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.
If you are healthy, why wouldn't you elect to wait until age 67 and take the higher payout? Have you run the numbers?
-ccm
I'm also well armed !!
LOL, I can still see Ed Begley wandering around in his acid-induced haze...
I'm starting to enjoy the thought of you whining for the rest of your life. In fact, I'm looking forward to it. Maybe you went through the new math courses, but the old math shows that there are more boomers that vote than any other group. Sad thought for you and your little revolution.
Voting isn't the only means to fight this. "Atlas Shrugged" is already happening. More and more of my generation is refusing to pay into the system at all - I know a lot of people working under the table, and so are refusing to pay into social security. It's only going to expand.
Money is paper. Money is gold. Money is what the ruler says it is. I don't expect that my money will help me in a conquered America. My money will be compromised in a socialist "progressive" America.
If you survive the period in which America is conquered, IF America is conquered, then I agree.
I loved teaching. Matter of fact, I won a lot of awards teaching. Local, State, National, and the international tech teacher of the year. It was my health that made me quit early.
Juvenile logic at it's finest. I'm really going to enjoy seeing you little revolutionaries trying to save, invest, buy homes with all your under the table income. Good luck.
It really sounds like you are in college with the views you espouse.
I think that is highly overestimated. My wife's parents passed and left the house to the youngest son. The insurance benefits were $21,000 divided equally among 3 children. Big deal. My dad has passed in 2003. Mom purchased a smaller house valued around $500,000. That is her sole asset of any worth. Splitting that with my sister and accounting for my high tax bracket, it will mean the equivalent of a single year's salary after taxes. Again, big whoop. I've saved far more in my retirement accounts.
America will never be conquered.
Will they see a crowd of young boys fooling around in the corner?
If a critical mass were achieved, it'd be doable.
You are a Joneser! (Lost generation)
The "trust fund" is in gubmint securities - akin to writing IOUs to one's self.
There is no trust fund.
There is no trust fund.
There is no trust fund.
You know that and I know that, but sadly - few Americans are aware.
I appreciate your optimism. But, take a good look at the alliances against us now and appreciate their growing capabilities.
Generation Jones (1954-1965) Clearly not Boomers and certainly not Xers....
Yeah and if pick the right numbers, I can win the lottery.
Your simplistic college idea is a joke.
How are you paying for school? Parents, student loans, etc??
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