Retirement ‘cupboard is bare’
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.
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.
Cleveland certified financial planner Ken Robinson is 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.”
Social Security is on course to start paying out more than it takes in by 2017.
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.
“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.
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.
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.
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.
How did we get to this horrifying point? It’s the convergence of five phenomena:
•The flood of baby boomers and a slowing birth rate since. Between now and 2030, the number of people over 65 will double.
•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.
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. 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, with the National Academy of Social Insurance in Virginia.
Americans who are angry about the government’s role in the retirement mess 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.
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?”