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.
"...it needs to end here; I will not be an accessory to blatant theft from unborn generations."
That is EXACTLY the way I feel. None of this 'mend it' crap.
"..it needs to end here; I will not be an accessory to blatant theft from unborn generations.
I think the only fair approach would be to publicly admit that it has been a Ponzi scheme and that nobody's interest is served by continuing. We should then cash out the trust fund and pay out to all those who have paid in in proportion to their total contribution. It is not unlike any other bankruptcy - pay the creditors in proportion to their stake. Everybody is on their own. Then one has charity for the destitute. For example, our church supports those in need. However, support is contingent upon getting and heeding sound financial counsel - like making and adhering to a budget. Why should those who have been prudent sacrifice to enable those who act profligately?
But--those of you viewing at home, say it with me--there is no trust fund! That money has all been spent. We are running current ops on it, and have been for the past forty years! How do you cash out an account that's overdrawn?!?!?!
"It is not unlike any other bankruptcy - pay the creditors in proportion to their stake. Everybody is on their own."
If that is the case, we'd screw the current seniors even harder. Some of these SOBs sure deserve that, but there is no way in hell most seniors will ever accept or deserve such a 'proportional share' of the 'trust fund,' when that will equal a big fat zilch. And we'd never get the votes for such a plan. Even if we allotted a certain amount of money as a minimum for everyone, or a total amount to allocate, even guaranteed a certain proportion of the money paid in by EVERYONE, it'd never fly if the seniors didn't get every penny they paid in. Never. That is why we MUST pay them every penny plus interest, not because they are more deserving of it than Gen X, but from a purely pragmatic perspective--we'll never get anything accomplished if we don't.
"Then one has charity for the destitute. For example, our church supports those in need. However, support is contingent upon getting and heeding sound financial counsel - like making and adhering to a budget. Why should those who have been prudent sacrifice to enable those who act profligately?
Agreed, but let those charitable works be done by charities, not government. Government shouldn't have been in the charity business to begin with, and if it is in that business, at LEAST it should call it that, instead of pretending it's a savings account or trust fund.
Of course, as long as we're fantasizing, I'd also like Stephanie Seymour (in her prime) sitting on my lap.
But--those of you viewing at home, say it with me--there is no trust fund! That money has all been spent. We are running current ops on it, and have been for the past forty years! How do you cash out an account that's overdrawn?!?!?!
True enough, as far as it goes. Correct me it I'm wrong, but is not the trust fund holding T-Bills? If so, assign the T-bills proportionally. If people want income sooner, they can sell the T-bills for a cash settlement.
That is why we MUST pay them every penny plus interest, not because they are more deserving of it than Gen X, but from a purely pragmatic perspective--we'll never get anything accomplished if we don't.
I could live with this. I would benefit; however for the sake of my children I would prefer the former option.
Agreed, but let those charitable works be done by charities, not government. Government shouldn't have been in the charity business to begin with
I agree. Charity must include accountability, otherwise it simply enables irresponsible behavior. I really liked Marvin Olasky's book - The Tragedy of American Compassion. Too many see government as a free candy store.
Of course, as long as we're fantasizing, I'd also like Stephanie Seymour (in her prime) sitting on my lap.
Guess I'm showing my age; I had to Google to find out who she is; I guess I was always partial to Jane Seymour in her prime....
I assume you've read "Not Yours To Give," a phenomenal speech on the topic reputedly given by Davy Crockett.
As to Jane Seymour, she's aged phenomenally, but is still too skinny and British for my tastes. Perhaps a 70s thing, too, I really hated that Twiggy crap.
Silver halide won't be the first technology to disappear. Who makes buggy whips today? Phonograph records? Slide rules? Dislocations happen every day. Freedom and self-interest solve the problem. The solution won't be the same for every employee. Some will need more education. Some will need to relocate. Others will opt for an early, less affluent retirement than they once might have planned.
One of my favorite anecdotes deals with food production in the Soviet Union. The authorities approved allowing people to grow their own produce. In a couple of years, 1% of Soviet acreage was producing 24% of their produce. The difference was solely that the producers owned the fruit of their own labor.
Not sure exactly what you mean, but Gen-Xers were some of the first to BE aborted.
Here I think you have hit on why people disagree on exactly when the system will be broke.
The debt instruments in the trust fund are obligations of the US government. In order for these to purchase food, gas, electricity or any other thing of value, they must be converted into cash, by selling them to a willing buyer or by the government redeeming them for cash.
Selling these IOUs will cause them to compete with the other bonds that the government is using to engage in deficit spending. There would be a spike in cost to the government in having these debt instruments in circulation.
Similarly, redeeming the bonds for cash requires that the government consume tax revenue that would otherwise fund scads of liberal fantasies. This would cause much wailing. Alternatively, the government could just print the cash. You can guess what that would do to the value of the US dollar.
My point is that the date when the trust fund runs out of money, because there are no more IOUs to sell, comes much later than the date when the impact of having to sell ANY of the IOUs is felt.
There are challenging days ahead and they are not far enough away for me to believe that I will not be affected. For this reason, I intend to sign up early, at age 62. As an older Baby Boomer, I have come to expect that the rules will change just as I reach the door. It has happened several times in my life, so I anticipate having to commit early.
As for not taking the benefits as an altruistic measure to help "balance" the books? Not me. The bleeding-heart liberal socialist party is also the anti-gun party. I intend to do everything I can to destroy them as a reward for infringing my right to keep and bear arms. I am Atlas. Hear me shrug.
Factor in the Bush/Senate desire to import a 90 million country of abject poverty to the equation, should they get their way with the illegal allien invasion. We are strained now, but that will put the quietus on everything. This is very serious.
And something else that I'm concerned with is the fact that by the time I retire (and my house is paid off), my property taxes and insurance on my house will probably be more than I'm paying on the mortgage right now. Plus, although I'm putting a fair chunk of money into mutual funds through a 401K plan, I'm wondering just what the stock market will be like in another 20 years, while people are looking to cash in their funds for retirement.
I hold no hope that I'll ever see a penny of social security.
Mark
That is the problem. My willingness to forego my six-figure contribution to SS/Medicare is not enough, because it does not give them as rich a take as bleeding younger generations like their parents got away with. They don't just want to take everything I've given, they want to bleed me for even more under some sick socialist delusion that I personally owe them that money.
It sickens me that self-styled "conservatives" think that they are entitled to as much thievery as has been done unto them. They are not merely satisfied with stealing everything I've given to date, they want to steal the rest as well. All it proves is that most conservatives are as venal as most liberals when they think they can get away with it. It is proof positive that most conservatives are as immoral as liberals if you merely sweeten the pot enough. Anyone who thinks they are owed the money from my egregiously high tax bill are grossly immoral socialists, period, and deserve their fate. All of which explains the Republicans in Congress -- they really *do* represent their constituency.
The only thing that gives me hope is that I do not know anyone in the GenX and younger group that is not deeply aware of the fact that they are being used and screwed by the older generations when it comes geezer entitlements. It will come home to roost eventually, and it won't be pretty. The older generations who have not prepared for that day will have no one but themselves to blame.
Again, it apalls me no end that some many nominal "conservatives" have such an evil and immoral socialist streak. There are much better specimens of humanity than these folks.
What on earth are you talking about? When even a moron can do the economics, it is a damn sure sign that the system is busted. It isn't left-wing propaganda. Newsflash: it is the left that is saying that SSI is just fine. No amount of number juggling gives a shiny happy result, particularly if you are under 40 (in which case the number say you are screwed in the best case).
No offense, but given that the rest of your post betrays a gross ignorance of basic economics, you are basically part of the problem. The SSI money was pissed away while geezer entitlements have grown massively. It has nothing to do with manufacturing jobs or outsourcing, which frankly do not deserve a fraction of the time the outright theft of resources from younger generations deserves.
Right. There are two values growing exponentially: economic output based on capitalism and technological advancements, and the insatiable demands of governments buying off their constituents with the money of the productive. Arnold Kling calls this The Great Race. Without much exaggeration, I could call it "Singularity or New Dark Age".
"The only thing that gives me hope is that I do not know anyone in the GenX and younger group that is not deeply aware of the fact that they are being used and screwed by the older generations when it comes geezer entitlements. It will come home to roost eventually, and it won't be pretty. The older generations who have not prepared for that day will have no one but themselves to blame."
If a reckoning is coming, you can bet that DC will put it off until the last minute. Which means around thirty years from now, when Medicare and Social Security are about 90% of the actual outlays and the feds are printing money faster than they can spend it, there might be something that happens up there. MAYBE.
Personally, I'll bet against it. I think Congress will run us into the wall and hope they've managed to get their own money outside the country in time. I wonder how many years you have to be in office before you get a Congressional pension these days...
"got the action, got the motion, oh yeah!"
>That is why we MUST pay them every penny plus interest, not because they are more deserving of it than Gen X, but from a purely pragmatic perspective--we'll never get anything accomplished if we don't. <
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.
>Silver halide won't be the first technology to disappear. Who makes buggy whips today? Phonograph records? Slide rules? Dislocations happen every day. Freedom and self-interest solve the problem.<
Dislocations happen daily, but the destruction of manufacturing is something different.
One more time: what becomes of the kind of people who fit into manufacturing operations, but who have NO aptitude to become much more, mostly because they lack the inherent intelligence?
It's well and good to talk about dislocations and self interest fixing everything, but if you have ever worked in a manufacturing environment, you know perfectly well that there are a lot of guys suited to an assembly line or a plant who will never be able to morph into something more intellectually demanding. Many of them are perfectly decent, hardworking people; I knew one guy well into his 50s who worked 12 hour shifts week after week with all the additional time he could scrounge to put a daughter through college--but he was not qualified to do much else. 50 years ago these people were the core of the middle class. "Service jobs" do not financially compensate the way manufacturing jobs do, even non-union manufacturing jobs.
Few buggy whips are manufactured here today, but truth be told, not much of anything else is, either. Processed foods, scientific instrumentation with the nameplates of "US" companies on them, personal care items such shampoo, are increasingly coming from somewhere else.
>all the manufacturing we gave to foreign countries, will be producing imports at Americans no longer have the money to buy...because they have all our jobs.<
The people who believe that they will never be affected by the destruction of American manufacturing continue to amaze me. If they work in an office and never get their hands dirty, do they honestly believe their big houses and big investments will be worth anything when Americans are largely incapable of buying much?
But then, then Gen Xers won't have to feel put upon by SS raids on their paychecks, because not only will there no longer be a SS system, they won't have paychecks, either.
the problem lies solely with what today's elderly are demanding and GETTING from the govt.......
there are tons of people that have never worked yet get SS.....tons of people using Medicare like a personal fix it for every single little thing...like toe fungus....and GETTING it all for little or nothing...
SS did not always grab nearly 16% from workers......originally the percantage was very , very small....
so not only do the people collecting today get money, they often get money many times over whatever they contributed, if anything....
to be fair, shouldn't those collecting today be given cuts?
now I am not talking about those who are barely above water, or even those that live relatively well yet simply....
I am talking about the double and triple dippers, and those with massive pensions from private companies .......
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