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.
Actually not. The free ride was given to the GI generation. For Boomers, overall, SS is not that great a deal, with the returns on what was put in below market. But there is a cross subsidization, so high income earners get the worst deal, and low income earners the best deal. But this Boomer thinks those in my financial category should just be zeroed out, to help to make the books balance. I really mean that. In fact, unless I really need it at some point, my intent is to never claim SS. I would have a guilty conscience, otherwise, and avoiding that is worth far more than the money.
In any event, what should really concern you is not SS, but medical subsidies for geezers. SS by comparison, is rounding error.
Best.
What I find annoying isn't that Baby Boomer expect their own children or grandchildren to help them (because the 5th commandment demands that to some degree) but that they expect everyone else's children and grandchildren to support them (in the form of SS and other taxes).
BS, in my case. The maximum SS I could receive would be abour $1200 in 12 years. I have no debt, and sufficient savings to live for a year, minimum.
I no more expect my children to care for me than I expect to fly to the moon.
Read my #358 and get an education. Sheesh! We're like any other generation. We have some good and some bad. I'm really not comforable with what I'm hearing here, and I have no doubt that many of you think I shouldn't feel comfortable.
What, are you plotting revenge? Tell me what I did? Is it that I was born? Lemme know; I'd like to contemplate my "crimes." Yeah, this is a real hot-button issue with me.
Out for the evening. If anyone replies to my rants (yes, that's what they are), I'll respond tomorrow.
One last comment, here. You may not know that Medicare (at least if I understand correctly), is required for those over 68, I believe. I'm sure many older folks would appreciate a choice.
For Pete's sake, blame Lyndon Johnson, and his fellow travelers for this mess, not us Boomers.
>I'll willingly send you a bullet and keep posting if you'll get it over with, too, but I know what Boomer promises are worth.<
It's really all about you, isn't it?
In the statement you quote, though, when I say 'benefits they got,' I'm not just including SS. I'm including the vast unfunded Great Society expenditures Boomers have benefitted from as their Social Security was robbed to pay for `em. They will receive BOTH those benefits AND Social Security (i.e., CERTAINLY more than they put in).
I'm also qualifying this. Though there are PLENTY of Boomers here who were smart, and earners, and saved outside of SS, there are also the vast majority of free-rider types who don't save, depend on government SS, and will want back 'what they put in' plus want it for the rest of their actuarially nightmarish lives.
Again, I don't fault Freeper Boomers, who have certainly tried to fix things, and been smart about their own retirements. But (not speaking to you here, Torie) I'm not about let my entire generation be insulted as whiners and slackers for saying that the situation is really crappy, particularly for us, or hearing that it is unreasonable and judgmental for us to expect most Boomers will demand more they deserve when it all comes to a head. Not all of you, probably not even many of you Freepers, but most Boomers will do exactly that.
And no question the GIs get far less than their share of the blame. They got this whole fiasco started.
>Geeze, I get the creepy feeling that some of my fellow FReepers would cheerfully put the needle in my arm tomorrow just to rid the world of our "scourge."<
This isn't a creepy feeling. It looks to be the truth. Some of these people are ***exactly*** like the nutcase democroats portray conservatives--wanting to kick grandma out in the street.
I never fell for the hippie nonsense. I've lived a straight, decent, honest life, and these supposed conservatives are ready to kill me just because they imagine they might have to pay into SS the way I have for 3 + decades, and they would rather spend that money on themselves.
"It's really all about you, isn't it?"
Projection. It's a word. You could look it up.
And no question the GIs get far less than their share of the blame. They got this whole fiasco started.
Sadly, the whole 'who started it' debate is largely irrelevant. The real problem is that for years anyone of the electorate who actually took the trouble to look at the data knew that we were in trouble. Most ignored the data. Sadly, too many from each of the generations continued to re-elect the same pandering politicians who have spent is into oblivion. Our elected representatives of both parties should be ashamed. Sadly, we will all pay the price of this largesse. And it will not be pretty.
>"It's really all about you, isn't it?"
Projection. It's a word. You could look it up.<
I don't need to. It's a concept I understood 30 years ago.
You're scary. You hatefully blame strangers for problems they have no part of creating.
You either saved yourself, or your kids had to take you in. The point is, they will continue to take more and more out of my paychecks to cover the rising payout. Thus, I will be unable to save for myself and will end up either having to rely on my kids, or the government.
I'd prefer to end the socialistic system we have, have enough left to save for myself, and not be a burden on my children who will undoubtedly have enough bills for their own families to take care of, or worse end up relying on the government for my well-being.
"You're scary. You hatefully blame strangers for problems they have no part of creating."
Wow, scary, whiny, hatefully...crap, I've almost got a diagonal filled in on my card. You better not post any more, I don't want to have to use the word 'bingo' in a question at the next Rotary Club meeting.
"Sadly, the whole 'who started it' debate is largely irrelevant. The real problem is that for years anyone of the electorate who actually took the trouble to look at the data knew that we were in trouble. Most ignored the data. Sadly, too many from each of the generations continued to re-elect the same pandering politicians who have spent is into oblivion. Our elected representatives of both parties should be ashamed. Sadly, we will all pay the price of this largesse. And it will not be pretty."
BUMP to everything you've posted.
>Wow, scary, whiny, hatefully...crap, I've almost got a diagonal filled in on my card.<
All of these descriptions fit to perfection.
No doubt you would like all boomers to apologize for existing before you send them off to be euthanized. There are terms fitting this kind of thinking, and libertarianism isn't one of them.
Ah yes, wanting to keep the money that one earns is "greedy". Perhaps you would be happier at DU.
"No doubt you would like all boomers to apologize for existing before you send them off to be euthanized."
Actually, if you had ever bothered to read my posts instead of putting them immediately into your insulting little categories, you would know different. The only Boomers I'd like to see euthanized are the people who eagerly perpetuate this system and both postpone and worsen its time of correction. Obviously, they aren't generally Freepers, as I've also stated. I would even give your entire generation its money back plus interest. Paying you off hardly qualifies as wishing you all dead.
You really come across as hellbent on viewing all who even mention your generation's contribution to this mess as whiners and slackers. Your little diatribes about Gen X as the 'Me generation' are particularly humorous, given that the moniker has been applied to your own cohort since the 70s.
Bookmarked.
That works for me too. Boomers have been lied to by the government for most of their lives regarding the nature of SS, so I don't have a problem making them whole. But it needs to end here; I will not be an accessory to blatant theft from unborn generations.
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