Michael Maiello's picture

    Yes, WaPo: There Is A Retirement Crisis

    Back in 2005, when I was still a financial journalist, I attended the Investment Company Institute's annual gathering in Washington, D.C.  The end of retirement was a theme of the event. Ken Dychtwald of Agewave argued that the idea of retirement, wherein you stop working in your sixties and get to live a few decades in pursuit of your own ambitions before dying, was a post World War II prosperity phenomenon and that it played such a brief role in our history that you could count on it enduring no more than you could count on always being able to make money by investing in Internet stocks.

    It is more natural, argued Dychtwald, to work until the very end (at least in a Western economy).  The future, he told us, would involve softer forms of retirement.  You leave work but consult part time for your old employer or maybe a competitor, he suggests.  Or, you greet people at Wal-Mart.  Dychtwald tried to make his message cheery.  People don't want to retire, he said.  Work is how people stay engaged.  They want to work forever.  I can imagine many ways to stay engaged that do not involve what we typically thing of as work.  I'm sure you can, too.  But Dychtwald's real point is that people might not have much choice.  Pensions are dying.  Social Security is constantly being targeted for cuts and even the promised benefits are not enough to retire well on.  Working people do not excess income that will allow them to adequately save for their own retirements.  The miracle of compounding investment returns does not work well on small sums.

    On Monday the Washington Post editorial board argued that there is no retirement crisis because the poverty rate among the elderly is only 9.1%.

    First, that number doesn't sound too great.  It is lower than the 15% poverty rate for the country but on an absolute basis, having nearly 1 in 10 seniors in poverty cannot possibly be victory.

    Second, it is a snapshot in time.  People like Elizabeth Warren, who believe that Social Security benefits are not generous enough, believe that there will be many more poor seniors in the future, when people try to retire using their underfunded 401(k) accounts.  To say, "no crisis because it hasn't happened yet," would also be to say that Social Security has no actuarial problems because it is totally solvent right now.  If you believe there's a Social Security crisis based on far off projections, then you should believe that there is also a retirement crisis.

    Here's another wrinkle, though.  Notice that the Post cites the "elderly" poverty rate.  They are measuring by age, not working status.  To see if there is a retirement crisis we'd have to figure out if people over the retirement age are working when they would rather be retired.

    See, it is possible to keep seniors or elderly people out of poverty by giving them jobs.  But that doesn't mean there isn't a retirement crisis.  It means that there is a retirement crisis that is so terrible that, as Dychtwald predicts, it has destroyed the very notion of retirement which is that in exchange for all of the years of labor you do in the service of other people that you deserve some comfortable, self-directed time on Earth before you die.

    Retirement is part of compensation for the work you have already done.  Don't believe me?  Then show me a C-level employment contract that doesn't offer retirement compensation.  Eliminating retirement for most people is another way for the rich to cut everybody else's wages. Comfortable years to yourself after decades of work is no longer the deal, they say.  Work until you either absolutely cannot or until none of us will hire you.

    That is a crisis.



    You leave work but consult part time for your old employer or maybe a competitor, he suggests. Or, you greet people at Wal-Mart.

    For those of us in certain fields, this might actually be appealing. (Consulting, that is — not greeting people at Wal-Mart, which I have to imagine pays next to nothing.) I would imagine that for people doing blue-collar jobs, it is not. I would also imagine that for many people in white-collar jobs it is not really an option. You have to play a critical role to land the type of semi-retirement job where you can get paid handsomely for consulting. Most people don't have such critical roles.

    I would imagine that for people doing blue-collar jobs, it is not.

    I dunno. All I know is that nearly every NYC house painter, floor or carpet installer, appliance repairman, house cleaner, car repairman, carpenter, hairdresser etc. that I have ever had a discussion with, seems to have had a dream of eventually working for themselves and not for/under someone else. This is especially true with immigrants in construction. Where to pull aside a member of a team to ask if they want to come back and do some other work is a major major faux pas if you get caught doing it. Because the guys are always interested in doing it, and their "boss" considers that as trying to steal money from him, even if you're willing to pay the same, because the boss "contractor" is making a profit off their labor.

    That's a good counter-point, which (in my imagination) puts them in the same box as the white-collar workers who might imagine themselves becoming independent contractors. Some will have the right talents that they can pull it off, but most will not.

    When I was at Forbes I interviewed some people who did this successfully.  They all seemed to have 2 things in common: rare skills and the desire to retire before their companies were ready to lose them.  Their consulting consisted mostly of training their successors.  In that sense, they were consulting themselves out of their consulting gig because as soon as their successor is competent, they fade away.  Another possibility is that methods change and their consulting value becomes obsolete.

    This isn't a terrible things.  The people I spoke to got to retire early because of this and the plan was never to consult forever.  But, the notion that you can retire and then count on being able to consult for your own employer is too flippant.  Most people cannot.

    You're dead on that the retirement crisis will only get worse.

    And when the 401(k) really hits the fan, all that talk about robbing future generations and the evil of debt is going to go out the window. Elder care will probably end up being nationalized.

    When I first moved to Altoona, a cycling buddy told me that a lot of the sort of jobs that a retired person might want to do were essentially being done by volunteers. The railroad workers had very good retirement plans, and were happy to coach kids, or run a museum or whatever just to keep busy. Their jobs were very physical, and led to a lot of injuries, so they tended to retire on disability while fairly young. (Having hurt my back after only about six months as a builder, I can imagine how many more nagging pains I would have if I had been working with my body for my whole career.) They could still work, they just couldn't heave all the machinery around that was expected in the yards. So these other jobs had no shortage of takers.

    Since then, Norfolk-Southern bought out Conrail and moved or closed out a lot of the local jobs, so I doubt that there will be as many cheerful retired volunteers in the future.

    Right now retirees are taking care of children because of the job crises.  There are less empty nests.  I read that WaPo editorial on Monday and these people need to get out of the village into the country and look around.  

    I am receiving the same amount of money in SS that my mother got.  I made several times the money in my life time that was made by my parents.  SS has not kept up with inflation.  It is time to bring it back in line with inflation where it was in 1980.  They started to monkey around with in under Regan and now we see the effects of it.  All these little fixes did more to hurt it then help it.  Remove the ceiling on FICA and end of the funding problem.

    The truth is the wealthy is going to end up with higher taxes in the future.     

    It is interesting that you are writing about this Mike, because just days ago the Boeing Machinists rejected a contract offered by Boeing, because Boeing wanted to strip their pensions and force Machinists into a 401(k) style plan, and you and I both know those are crafted for those brokers and bankers to make gobs of money and it means reduced money with which to live on retirement.

    I didn't really know what was going on, and wondered why the machinists rejected that offer, and when I'd read about the bait and switch BS by the company I thought, good for them!

    Well, the Union leadership wanted the machinists to vote for the change in order to keep the jobs here, Boeing is threatening to pull up stakes and move, they've done this before, they even have moved some operations before, but were forced to move them back here because union members are educated, they can build safe planes.

    So the machinists have been kind of left out there on their own, but today the newly elected socialist member of the City Council proposed that the machinists just take over the Evertt Plant if the managers decide to move out, because they don't build planes. This is going to be interesting. But there is a retirement crisis, but there are some people out there fighting for the rest of us,

    That union leaders are finding the pension to 401(k) switch acceptable is a huge problem.  I want to do a separate post about this but the 401(k) was never intended to be the dominant retirement plan in America.  When the law was passed the intention was that it would allow employees employees to invest alongside their employers in a tax advantaged account. It was meant to supplement, not replace, a pension plan.

    Back in the day, there were "three legs" to the retirement stool: 1) defined benefit pension, 2) your savings (now 401(k) perhaps), and 3) Social Security.

    The first one is gone. The second one is fraught with problems. And who knows what will happen to the third one.

    I remember reading an article about IBM switching from a pension system to a 401(k) system. IBM's pension was fully funded, so that was not a problem, but the guy said something very revealing.

    To paraphrase, "We can't continue the pension, because we realize we can't make the returns we need to make the defined payments."

    I thought, "If you can't make the necessary returns using professional pension and investment managers, how is the average employee, untrained in investing, going to make the necessary returns?"

    Basically, IBM fixed a problem by offloading it onto the employees.

    Yeah, right around the time that pension manager got cold feet, prospective 401(k) investors were promised 8-10% annual returns that would compound over time just by indexing! Would love to hear Emma Zahn's take on this.

    I am a tradesman who is getting very close to sixty, I have never worked for an outfit that offered a pension as a form of compensation. So I have the good fortune of not being screwed out of a deal that was never offered me.

    Most of the people I work with don't have pensions. The subcontractor employees I have worked with that do have such plans have operated for so many decades together that it amounts to a form of profit sharing.

    What is this retirement thing that Dychtwald speaks of? There are only the deals one makes and the honesty of the people making them.

    I get my $1177/Month.

    I am grateful?

    Now I get a discount on rent up here in the middle of nowhere.

    The discount amounts to about $200? Maybe a little less.

    But damn, I mean I have a place to live and I can afford internet and I get basic cable as part of my rental package.

    Why they still give me $15/month for food stamps is idiocy, but like I have said before, coffee has really risen as far as price. haahahah

    Then I discovered that most SS recipients receive about what I get ($23 less?) and I have a place to live, I have internet and I have food that costs about $200/month. I keep track actually.

    The food budget involves about $80/month in fruit and veggies?

    If I were rich, if I had a million dollars as the baren naked ladies espouse, I might easily spend five times that amount.

    But I am warm, I am protected from the elements, I am only violated in my privacy about once a year (they have to check for dead cats and stuff!)

    And I should not receive $15/month for food whilst some poor woman with three kids loses 20% of her allowance?

    I will give my allotment to this woman!

    Yeah, I worked for fifty years.

    I am not really that embarrassed at the age of 63 getting SS.

    But if 'they' decided it would be best if I gave up 10% of my stipend in order to create a better universe/country or whatever, I could handle it.

    If I had a million dollars, things would go much easier.


    the end


    What color is the sky in your world? You are fortunate to have no medical expenses, special dietary needs, and help with your rent. In my world, Medicare premiums for 2 are $208 a month, with deductibles and copays each time we see a doctor pharmacy runs $180 per month, medicare advantage is $132 per month, which limits medicare out of pocket and specialized diet for two (diabetes\kidney stones) runs about $140 per week. Our ''elderly'' property tax break amounts to ~$22 per month. We just canceled Christmas to pay the copays on my cataract surgery, my husband hasn't had a new pair of glasses in 3 years, cable vanished 4 years ago, and the car has 176000 miles on it.  Excuse me for suspecting that you are less than honest about your situation. Better run now, your momma wants you to take out the trash.

    DD says he gets by on little but is thankful that it is enough to keep him warm and fed and with access to some entertainment and to a lot of the world through the internet. Without saying so specifically he acknowledges that he is grateful for what he has and the help he gets, and that he is luckier than some. He also says he would give up a bit of what he gets to help folks in tougher situations, folks like yourself. I think he is honest about that. I also think his skies are usually blue. If you feel a need to dump on him for your bad luck, you are off base.

    AHHHH, we've found something we agree on Lulu, well that and scooters. wink

    Your story is sad.  Sounds a lot like mine, except our car only has 143,000 miles on it.  But what is it that makes you suspect that Richard is being less than honest?  He's learned to make do on next to nothing and still be happy most days.  I respect him for that, and I like the way he thinks.

    Maybe you misunderstood?

    You are not alone with this kind of retirement.  But I refuse to be defeated by it and look for all the good things that happen and don't base my life on what I own but the quality of life I have through relationships.  I know that Richard has to take meds and keep a watch on his diet.  He is a very caring man and wears his heart on his sleeve.  He has had more than his share of suffering. He is being very honest. I understand your pain and worry at trying to make ends meet but you need understand that some of us with less don't feel bad for ourselves. 


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