• Retirement: Golden years? Brass, if you’re lucky
Retirement: Golden years? Brass, if you’re lucky
St. Louis Post-Dispatch, Dec. 9, 200
Retirement? Fuggeddaboudit. Chances are increasing that most of us will have to work until we drop in the harness. Just in time for the holidays, let’s look at the grim facts:
Defined-benefit pension plans — the kind our parents had—are going the way of the dodo bird. Those are the old-fashioned pensions that send a check every month until you die and then send checks to your spouse.
Only about 16 percent of workers still have them. And that number is dropping fast and will soon drop faster.
A defined-benefit pension plan put the burden on the employer to pay retirees’ benefits promised in exchange for a lifetime of labor and loyalty. But employers are now busy shifting that burden to employees by offering them 401(k) matching plans instead. If there’s not enough money in your 401(k) to retire on, it’s no skin off your employer’s bottom line.
Changes in pension accounting are about to speed up the great pension dump.
For years, Congress let employers underfund their pension plans and hide their true condition from both employees and shareholders. Although most pensions are solvent, those that aren’t have a combined deficit of $450 billion.
The Pension Benefit Guaranty Corp., a federal agency, is supposed to insure pensions. But a raft of steel company and airline bankruptcies has left it with a long-term deficit of $31 billion—and that’s growing. If nothing changes, a massive taxpayer bailout is inevitable.
Congress seems ready to force companies to bring their pension funding up to snuff and raise pension insurance fees. Accounting regulators will make pension deficits more obvious to shareholders. The result: More companies will drop their pension plans. Just this week, Verizon froze the pensions for 50,000 managers.
So, if we’re supposed to fund our own retirements, how are we doing?
Lousy.
401(k) plans have been around for more than two decades. But the average 401(k) saver in her 60s has only $136,000 in her account, according to the Employee Benefits Research Institute. Such averages tend to be weighted toward a few well-off folks with very high balances. The typical 60-something worker probably has significantly less put away. And 30 percent of workers who are offered 401(k)s refuse them.
Even $136,000 isn’t much. If you retire at 65 and plan to die broke at 90, that nest egg will yield you a bit less than $11,000 a year, assuming you can earn 7 percent on your money.
Tack that $11,000 on to the average annual Social Security payment of $11,500 and our retiree will be living on $22,500 a year. That’s enough for a very modest apartment, a rattle-trap car and a lot of macaroni and cheese. Already, retirees living on pensions and Social Security are being forced to chose between food and medicine.
Many American workers will probably keep working, at least part-time, for as long as they can hold out. Welcome to the golden years.
Maybe today’s 20-somethings, with more time to save, will build a more substantial nest egg. But there’s reason to doubt that. Americans, as a rule, are lousy savers.
The nation’s personal savings rate has been negative for five months in a row. In other words, people are spending more than they earn. So, we’re going heavily into debt. Credit card debt per household was up to $9,312 last year, more than double the amount 10 years earlier, according to Cardweb.com. We’re treating our homes’ equity like a piggy-bank and raiding it. Homeowners are carrying more than $750 billion in home equity debt.
That gets us to the other leg of our retirement: Social Security. By 2017, payroll taxes coming in will start falling short of the money needed to fund all the Social Security checks going out. Uncle Sam is going to have to come up with more money somewhere — or he is going to have to cut benefits.
And while pensions are disappearing, so are retirement health benefits. Back in 1988, two-thirds of big and mid-sized companies offered health benefits to retirees. Now only 36 percent do, and the number is shrinking fast.
Meanwhile, Medicare is in worse shape than Social Security. Part A, the hospital portion, is already costing the government more than it collects in payroll taxes. Those costs will climb rapidly after the first of the boomers turn 65 in 2011.
The most rational solution to this problem—as well as the problem of 46 million younger Americans without health insurance—would be a tax-funded, government-run national health insurance program that covers everyone. Such a system would also save lots of money. But that’s grist for another editorial.
The retirement mess would be more manageable if the federal budget were in decent shape, but it’s awash in red ink. The United States ran a $319 billion federal deficit in the year that ended in October, and Katrina may push that number even higher this year.
If we continue, we will have run the national debt so high by the time the boomers retire that borrowing to fund Social Security could bring serious economic consequences. So, we’ll have to either raise taxes or cut benefits.
The logical and practical course would be to eliminate the budget deficit now so that we’ll be able to afford the boomers’ retirement. In fact, Uncle Sam might well be running a budget surplus today if not for the Iraq War and the Bush Administration tax cuts, which went over-whelmingly to the already well-off.
Reversing those tax cuts while sharply curtailing our financial obligations in Iraq would help put us on the right road.
We might also consider raising the retirement age a bit for those still able to work. When Social Security began in the 1930s, life expectancy was significantly lower; many people never made it to retirement age. Now, a man who hits 66 can expect to live 16 more years and a woman 19 more years. That’s a long time to live on checks from the government.
As it is, many Americans will be too poor to fully retire.
