Tuesday, 18 September 2012
A lot of attention was paid last week to a New York Times editorial about how little money has been saved by people who are approaching retirement age even before the recession and moreso now.
”The economic downturn and its consequences — including losses in jobs, income, investments and home equity — have made that bad situation much worse,” the editorial states.
And furthermore, says The New York Times, neither side in the presidential campaign is even mentioning the fact that most Americans cannot afford to retire.
”Medicare, of course, is an issue [in the campaign]. But Social Security, a critical source of income for most retirees, is barely mentioned, though the parties have sharply different views on how to improve it,” states The Times.
“The Democratic platform correctly acknowledges that it can be strengthened and preserved, implying that a modest mix of tax increases and benefit cuts is needed. The Republican platform vows to 'give workers control over, and a sound return on, their investments.' That sounds like privatization, which would be cruel folly.”
[I disagree about the Social Security benefit cuts cited by The Times, but that's for another day.]
Like many other stories I have read about the shortfall of personal savings for retirement, this editorial blames the decline of traditional employer pension plans along with an astonishingly low number of 401(k) plans available to workers.
So what's The Times' prescription?
”...the 'Automatic Individual Retirement Accounts' that President Obama has proposed in recent budgets, which would require companies that did not offer retirement plans to automatically divert 3 percent of an employee’s pay into an I.R.A., unless the employee opted out.”
That's it? Does anyone reading this blog post believe in that? Is there any reason to think automatic IRAs are any different from opt-in IRAs when the next crash happens (and it will)?
But there is a bigger reason so few have saved enough for retirement, a reason never mentioned by anyone with the power to influence: NO ONE IS PAID ENOUGH TO SAVE FOR RETIREMENT.
Sorry to shout, but this is so obvious that the silence about it is deafening. Just look at income statistics.
As we discussed here a bit last week, the latest Census Bureau report [pdf] revealed that the median household income in the United States fell for the fourth straight year in 2011 to $50,054. After hitting $54,489 in 2007 (inflation adjusted), median household income has dropped by nearly $4,500 or 8.1 percent.
[“Median income” is the center point of the spread; half earn more and half earn less.] And before that, income had been essentially flat for the previous 20 years.
So by the time taxes are paid, rent or mortgage, food, clothing, health insurance, auto expenses and saving for the kids' college, there cannot be anything left in the lower half of the mean income scale for even a modest vacation let alone savings for retirement.
Plus, I'm willing to bet that the three percent automatic deduction The Times endorses would leave a lot of families hungry.
We need a better plan like – how about paying people a living wage? How about creating a policy that penalizes companies that send jobs overseas? In the past couple of decades, salaries have been cut to the bone, pensions, IRAs and 401(k)s have been eliminated, and the majority of new jobs pay a pittance.
Here is what The New York Times itself reported about that recently:
”Lower-wage occupations, with median hourly wages of $7.69 to $13.83, accounted for 21 percent of job losses during the retraction. Since employment started expanding, they have accounted for 58 percent of all job growth.
“The occupations with the fastest growth were retail sales (at a median wage of $10.97 an hour) and food preparation workers ($9.04 an hour). Each category has grown by more than 300,000 workers since June 2009.
“Some of these new, lower-paying jobs are being taken by people just entering the labor force, like recent high school and college graduates. Many, though, are being filled by older workers who lost more lucrative jobs in the recession and were forced to take something to scrape by.
“Scrape by” never leaves room for retirement or any other kind of savings. In case you were wondering, that median wage for retail sales, $10.97 per hour, amounts to $22,818 per year.
On this blog, I almost never tackle gigantic, systemic problems like this one because I don't have an answer. And, apparently, all the smart people who are supposed to have answers - like presidential candidates - either don't care or don't know any more than I do.
At The Elder Storytelling Place today, Jo Ann Mann: Family Political Differences