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.
Still, those with the most useful skills will do better than without them. What would you have people do? A couple of years ago, when the downsizings really got going here, we had a manager who gave us some really gvood advice. He said, "change is coming." You can either take some positive steps and know that you have done the best you could under the circumstances. Or you can do nothing - and someone else will make all the decisions. and I guarantee you won't like the results. It is kind of like the residents of NOLA who spent all their energy whining about what FEMA didn't do, compared to the industrious Vietnamese neighborhood who got out with chain saws and worked together to clear the streets and stack the wood. Both groups went through some tough times. The Vietnamese group fared much better.
>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. <
Not much less. I live on ramen noodles and tunafish sandwiches. My clothes are all several years old. I do without dental. My prescriptions are what I can get free from my doctor as samples. The house is paid for. I owe $3200 on a car & have no other debts. This is not high living.
>Jobs are leaving because there is economic advantage to moving them. When that advantage disappears then the jobs will stop moving. <
It's nowhere near that simple. People are not little plastic parts, instantly interchangeable no matter where they are used if the molds are the same. If you do not have the kind of educational system in place to produce highly skilled workers, if you do not have industries in place to hire those workers and further hone those skills, the talent pool won't be there.
If you could hire a chemical engineer for $5k a year, would you do it if the only computer experience he had was with punch card mainframes and he never held a calculator in his life? He wouldn't be much of a bargain; you'd spend years bringing the guy up to speed no matter how intelligent, dedicated, and flexible he was-or how cheaply he would work.
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?
Actually, some manufacturing of items that are costly to ship is moving back. I think we could compete if we set our mind to it.
The key would be to cut needless regulation and bureacracy. Nobody wants to live in a cesspool. We need some safety and environmental regulation to prevent another "Love Canal." Yet I have to keep a syringe & needle inventory in the lab when any addict can go to a free clinic and get a free one. Why hasn't the legislature removed this waste? In NY we have school boards, towns, cities, counties, and the state - all with bureacracy and taxing ability. We need no more than state and county government. When growing up I lived through "consolidation" of the Duval County and city of Jacksonville Fla governments. The savings were substantial and there was no loss in quality of essential services. We need to eliminate waste and stop subsidizing able-bodied, unproductive people. The "wolf at the door" is a powerful motivator.
To summarize, the solution is to cut the waste and get competitive.
If you could hire a chemical engineer for $5k a year, would you do it if the only computer experience he had was with punch card mainframes and he never held a calculator in his life? He wouldn't be much of a bargain; you'd spend years bringing the guy up to speed no matter how intelligent, dedicated, and flexible he was-or how cheaply he would work.
Many state governments have programs for displaced workers that will fund retraining, including multiple year degree programs. There is free internet access at most libraries. There are excellent free tutorials available. I taught myself Python and Java that way. Many journals have issues older than two years available free. It all depends on how badly the person wants to succeed.
>Still, those with the most useful skills will do better than without them.<
I've been watching the rock roll down the mountain our way for years. I am not sure my job skills, the effort I have put into keeping them current, and my willingness to take some miserable jobs has been exactly a wonderful thing.
The Soft-Handed Desk Sitters toss glib answers out, but the truth us, re-tooling yourself for a completely different field is expensive--and risky. Look at the people who re-invented themselves as IT specialists, only to see their work go overseas. I don't think they displayed a lack of gumption or smarts, I just don't think we can continue to go through convulsions of that kind indefinitely at all levels.
I am considering re-training in a medical area, but by the time I complete training the pay might be equivalent to that for delivering pizza. Life has no guarantees, but gambles of this magnitude, to be taken over and over in life, is more than most individuals, marriages, families-can weather.
Life has no guarantees, but gambles of this magnitude, to be taken over and over in life, is more than most individuals, marriages, families-can weather.
Well people have two choices - keep trying no matter what life throws at them or lie down and quit. The second choice leads to discouragement, depression, and death. I may end up eating cat food - but I'm gonna keep trying.
>It all depends on how badly the person wants to succeed.<
Baloney.
There is a lot of human wreckage out there. Until you've wrecked on the shores of layoffs and vanishing industries, please don't bill and coo about how it is all a matter of showing up at a government office or going to a library.
>I may end up eating cat food - but I'm gonna keep trying.<
Easy for you to say. You've had 25 protected years. Most good jobs in this country last far fewer years; the typical pattern is less than 5. Go through multiple job losses, multiple spend-downs of savings, multiple lousy paying,lousy environment jobs, and let's see how chirpy you are then.
Look at the people who re-invented themselves as IT specialists, only to see their work go overseas.
I have a couple of friends who have weathered this. One went and learned new skills and got a good job managing the IT for a law firm. Another went and got trained as a financial planner. I met a couple of 50-ish support specialists who got jobs working for the company with the local Dell contract. They worked on my lab computers. They were the best I've ever worked with. Put our local IT support (very Dilbert like) to shame.
Businesses like older workers who show up reliably and have a work ethic. Yes, the pay may be lower. It is still better than the alternative.
No way! We know that you are not slackers!! My wife and I will be 60 in a few months. Like Dubya', we will be the first Boomers to retire (born in 1946). All we want is for you to keep paying into S/S, so we can add that to our pretty fat 401k $$. We just want to retire comfortably. And longevity runs in our families. So we are shooting for age 90, minimum. That means we could be getting S/S income for 25+ years. Maybe your generation should be working second jobs?? Thanks!
Easy for you to say. You've had 25 protected years.
Pardon me, but excrement! I worked my butt off, including nights and weekends to take lemons and make lemonade. I've been reading journal articles at night and teaching myself new skills while most spend their time on anything but their career. I'm employed because I staid relevant!
staid = stayed
Gosh, tough breaks. But no, my wife and I didn't have any of those things happen to us. We never stopped working, though. So now we have our pensions, 401k's, plus S/S! But to be thrifty, we only take three cruises a year (we are trying to give back some..).
>To summarize, the solution is to cut the waste and get competitive.<
No.
If you look at the actual costs of manufactured goods as priced when they were made here 10 or fewer years ago compared to what they are sold for now, the price difference is minute. [& not infrequently, the quality has suffered]
Part of the solution is something nobody wants to think about: tariffs.
Slave and semi-slave labor will always be cheaper. Look at the goods made in our own prisons. However, we don't have to put up with slave-labor advantages...or turning much of the far east into a vast toxic dump.
>Gosh, tough breaks. But no, my wife and I didn't have any of those things happen to us. We never stopped working, though.<
Well, look around. These "tough breaks" are not unusual. I know a lot of technical people who have been through the employment meat grinder.
Anyone who smugly tells himself it will never happen to him is delusional.
I talked to a guy once whose job was to go about chucking high-level older guys out the door. He honestly said that he had no idea what would become of them, what they would do next.
And to this day, I am sure he believes the company will never do it to him.
>Businesses like older workers who show up reliably and have a work ethic.<
Fast food places like them. Nobody else wants them.
>I've been reading journal articles at night and teaching myself new skills while most spend their time on anything but their career.<
Now, tell me how you could have managed that if you had to work two full-time jobs paying $8/hour to keep the heat on while you searched for another job...you just don't know how good you've had it.
We Baby Boomers are going to need a lot of care. And we will have to pay.
Not long ago I took an early retirement bribe from a company after working there 31 years. My last five years I was working as a software engineer customizing engineering software. The prior ten years I had been an engineering manager. I was really not cut out for that work.
At the time I left, my job had not even been targetted. It was essential to customize and support this software. But I was personally worn out by watching the company downsize by 50%. It is a very draining, demoralizing process. By taking the early retirement that I very much wanted, I was able to protect the jobs of two other people. I still feel good about that.
The one story I found most encouraging of all those concerning people being downsized, was that of a fellow manager. He had evidently had enough himself and had decided to re-train as an engineer for MRI systems. Now that several years have passed, I would not be surprised to find him in a management position in a company selling, installing, and/or operating such systems.
Another person I know was one of just a few who literally fled the scene in a panic when notified of their severance. He is now working at an equivalent level at another company and I am confident he is making as much as before.
I see no reason to expect a sudden, jarring upheaval economically. Unless the government tries to help. Instead, I anticipate a slow, grinding, water-torture spiral with plenty of time for most people to adjust.
I know another guy who had a terrible commute to a job he detested. He resented the wealth of his employer's customers and he was truly a miserable person. Several years ago, he bought a local business. I remember hearing many horror stories involving unpaid Social Security payments and vindictive employees.
I can't believe how much has changed since then though. The business employs three family members. The commute is fifteen minutes. He probably can't figure out what took him so long to take the leap.
If you are thinking of re-training, I encourage you to find something that you really enjoy doing. I would also encourage you to consider relocating in the US. This is a big place and it doesn't make sense to stay where the living is hard.
You might consider looking for somebody who is running their own business and wants to retire. The gentleman who has repaired my vehicles for years, (that is, the repairs that I can't do) recently retired. He is more interested in pursuing his successful efforts at running in triathlons. His business is closed and for sale. There are probably hundreds of his customers like me who wish that there was somebody there to take up the slack.
Welcome to Earth. May I suggest that you start your visit with a quick overview of our historical archives?
>I see no reason to expect a sudden, jarring upheaval economically.<
I see too much going wrong now.
People owe too much, the price of oil is unstable, we appear to be on the threshhold of admitting millions of unassimilatable people who cost us billions while running down the calibre of schools, medical care, etc., the housing market is a mirage...and one well-placed terrorist act could cripple the economy.
[I'm not expecting a major terrorist hit until after January 2009, assuming a democrat is elected. If that happens, it's open season, because the bad guys know the democrats will roll over and play dead exactly as Carter and Clinton did.]
[I played the what-if game with other people interested in history and military strategy years and years ago, and if you look around at your own local infrastructure, you don't need to look far to see the vulnerabilities that would take years to fix locally. I won't post specifics for obvious reasons.]
Matter of fact, I live in an area with a good economic outlook. I have no intention of relocating to a one-industry town and being suddenly jobless in a place where my home is now worth nothing.
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