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Tuesday, 18 September 2012

Retirement Blues

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


Posted by Ronni Bennett at 05:30 AM | Permalink | Email this post

Comments

This really strikes a chord with me. I am almost 69 years old, still working full time and have barely six figures from my late husband's insurance. My research tells me I will run out of money, even at a modest $32,000 a year with widow's benefits, by age 86! My mother lived to 93, so.....its not looking good and I wonder how much longer I will stay in good enough shape to work this stressful full time job.

If people were paid a living wage, there wouldn't be enough left over for the millions of dollars paid to their CEO's. Yesterday, I stood in line forty minutes at Comcast with three clerks waiting on people (the line never gets shorter at any time of day). I had to wonder what their salary was ($10 an hour if that?) while at the same time wondering how much their CEO was paid. How did our country get into this mentality, with CEO's making something like fifty times the amount that other countries pay theirs! AARGGGG!

Thanks for writing about this issue, Ronni. We do need to raise awareness, especially since the next generation to age are the millions of baby boomers.

I write about the last Great Depression, but as far as this one goes, I'm puzzled by the usually dependable Paul Krugman. Why is it good that CD rates have gone down to nothing, when that used to be such a good and safe way to make a little money?

Thanks for saying what needs to be said! I want to save, but at the end of the day, through much frugality and thriftiness-there just isn't anything left...especially with healthcare costs continuing to rise-just to have insurance. I feel as though I really don't have health insurance, I have catastrophe insurance-to be used for the absolute worst possible situation.

3% of an annual income of $50,000 is only $1,500 a year. And most young people are making considerably less than %50k, so the 3% mandatory withholding seems to be almost useless. I think that the reason people aren;t talking about this, Ronni, is that it's damned scary, and no one has an answer. Much more comfortable to keep the blinders on and try to stay focused on a little piece of the future that we think maybe we can control, or at least maintain more optimism about, but this myopic approach will not serve us well.

On another note, did other TGB readers see the first episode of the show "Revolution" last night? When I read the synopsis I thought it might have been an adaptation of Dr. Bill Thomas's book, "Tribes of Eden". It sure sounded similar. This first episode did remind me a lot of his story, although so far it doesn't seem to have the reverence for elders as a central focus.

Thanks Ronni for writing about this. I worry about outliving my money as well. More than that I worry about my kids and their kids. My eldest lost his good paying newspaper related job, was unemployed over a year, and hasn't been able to make more than $10 since. He did get some insurance this time but with serious diabetes he may run into the cap quickly. He keeps looking for a better job and uses his credit card to take classes to upgrade his skills. Savings for retirement, ha. My youngest son has a pension coming with his job, so far. We have all worked from our teens on, have BA's and AA's and don't live a "fat' style. The outlook for the future generations is grim.

Why do you think the Republicans are trying to kill the Unions? The only way that wages have ever been raised is through collective bargaining. We need to support the Unions and the Occupy movement. The workers of this country are the majority so they should use that leverage to demand that this inequality stop.

I wonder what would happen if the entire labor force of the US quit working for just one hour. Chaos would be catastrophic, but would certainly make the point that labor is what keeps the wheels of commerce turning and without the workers the money that the wealthy have amassed would be worthless.

To me, this is the crux of the issue. Romney and the Republicans rant about Americans wanting to be freeloaders, but please show me the shining alternative. Blue collar workers cannot find good jobs, recent college graduates are having trouble finding jobs, elders are losing jobs, and workers in their prime are seeing their wages/salaries and benefits erode year by year.

This is not a frivolous problem, it is a crisis. I would appreciate it if our g*dd*mn elected leaders would help us.

I truly believe that things are going to get worse within the next year or so. I don't have all the answers but I do have two: for those of you are who living alone, find a roommate. If you own a home and have 2-4 bedrooms, that would be very good for all of you. (Don't think it will be like The Golden Girls -- but it could be a lot of fun with the right people.) If you rent, rent a 2- or 3-bedroom and get one or two roommates. Stock up on staples. Lentils and rice make a complete protein. These suggestions are not going to solve everyone's problems but will help some. And to the writer of this column: it's about time someone talked about the fact that most people don't get paid enough money to save for retirement. It always angers me when I read the numerous, frequent columns in the news media re saving for retirement. Who possibly can save for retirement??!! Maybe the 1%?

I couldn't agree more, that until the ratio of worker pay to management pay is re-established at a more rational balance the situation won't improve.

So many of the new jobs that are created are low-paying jobs in the service industries.

The economic policy presently and the one proposed by both candidates appears to benefit only the financial markets. Everybody seems hell-bent on forcing whatever savings workers have into much less secure investments.

Absolutely, it can and will all come tumbling down -- partly because the problems from the last financial crisis were not adequately corrected!

I'm barely scraping by on what I get from Social Security so I suppose I'm not entitled an opinion here. Let's just say that groceries, gas, and Internet are luxury items at my house.

I was paid a living wage all my working years. Definition: enough to live decently and raise my son, but not enough to save anything. Perhaps I was too extravagant, buying a tiny little house instead of living in a cheesy apartment with no rent control.

I disagree with you about cutting Social Security benefits, however. I think they definitely should be reduced or eliminated for the wealthy who don't need them.

"The Land of Opportunity"? Remember?
Today many have the opportunity to sleep on streets that are not paved in gold and share in the "bountiful harvest". Romney tells his donors that 47% of Americans live on what the government doles out but if you can call that "living" then your vision is a bit faulty.
I live in "The Great State of Texas" where my vote for a Democratic candidate in the national elections will have as much effect as a flea farting in a hurricane.
Let's face it folks we're screwed.

I was mostly with you, Ronni, until you said “No one is paid enough to save for retirement.” Please explain to me just why anyone (the government? my employer? the taxpayers?) should be paying me to save for my own retirement. What has happened to self-responsibility?

I think the real reason we haven’t saved for retirement is that most of us were too busy accumulating ‘stuff’ over the last 40 years to bother with saving. Saving is hard and requires self-discipline. But it is really difficult to generalize about all people. Some people are dirt poor (very few) but most have enough to get by.

Does anyone here realize that “the government” has no money of its own? None, nada. The money it redistributes to the 47% comes from the taxes of the 53%. (Plus what it borrows and counterfeits – QE3 anyone?)

The money we receive now from Social Security comes from the taxes being paid in today. The money we each paid in for the last 40 years has already been spent. All of it. There is no Midas Room stuffed with greenbacks waiting for us. The politicians have already spent that money (our money!) on other things. There are just IOUs in the form of numbers on a ledger to show that you paid anything.

You are right, Ronni, that this is a gigantic, systemic problem. Medical care spending is the pink elephant in the room that will have to be discussed, too. In fact, it is much worse than Social Security. I don’t have a solution either. And being forced to vote for either TweedleDee or TweedleDum is not helping either.

Yes, I agree people are not paid enough but people also are rarely frugal. We are a country where everyone expects a lifestyle that is far beyond that imagined by most of their grandparents when they were young. I mean in little things: eating out is one, but there are all kinds of electronics that really aren't needed, many personal indulgences (say manicures, hair stylists, gym memberships, all kinds of sports equipment for kids and dad... the list is enormous. And these indulgences are not just the middle class, all but the very poorest think they must have these things. The decorations on homes at Christmas time could seed many an IRA investment, not to mention all that goes under the tree. We've been told by advertising we deserve all sorts of extras. If saving came first instead of last more people would have nest eggs to fall back on. And I won't start on all the money managers who sucker would be savers into bad investments. Enough rant for one day, although there's much more.

My husband and I have lived frugally for decades. We have no credit card debt, no car payments, only our home mortgage -- and we're thinking of paying that off since we have so little income that the deduction for mortgage interest doesn't help us at tax time. Now, why am I griping? The money we have saved is paying us so little interest that we might as well put it under our mattress instead of buying CDs. We are now living on our principle instead of the interest we used to be able to live on. And, as our principle dwindles, we are getting scared. Luckily we had no money in mutual funds or stocks, so we didn't lose anything when the market crashed, but I've been afraid to sit down and figure out how long we can continue to live, draining our capital. Our social security doesn't keep up with what we used to make in interest.

One thing they could do to help SS is to do away with the cap on earnings and to tax all of everybody's salaries, but I haven't heard of anyone seriously proposing that for quite a while...

I agree with the assessment that salaries are too low for many folks to save anywhere near what is required to meet the basics in retirement. Most private/public companies discourage employees from discussing salaries with each other, and salary ranges are not normally posted by employers. This means everyone is on his/her own to determine what to negotiate for a salary unless they can find some information on-line or through a professional association. Private/public companies should make public to employees all job salary ranges just as the federal and state governments do.

It might be helpful to increase the minimum wage to above the poverty level. And, limiing CEO salaries to something within the range of what a human is worth and requiring that they meet some basic merit increase standards would be helpful also. Most of us are certainly not rewarded for failure as many of these CEOs are.

It is beginning to look like the second coming of the "Robber Baron" age.

Amen to penalizing companies that ship jobs overseas and slashing CEO salaries. As far as being frugal, I haven't eaten out in 3 years, eat beans and rice 2x/week, don't buy beverages or meat, drive less than 1500 miles/yr. and have a 12 yr. old used car. Been looking for any job for 3 years now with no luck. At night, in the summer, I turn out all the lights so I can afford a small window AC and get around by computer screen light and flash light. Kind of hard to cut much else out. I think Mitt should come and live with me or another elder for a month. Somehow, I still don't think he'd "get" it, so very out of touch with Americans.

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