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.
do I feel for the younger people?....yes I do....I don't belong to AARP because I hate the elderly lobby and the selfish demands they make...
but not being a govt worker or a worker in a huge company, I will need my SS....I won't be destitute without it, but it will make it easier....
I think that it will not be very pretty in the short term.
In the long term, it may be that the world's productivity will soar to the point that nobody goes unfed, unclothed, or uncared-for medically.
This unintelligent 50-year-old you are describing is going to have a standard of living which is lower than a more intelligent and productive Indian or Chinese, assuming that India and China continue on the road of capitalism and freedom.
If the Chinese Communist Party attempts to maintain their power, this will act as an impediment to eventual Chinese productivity. Chinese standards of living will rise but will stop rising at somewhere less than the US has now. But the difference will not permit the US to subsidize their less productive people. They will be stuck with working very hard to make very little.
These are predictions I am making. It is not that I want this to happen. It is just the inevitable outcome of economic freedom on a global scale. Americans have had the luxury of subsidizing unproductive people for generations now. It will be sobering for them to realize that they no longer have the wealth to do so.
Tell me what YOU think is going to happen to such people as you have described. Such people expect to live better than Chinese or Indian people who are more productive. How can it be accomplished? I don't know of a way.
I suspect that those of us who do get some SS money like is owed to us will also be helping our kids and grandkids quite a bit....I'm counting on it and don't feel ashamed one bit that I want to leave my kids something when we are both gone....
I think that's what families do....one generation helps the other....
I can't understand it either.....almsot like a disdain for their children....
I look at the Asian-Americans and I see all I need to know.....brothers and sisters almost being REQUIRED to help with college expenses for each other and supporting mom and dad....and mom and dad thinking not of themselves but of what they can leave behind so their kids and grandkids will have a little bit easier....
wanting to spend "every cent" reminds me of the AARP attitude...."we're the most important people in the world"......again, some old people think they can't go to Hell.....
"I'm ***planning*** on never collecting a nickel. Talk of any kind of payout is just silly. The realization that SS is a vast con game is not a recent one--I didn't plan on having a nickel left in place to collect back in the early 1970s. Anyone who planned otherwise was delusional then."
I agree with everything you've posted. Politically, however, any end to Social Security has to start with either a commitment by government to purchase annuities guaranteeing payments at current levels plus a regular COLA increase, OR a payment of what was paid in plus interest. If we want to end the program prior to any crash, from a pragmatic perspective, we have to have seniors going along with it, and they'll only go along with it if they "get theirs." You and other Freepers may well be altruistic or intelligent enough to have no expectations from SS, but most Boomers will be different, and current retirees will ABSOLUTELY be different.
"to be fair, shouldn't those collecting today be given cuts?"
BWA HA HA HA HA HAHAHAHAHAHAHAHAHAHA!
Look at you, smoking crack and posting to FR at the same time! I'm going to tell the mods on you! 8^)
why does "SS reform" always mean that I will work longer and I will get less....
how about those already collecting taking part in the "reform" part.....
I know you meant it, but it'll NEVER happen. NEVER.
Speaking as the official representative of those derided as crackpots because we're libertarians and Consitutionalists, there is simply NO WAY seniors will take a cut in their Social Security, and they vote far too consistently for any Congressional representative to fear threats from Boomers and Gen X about the issue, especially when neither group has a great track record of pressure group voting on this issue.
Reform of SS will be lucky to get SS ended. It'll never get a cut for those currently collecting. And I LIKE imagining government within its Constitutional mandates. I just don't believe that we can ever wean seniors from the teat, they're already too addicted to the pork, er, milk. The only way we can get them off the dole is to pay their way off with cash in the bank or the same sort of clear payment schedule. And even then we'll still be stuck paying for Medicare and their drugs until we get those nightmares abolished.
>Tell me what YOU think is going to happen to such people as you have described. Such people expect to live better than Chinese or Indian people who are more productive. How can it be accomplished? I don't know of a way.<
We're about to acquire a permanent peasant underclass that will only swell as more illegals swell the numbers of people who cannot do more than semi-skilled jobs increase.
That's the good news.
The bad news is that we'll all be part of that underclass when we have no manufacturing left in this country of any description.
I agree. I am babysitting for 2 days at the home of one of my 4 children as I type this. I fill in whenever there is a work schedule conflict. With 5 grandchildren between 3 out of my four children, that makes grandparenting a full time job. :)
These are predictions I am making. It is not that I want this to happen. It is just the inevitable outcome of economic freedom on a global scale. Americans have had the luxury of subsidizing unproductive people for generations now. It will be sobering for them to realize that they no longer have the wealth to do so.
Very well put. Those with the most marketable skills will do the best in what will be a bad situation for all; Those who don't push themselves out of their comfort zone and acquire those skills will have an exceedingly tough time.
None of use wish this to happen - it is just the economic version of a physicist watching a carload of people barreling toward a brick wall. The physcist knows that the result won't be pretty and those not wearing seat belts will have it worse...
Carolyn
The "good news" is that there is no reason to believe that we will fare less well than India or China. We will always be able to have standards of living at least as good as either of them.
What we will not be able to do is subsidize those at the bottom of the economic scale at a level any greater than India or China. Our wealthiest people will be every bit as wealthy as the wealthy Chinese or Indians.
Our middle class will be as well off as their middle class. And, unfortunately, the least affluent Americans will be no better off than the least affluent in the rest of the world.
The standard of living of engineering professionals in India is already on the rise. Opportunities for them have grown such that employers are forced to recruit candidates which are other than the top tier of graduates from their engineeering schools. The pressure to move jobs overseas will lessen as the standards of living in those locales increases. When you hear that technical professionals in India or China are building McMansions and driving fancy foreign cars, then you will know that we are approaching an equilibrium where jobs will stop migrating out of the US.
Years ago, while working as a software engineer, I was compelled to consider the possibility that my job would migrate to these foreign countries. I realized that my best interests lay, not in guaranteeing a minimum standard of living for unskilled, uneducated, untrainable Americans, but in hoping that my competitors in foreign lands would prosper to such an extent that it would no longer be attractive to export my job. It is the properity of people like myself in foreign countries which is most closely linked to my own prosperity.
>The "good news" is that there is no reason to believe that we will fare less well than India or China. We will always be able to have standards of living at least as good as either of them. <
You are assuming that anyone here has a service or skill anyone will pay anything for. Even health care skills will be next to worthless if no one can pay for them, or they want to barter 10 years of corn for setting a broken finger.
Several years ago my wife and I visited Shanghai. We were amazed by the fact that every store had a group of clerks waiting at the door as customers would enter. Every customer got their own clerk.
Such clerks were paid very little, no doubt, and their standards of living are low. Typically they are able to rent just a single room and share a toilet with others on their floor. There are no showers in the building, but shower rooms can be rented for the equivalent of a few cents.
These single rooms have no kitchen facilities. Instead, other people with low standards of living fix food for them. Every meal time, vendors appear in virtually every side street and prepare simple food at amazingly low prices.
If a tourist such as ourselves goes into a fancy restaurant, we have to pay very nearly the same price as here in the west. That is, ten bucks a head for a fancy meal.
Fortunately, we were travelling with a Chinese couple. We joined the mass of the population in enjoying simple food at "affordable" prices. One serving of meat with rice was sufficient to feed three of us for one meal. The cost was less than fifty cents. The expensive restaurants were for the tourists. There was plenty of food at affordable prices available along every side street in Shanghai.
We didn't see any "homeless" people holding signs saying "Will work for food". Everybody was already working for food and making their way as best they could in the world.
There will never be a lack of jobs preparing food for others. Or cleaning washrooms for others. Or doing laundry for others. What I am describing is a lower standard of living than most of us are used to seeing. But that is the economic reality for much of the world. The advantages that freedom and capitalism have given us in the US is becoming available to the rest of the world. Their standard of living will rise. Ours will probably fall.
Those who lack the fortitude to get themselves a pot and some rice and to prepare food for others, or who lack the fortitude to make themselves available to clean shower rooms, will suffer. Perhaps they will be taken care of by family members. Perhaps they will be seen as deserving by some philanthropist such as Bill Gates.
What cannot happen, is that incomes and taxes will remain as they are and that the US government will become the caretaker for people who cannot or will not help themselves. There just will not be resources for it.
What I have described in terms of incomes and taxes is what must happen to preserve any jobs at all in the US. If we deny this reality, then there may well be NO jobs in the US and a starving population. Once we have adopted a standard of living on par with the developing world, then there will be manufacturing jobs here, since there will be no economic justification to move them away.
"One thing that is rarely mentioned in these stories is the transfer of wealth that will happen when the parents of these baby boomers die and leave their estates to the baby boomers."
It may not be a consideration, since these boomers are probably balanced by those whose parents don't have any "estates" to leave. My parents and many relatives were in the ministry, making meager livings, as were the farmers and blue collar workers in the congregations. You, your parents and inlaws are lucky to be in a better position.
One thing that is rarely mentioned in these stories is the transfer of wealth that will happen when the parents of these baby boomers die and leave their estates to the baby boomers.
I suspect this will be a smaller factor than many expect. The long term care needs of older adults can easily and rapidly consume a lifetime of concientious saving.
>There will never be a lack of jobs preparing food for others. Or cleaning washrooms for others. Or doing laundry for others. What I am describing is a lower standard of living than most of us are used to seeing. But that is the economic reality for much of the world. The advantages that freedom and capitalism have given us in the US is becoming available to the rest of the world. Their standard of living will rise. Ours will probably fall.<
The fallacy of your thinking is to believe that some kinds of work will always be there.
How many engineering jobs will there be when there are no plants to build or operate?
How many accounting jobs will exist if there is next to nothing to account for?
How many teaching jobs past basic elementary subjects when there are no jobs left requiring any extensive training?
How many openings for dentists when no one can pay for dental work?
How many MBAs will find jobs?
What are the lawyers going to be litigating?
What the tender-handed, desk bound fail to understand is that by torpedoing the lesser-skilled, they sink the whole. Economically, this country took off only after ordinary people could afford the purchase of a basic car, a radio, indoor plumbing.
Take a good look at the Depression in this country. Most people cooked at home. They did their own laundry. They did not make ends meet as you describe in China. The Depression ended only because of the demands of WW2 and the postwar demand for goods that the US was able to fill because of intact industry.
We've been kidding ourselves for a long time that we'll be the center for innovation while others build what we design. Why should anyone go into technical fields today at present pay rates? Teachers somehow think that everyone else is making 6 figures and driving a Lexus, but you can shut them up in a hurry if you tell them what engineers are making.
The "productivity" of China is based on manufacturing in conditions, both in the workplace and regulatory, that would never be allowed here. A piece of electronics will be cheaper if you lock the workers in and charge them for their food--but to say that is a more competitive form of capitalism is a stretch. I would call it industrialized feudalism.
This isn't about some of us having the "fortitude" to keep dodging the economic bullet, but about a system that is sick, that will ultimately drag us all down, especially if we flood the country with people offering few skills.
What you are paid is not dependent upon the pay in other countries. It depends upon what your skills are worth here. Just because an electrical engineer in Singapore or Japan or Malaysia makes the equivalent of $65k there does not mean they will make that here if there are no openings for them. What was an electrical engineer worth in Shanghai in 1952? In Japan in 1946?
It's like growing vegetables. Throw seeds onto decent soil with light and rain, and they grow. Throw them onto concrete without rain, and nothing happens. The first set of seeds in turn leads to...more seeds, and more growth. The second is a dead end, which is where we are headed faster than I care to think about too long.
What possible motivation would the remaining companies have for moving engineering jobs to Singapore or Japan if the cost here is the same as there?
Jobs are leaving because there is economic advantage to moving them. When that advantage disappears then the jobs will stop moving.
You make it sound like Americans are so stupid that we are all going to stand around whining while our families starve to death. Tell me something. How much less than you are spending now could your family live on? I'm talking just the basics. Food, shelter, simple clothing, medical attention only for serious matters, etc.
Those with the biggest problem will be those with huge debts. Such debts will be very painful for those who overestimate their future prospects. The "things" that some people have accumulated will become much less valuable if there is a serious downturn.
The changes I am describing are going to take place over a couple of generations, not overnight. There will be some fluctuations that will give warning to those paying attention.
Consider what is happening to GM. They are downsizing what, about 25% due to loss of market share? Does that mean that people aren't buying cars anymore? No. It means that they are buying cars from other companies. Just as soon as GM begins making the same car at the same price as those companies, they can expect to have their business stop shrinking.
I have no idea just how small GM, or any other auto maker will have to become before the employees DEMAND that their wages be reduced. But there will be millions of workers who take jobs at wages that are low enough to justify their employment. Let's just pray that the government doesn't try to help with a minimum wage law. Or limits on maximum hours like in France.
I'll ask you again. What do you think will be happening over the next two generations? What do you think will happen to the standard of living? What will happen to government spending? What will happen to the Social Insecurity system?
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