Timothy Taylor points to some sobering news.
those in the 1980s were more likely to be ready for retirement than those in the 1990s; those in the 1990s were more likely to be ready for retirement than those in the 2000s; and those in 2010 were least likely of all to be ready for retirement.
I know many people in close to 60 years old, currently living upper-middle class lives, with less than $200,000 in non-housing savings. I do not think they have thought ahead very far. Some questions:
1. What does this mean for their lifestyles during retirement? Less expensive meals? Less expensive vacations? Less choice about where to live?
2. What does this mean for their level of dependence on government benefits?
3. What does this mean for the prospects of reducing Social Security or Medicare benefits?
This seems to be a case of moral hazard played out on a trillion dollar scale…because of Social Security, many, though not all, boomers never gave a thought to preparing for retirement – and assumed that Social Security would provide a “no loss in income” standard of living. SS has been over-sold to people and then been raided constantly for operational uses for the rest of the government.
Two questions:
1) On a long term scale (decades), between Medicare and SS, how are we different from the municipalities that are going bankrupt over retirement under-funding?
2) If someone calculates the effective return on invested money (including the taxes that go to re-paying SS the federal debt instruments it uses to “invest”), how does that compare to a person saving the same amount of money at 5% per anum? – And if the results are widely known, what does that say about long term support for SS?
I know many people in or nearing retirement who have done well for themselves. While I don’t begrudge them for also getting a Social Security check — after all they ‘paid in’ and still managed to save and invest — it does make me think that an opt-out (more confidence) /means-testing (less confidence) process could be workable.
I have less confidence for the means-testing approach, because it could itself cause distortions and a bureaucracy, similar to SS disability. But, it still may be less expensive and cause less moral hazard than the system we have now.
I would love to have an opt-out option for SS, as would my adult and finanically independent children. Workers should be given an option to either to completely exit (if in it now) with a refund of amounts contributed to date, or to never participate in the first place. Another option might be to allow a current participant to take a lump sum at retirement calculated as some combination of aggregate amount contributed and age at distribution, and just forget all about the annuity-type payments.
My favorite option would be for SS to be converted to a 401(k)-type of defined contribution account that belongs to the owner and could be passed on to his heirs. But Bush 43 tried to start a conversation about SS reform and “private accounts,” and AARP among many others would not even discuss it. (Short-sighted, that was; I dropped my AARP membership because of it.)
4. What will happen to real estate values, especially for the large(r) suburban houses as these folks try to sell the big houses to cut their monthly expenses and downsize?
Without thinking ahead, they will live in penury. They’ll be easy prey for firms offering home equity loans that will eat up their home equity. The loss of face / embarassment from leaving an upper middle class suburb will be too much for such precious types to bear, so I predict that creative ways of bringing forward consumption via home equity will experience far more growth than commonly thought.
Monitoring their end-of-life balance sheets will be interesting – they’ll run up credit card balances and vote constantly against any attempt to cut their “entitlements”!
Retirement is a myth.
I think more and more it’s becoming clear that the 40’s, 50’s, and 60’s were a demographic anomaly and there are lots of lessons that need to be unlearned about what we can conclude from them.
Human beings are slow to learn, me included.
In my own extended family, those who went through the Great Depression became fanatical savers. They also joined unions that had ‘forced savings” through defined benefit pensions.
Those like me who grew up in the 50’s and 60’s were not great savers on the whole, albeit with some exceptions. The trauma of the Great Depression had completely faded for us. We made fun of people who saved string, in effect.
I am afraid this is not a great endorsement of individual liberty, at least the liberty not to save. Liberty seems fine until you have to endure the mistakes that are made during liberty (apologies for the clunky phrasing of that last sentence.)
Put another way:
Either we force people to save when they are young and working, or else we force them to pay taxes for old age entitlements. There is coercion involved either way. But coercion to save may prove a better course.