably NOT the ones who deserve a good screwing. As the generations who will be forced to correct the problem, Gen X and Y should make their priority NOT doing the usual, but ensuring that the deserving members of the Greediest Generation pay their own tab instead of getting government charity checks.
I doubt that will happen, however, and can only hope that the ones who have saved on their own don't end up getting stuck, too. It always seems to be that no matter what problems government has, the Congressional demagogues stick 'the rich,' i.e., the people smart enough to not rely on government promises, the hardest.
Tell you what, we'll do that AFTER we offset your share of the federal debts and obligations you've racked up on your watch, and also deduct OUR share of the property taxes we'll still be paying for our lifetimes, just so we can even it up.
Boomers will pay their own way during retirement, just like Gen X is gonna have to. We'll all suffer during the readjustment to reality from the deficit spending fantasyland the U.S. has been in since Johnson's guns-and-butter binge. If you've saved extra, peachy, I hope government doesn't steal that too, and you can spend it, but if you haven't, you're absolutely going to be scraping for cash like everyone will for a few years.
However, I don't think any conservative should feel bad for those who have to fend for themselves instead of depending on government largesse. If you want to tell me the government made a commitment, I'm with you, it did. But you've also got to tell me how the people who will claim government fooled them shouldn't have known better, and you'll also have to tell me that it is just that government gets to commit a generation that isn't even born yet to penury.
I posted my concept of how to end this mess a long time ago on my home page: Social Security should be ENDED. Not mended. Not fixed. Not strengthened. ENDED. Screw phasing it out. Buy it out. Give the money, in a big fat gummint check, that Social Security-age and near-SS age folks (say, up to age 50) put in, back to them. With interest--but taxable as income (which it would have been if never taken out of people's income to begin with). Let everyone else out, with no payout at age 62 or 65 or 67. SS is OVER. End payroll taxes for SS purposes. End special status for 401Ks, Roths, etc., make `em all just bank accounts, as taxable as everything else, no special subsidy for any of that crap. That does NOT forestall taxes going up to pay for the national debt, but it does get you the money you paid in. Everyone else gets screwed out of their contribution, but no more fake taxes-called-social security will be there any more, so government might finally get cut some.
I've had reason to think about this. My sister ('61) and I ('51) have completely different attitudes which have caused some conflict here and there. When I left for college, she was 9 years old. I really can't say I knew her that well, although I remember being proud of her for being able to do the cartwheels I couldn't do. :) I had 4 kids and was a stay-at-home mom. She swore she didn't want any (her son is now her pride and joy). She works outside of the home. She works hard and I respect her for that. But for years that's all I heard from her...how hard she works...while the implication was that because I didn't work outside the home, I had much more free time than she did. I kept my mouth shut for years, then one day blew up and yelled at her and things have great between us since then. :)
But I realized recently that she and I grew up in entirely different households (with the same parents and in the same house). My mom was a stay-at-home mom until I was in 10th or 11th grade. I was almost completely unaffected when she decided to take a job at the school as a teacher's assistant. My sister, however, was only 6 or 7 when my mom went to work, so she grew up with a working mom and all the hassle and problems that go with it.
In retrospect, I think I had the better/healthier of the two very different childhood experiences. But she has her own health insurance while I do not. If something happens to my husband, I'm screwed. On the other hand, she took the job she has because her husband's employer doesn't offer health insurance, so if she dies first, he's screwed.
It's easy to point to problems and to the events in history that caused them. Not so easy to come up with solutions.
Funny you should mention this. My daughter, a GenXer, is a manager. One of her biggest complaints is that her young workers have no conception of a time schedule whatsoever. Showing up late is ok. Calling off is ok.
How was it done before SS, which is a fairly recent program?
Economics ... It's a good thing.
Socialism is based on the premise that there is just so much "wealth" in the world and that the only way for poor people to advance is at the expense of "rich people".
In reality, the world economic system is not a "zero-sum" game. It is possible for everybody's standard of living to rise. Capitalistic freedom is the engine that drives such progress.
The US prospered, not because China and India were poor, but because Americans were free to invest their labor for their own advancement. They were able to make individual decisions, constrained by civilized limits, that were in their own best interests.
What you are seeing is "lemons" and you need to prepare to make a lot of lemonade.
The US automakers, for example, are struggling. Instead of making "lemonade" they have ignored the realities of world economics and once again foreign companies are first in the market with products like hybrid vehicles.
There is no excuse for US automakers to fail to claim a share of international auto sales. You mustn't let misplaced sympathy for their situation deter you from staking your claim to some part of the world's economic pie.
My youngest daughter is in Taiwan teaching English to Chinese people. If she were the owner of the company she works for, she would be making $90 per hour for tutoring highly motivated Chinese the language they want to learn to claim their part of the economic pie.
Cheap labor is over-rated as an economic advantage. US businesses have outsourced many jobs, saving untold millions, and in doing so they have increased the average productivity of American workers dramatically. The number of dollars of product created per US employee has risen substantially in the last few years.
Some Americans will rise to the occasion, obtaining the education and skills needed to fill these more productive jobs. Others, like those described by another Freeper, will continue to wallow in ignorance pretending that it isn't cool to be smart. The future for them is bleak.
You need to identify with hard-working Indians and Chinese who value freedom and responsibility. You owe nothing to those who worship ignorance or low productivity here in the US.
"Because, like other boomers, I did not experience them."
Neither did I. My parents did. My mother was obsessed with hoarding food. Understandably.
A $500,000 home? I should be so fortunate. Have her sell and invest the money and let her live in your home for free. ;)
bump!
The family house in Chula Vista was purchased in 1961 for $19,000. It sold in October 2005 for $525,000. Mom replaced it with downsized place in the Cottonwood area for $496,000. It sounds like lots of money, but it is California real estate. A dump with graffiti, drive by shootings and a full time gang escort will still set you back $300,000. My sister lives 3 blocks away from mom's new place. She wants to buy out my "half" when mom passes. That's fine by me. I'm finished with California.
Mom is 78. She's not up to the rigors of a Pocatello winter. If she was, I own a second house in Pocatello that would be ideal for her. It is only 2 1/2 miles from my own house. At 2068 sq ft on a 1/4 acre, it is twice the size of mom's new place.
I'm confused.
Property taxes fund some rather useful items like police and fire departments, two of the few things government should be in the business of providing.
And I'm much too young to have voted for either FDR or Johnson; I'm confused why you think I favored the programs of either. {Want to see the Goldwater bumper sticker I saved from my youth?]
>Funny you should mention this. My daughter, a GenXer, is a manager. One of her biggest complaints is that her young workers have no conception of a time schedule whatsoever. Showing up late is ok. Calling off is ok.<
My favorite is the belief that calling in and ADMITTING they stayed out too late drinking or that they got in at 3 AM from their vacation is somehow just fine, and that someone, somehow, will fill in for them.
Here's another good one, and I KNOW that it is true: a company charged a sweet young thing with stuffing Fedex envelopes with must-have back forms to clients (they placed specialized RNs in temp jobs). SWT dutifully sent off tons of (overnight, morning delivery) Fedex envelopes...empty. Selecting & assembling the required forms was too much.
This is what comes of a generation taught that any level of effort, however misguided or destructive, is Highly Valued and Laudable.
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