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.
>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. <
Obviously, you have never worked in a manufacturing environment.
Not everyone in the US has the intellectual potential of becoming high tech, highly skilled labor,or the discipline to become such. While many do, as manufacturing vanishes, the high earners increasingly will carry the economic load for people who cannot find any kind employment or whose income will never put them in a position of paying much in the way of property taxes (even indirectly, as rent).
What are we supposed to do with the people who will never or can never become highly skilled? Turn them into hot dogs?
Your original comment was:
"You and your age-cohorts owe nothing when you repay me & other boomers, with interest, all the bucks I have contributed for decades in property taxes to support the schools you attended."
My point was first, that if you attribute all your property taxes to exclusively funding "our" schooling, then reasonably, we should be allowed to do the same for the property taxes we will pay ourselves. So any you pay in will first off be offset by our own funding of 'next generation' schooling.
Second, if 'our' schooling is costing you a pretty penny, 'your' debts are costing us a pretty penny, and we'll offset any property taxes, hell, any taxes you paid in, by the money we'll pay to service and retire those debts, at the same time we're keeping up everything else government needs money to pay in, which will certainly total up to more than you paid in, since your generation's women will get guaranteed annuities until they die or the program is ended, and our paychecks will suffer until then, too. Even if the program IS ended, WE'LL still be paying taxes all our lives simply to cash it out, which is more than I can say for y'all, who will likely craft exclusions for senior income and accounts. Your top income tax rates have dropped during your prime earning years, while ours will CERTAINLY rise. If you want to complain about the rate of return on your "investment," in Social Security, that's fine, but there is no question that you personally have been in line all your life to get "free" government services paid for by that money that we'll eventually have to pick up the check for, and have been getting the 'benefits' of big government expenditure longer than Gen X has or will. Those years of guns and butter butter butter should nicely offset the shitty payoff you'll get for Social Security 'annuities' if it comes that way.
That said, I'm still saying we should give you back the money you put into Social Security, and I'm still saying you ought to get interest. But to thank you for it? We'll make a sacrifice of every cent WE paid in, and if you're owed, we're owed just as much as YOU are. I'm sure not going to thank you for paying ANY taxes like you've done us a big favor, especially when we're going to pick up the check for the next generation there, too, and we're going to pick up YOUR guns and Great Society check federally. You want sympathy about how much you paid in taxes, in comparison with us, and when you consider the basic FICA tax bill that's going to hit us, and has hit us all our lives, especially at the same time the government is making us pay for your drugs, your health care, and even our own health care in costly mandates to businesses to provide it when we simply don't need those sorts of programs ourselves right now, and we're probably not getting out of any of that even if we do solve the Social Security issue? You want to throw down generationally? You'll be long dead and gone by the time we can fairly compare, and I'm pretty sure it'll be as obvious to historians then as it is to us now.
No, I don't expect you to concede it, but you have to know in your heart that while the mess we're cleaning up may not be your fault--as if you could be at fault for being born--it is nevertheless because of the demographic splurt that is your generation. We'll probably be eating dog food to afford payments on your Social Security buyout while we're raising our kids, in what should be the best income-earning years of our lives. At the same time, we will probably hear Boomers pissing on Gen X all the way to the nursing home.
Now, I don't blame any Freeper Boomer personally. Y'all have probably been fighting the good fight all the way. But y'all pretend we're whining or slacking when we point out what you've left us with, and act like we should thank you instead. If your parents left you the country with a crushing mortgage and the bankers forced you to accept the country and pay that debt at the same time you were trying to build your own life--no way you could get out of it, not even bankruptcy, not even just saying no, don't want that debt--you'd be pretty p'oed too. There is no way Gen X is getting out of the bill about to come due, unless we leave our country financially crippled or physically emigrate, and most of us don't consider either a good choice for our kids' sake...which is why a lot of us ain't having kids, either.
"What are we supposed to do with the people who will never or can never become highly skilled? Turn them into hot dogs?"
Since a few have mentioned it on one side or the other I submit "A Modest Proposal" for your purusement. Personally I find it repugnent, Swift's point of course.http://darkwing.uoregon.edu/~rbear/modest.html
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Funny, I didn't see any indignant posts from you when 'you people' jump on these boomer-bashing threads....why is that?
*Then don't move to Florida :)
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Yes, I would not break even until I hit 78. Since my plan is to invest the entire payment during the first four years (my numbers are 62 and 66) then that break even date will be pushed well into my eighties. If I die during that time my wife gets the full payout anyway. I'm not going to need the money to live so I won't feel the decrease as some others might.
I also suspect that the payments will be reduced at some point in my 70s and taking those fur years could deflect some of that loss.
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All the wisdom of an adolescent in that statement....
And just who do you think taught Gen-X about not feeling shame in life or in school?
I was lucky in a sense that there were still some older teachers in my public grade school in the 70's but by the time I was in 6th grade, the infiltration of newly minted education majors that were all about free love and disco had started to take hold. I was lucky my WWII parents saved enough so I could attend a Catholic high school.
Other kids, and kids after me were not so lucky. Baby Boomers took over education and educational instruction by the 80's. When you wonder why kids can't add or read and don't feel bad about it, it's because they were never held up to high standards. And most of the Baby Boomer parents (and Gen X) didn't mind because junior was coming home with good grades.
Now that my children just finished 3rd and 1st grade, my wife and I (along with all the Asian Indian immigrant parents who know the value of an education) are not letting the older, Boomer teachers away with such nonsense. We are demanding change, even if that change is being resisted by everything the Baby Boomer educational bureaucracy has got!
You should also make note of all the Baby Boomer feminists whining about how educated women today are staying home with their children instead of working 50 hour weeks. The women they're referring to are Gen-Xers. Gen X knows that being a latch-key kid is no way to grow up and are making a choice that supports families even if aging feminist don't like it.
I completely agree that shame has been underused as a tool for a civil society in the past 30+ years. With the dramatic reductions in abortion, I'm hoping that shame is in fact, making a comeback.
It's sort of wierd and sad. All the talk of cutting off the old when there are millions living in every major city doing nothing every day, many that contributed nothing positive their whole lives, on the gov dole. Some would just like to pick "low-hanging fruit" as it is.
Blah, It's some one else's fault we're incorrigible. LOL. We are all responsible for our own actions. And now it's up to us to somehow fix the mess that's been made. That's just the way it is.
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Since nearly every teacher I have ever known worked until retirement at @ sixty it would seem that in the 70s and 80s most of them would have been born in the 1920s-1940s with 'boomer teachers being only in their twenties. But I guess some of us need somebody upon which to place blame.
Socialist public educators. Read Gatto. Stop blaming all baby boomers. As an avowed anti-feminist, I fully understand the damage the 2nd wavers did by propagandizing many young adult female boomers. Thankfully, all boomers did not fall prey and those who did not are more likely to reside here on FR, whereas the children and grandchildren of those who fell for it reside on DU and Daily Kos - or in jail.
"I completely agree that shame has been underused as a tool for a civil society in the past 30+ years. With the dramatic reductions in abortion, I'm hoping that shame is in fact, making a comeback."
Agree. STRONGLY.
ROFL~ Thanks for the laugh!!!
Get real.
Will I get to meet Mark Knophler?
What do you mean "we"?
Economically, there is no reason to believe that an unskilled, uneducated person in the US will prosper any better than a similar person in China or India. That is just an economic fact.
To the extent that the rising tide of global prosperity lifts all boats, the underachievers will have a safety net that keeps them from starving or dying needlessly from curable disease.
There is absolutely no reason to believe that the US will be able to provide better for these people than India or China will. Every benefit provided for them will reduce our competitiveness. The rest of the world doesn't need from the US the products that China can manufacture more efficiently. Only our ability to compete will provide resources for charity.
The posted article explains how the chickens are coming home to roost. The Social Security scam has just about run its course. We have committed future generations to levels of sacrifice that they WILL NOT MAKE. The money has been spent. It is gone. And no amount of wishful thinking is going to make up for the past wastefulness and the failure of the Boomers to save for their twilight years. They pretended to save by contributing to Social Security. But it was only a pretense. There is no savings beyond a pile of US bonds that must be redeemed by future generations. It has always been and continues to be a fraud.
Quite frankly, I can't say that I blame some of them, given the selfishness of the Boomers. The Boomers will vote en masse to drain resouces from their children and grandchildren. The folks who really will get it in the shins are the tail end of the Boomers - once the bulk of the Boomers die off, the Gen-X and Gen-Y folks will have the votes to cut off the wealth transfers, and IMO there will be a cultural backlash demanding that the elderly die off earlier as to not sap others.
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.
I do identify with them. I have been responsible and productive my entire life. I have a Ph.D. in a physical science and am a senior research scientist at a large, well-known photographic company undergoing a "digital transformation." I have kept my skills current and am likely to be able to be the one who turns off the lights in the lab if things continue to go south. I have seen many skilled coworkers laid off and large scale operations transferred to the Pacific Rim and Latin America. I have seen young people with solid GPAs and technical degrees struggle to find employment here. And I constantly see pandering politicians who want to tax productive people to pay support for those who are dealing with the consequences of their own sloth, intemperance, and imprudence. I see politicians in New York State and at the national level that think government handouts are an entitlement and that no one need suffer consequences of their imprudent choices. An the whole shebang is financed with debt. My big concern is that the whole thing is a house of cards, or as another Freeper put it, a Ponzi scheme, waiting to come crashing down. To be honest, I would rather not be "collateral damage" when it comes down...
It's going to be tough.
Here in Kalifornia we have Arnold pitching for all kinds of nonsense. State-supported stem-cell research...state-supported "hydrogen highways"... state funding for illegal immigrant education...
There seems to be no end to what some people think that the government should be doing. Kalifornia is one downturn away from a terrible financial calamity. Only the recent economic boom has saved the liberals, including RINOs like Arnold, from the bankruptcy they deserve.
One strategy I see for avoiding becoming "collateral damage" is to keep one's expectations low. Pay off the mortgage on the house. Drive a twenty year old car. Wear your shoes down till you can feel the gravel on your feet. Avoid costly restaurant meals and expensive vacations. These tactics will keep your needs in check.
One must also save for the inevitable rainy day. Plan on providing for yourself during "emergencies", whether caused by illness, accident, or unemployment. The closer your lifestyle is to subsistence level, the easier it will be to cope with the necessity for surviving at that level when there is no choice.
Being an early retiree, I have recently had the pleasure of deciding how to invest our "nest egg" to provide for the future. It is surprisingly heavy in foreign investment.
A poster above listed his investment choices in retirement and it was heavy in low-return "safe" investments. Unfortunately, the recommendations I have followed point out that such investments barely cover the reduced value of the capital due to inflation. Drawing an income from such a portfolio causes its value to be reduced over time and there becomes a considerable possibility of depleting the fund. Either way, there are no guarantees.
One strategy I see for avoiding becoming "collateral damage" is to keep one's expectations low. Pay off the mortgage on the house. Drive a twenty year old car. Wear your shoes down till you can feel the gravel on your feet. Avoid costly restaurant meals and expensive vacations. These tactics will keep your needs in check.
We think alike. I suspect a "buy out" offer will come my way soon. I'm too young to retire (50) but would like to consider a second career at the appropriate time. Until then, I am thankful to have a steady paycheck coming in every two weeks.
Right now the strategy is to retire all our debt - our last car will be paid off this year as will the home equity loan we used to do some much needed repairs. We decided the debt was acceptable because it made the house much more marketable. We avoided the temptaion to get a "McMansion," so our house should be reasonably marketable. We're maxing out my retirement plan contribution and paying into one for my wife. The next priority will be a more substantial "emergency fund."
The second part of the strategy is to keep my skills current. That takes self discipline in my field and as a materials characterization support person (electron microscopy,) there is always somebody with a routine sample they want characterized. I have to spend my own time to keep up with the literature and work on my own scientific projects. That takes discipline, especially when I'm tired.
The third part of the strategy is self discipline in diet and exercise. I'm about half way to my weight loss goals and feel much better. One of the good points about my employer is that they encourage us to exercise at lunch time. We have locker rooms and showers in the Research Labs that were originally designed for the synthetic chemists and trades people who worked in special clothing (they worked with dyes etc...) and often needed to shower before changing into street clothes.
>Y'all have probably been fighting the good fight all the way. But y'all pretend we're whining or slacking when we point out what you've left us with....which is why a lot of us ain't having kids, either.<
I don't have any children. I paid into the system, and paid for other people, but took out next to nothing.
I never expected SS to last long enough to do anything for me.
Your whining almost makes me wish I was dead, though, just to shut you up. You DO have options--you can leave the country if it is as hopeless as you believe.
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