What follows is still a draft, really \u2014 I want to fine-tune it and add actual data but wanted to put this out for comments without waiting for time to polish it.<\/i> <\/p>\n
So we\u2019ve heard about the Pension Crisis \u2014 the coming exhaustion of the Social Security Trust Fund (for those who believe its real) and the future increase in the level of Social Security benefits as a percent of GDP (a better measure for those who don\u2019t).\u00a0 <\/p>\n
And now, having our eyes opened by the pension liabilities in bankrupt cities, we\u2019re hearing about the \u201cOther Pension Crisis,\u201d or the large numbers of unfunded liabilities in state and local pension plans \u2014 an issue especially for shrinking cities or cities\/states where benefits generous beyond reason have been promised (e.g., through pension spiking, double-dipping, etc.).<\/p>\n
But we\u2019re forgetting about the biggest Pension Crisis.\u00a0 I\u2019ll call it the Other Other Pension Crisis, though my spell-checker doesn\u2019t like that, or the Third Pension Crisis:\u00a0 the fact that retirement benefits are un- or under-funded for the majority of private-sector workers.\u00a0 <\/p>\n
Granted, this crisis doesn\u2019t give us the opportunity to rail about the greed of unions or the incompetence or corruption of Democrat-run government.\u00a0 (Though I\u00a0live in Illinois, where corruption\u2019s bipartisan.)\u00a0 <\/p>\n
And, strictly speaking, we\u2019re not at a crisis stage yet.\u00a0 But we\u2019re squandering our opportunity to deal with the issue before its a crisis.<\/p>\n
I could spend an afternoon linking to reports of all kinds highlighting the low level of retirement savings accumulated by the majority of Americans, though I think most of us are aware, in a general sense, of the issue.\u00a0 But most people aren\u2019t aware of the fact that, for current retirees and near-retirees, those who worked for large companies nearly always had a defined benefit pension, or will have one.\u00a0 There has been a massive shift \u2014 from 80% of large employers to a mere 25% of employers offering defined benefit pensions \u2014 over the past decade or two, and workers near retirement have generally been sheltered via grandfathering provisions.\u00a0 (I\u2019m citing these figures from memory \u2014 I have access to more specific and up-to-date figures via databases at my employer, but I\u2019d have to do some digging and then decide how much is public information.)\u00a0\u00a0 This means that we have not yet truly begun to see the impact of a new generation of workers dependent on their own retirement savings and money-managing ability, and won\u2019t for a while yet.<\/p>\n
What will happen when large numbers of workers reach retirement age with inadequate savings?<\/p>\n
Three possibilities (and likely a mix of the three):<\/p>\n
1)\u00a0 Workers will simply not retire.\u00a0 I don\u2019t believe that workers will really stay on far past Social Security Normal Retirement Age, because that produces a strong signal that \u201cit\u2019s time to retire.\u201d\u00a0 Besides, there will be large numbers of workers who may wish to stay on but simply aren\u2019t in good enough health to work a 40 hour week any longer.\u00a0 But I do think that the percent of workers voluntarily early-retiring will decrease, and many workers will shift into part-time low-skill jobs as they age.<\/p>\n
2)\u00a0 Workers will reach retirement age, do the math on how much they truly have available if they want to avoid outliving their savings, and, dilligently bring their living standard down to match their available cash flow.<\/p>\n
3)\u00a0 Workers will spend their retirement savings in amounts that \u201cfeel right\u201d to them, not going on cruises or buying second homes but maintaining their preretirement living standard as much as possible, until they exhaust their retirement savings in 5 or 10 years.<\/p>\n
Any of my reader(s) who are of a libertarian bent will be inclined to respond with, \u201cit\u2019s the individual\u2019s responsibility to save for retirement or accept the consequences. Government shouldn\u2019t intervene.\u201d<\/p>\n
But any of these three scenarios have consequences for the rest of us. <\/p>\n
As far as non-retiring retirees, it\u2019s not as simple as \u201cthey\u2019d be taking jobs away from young people, just starting out,\u201d because there aren\u2019t a fixed number of jobs in the workforce (otherwise the increasing number of mothers entering the workforce in the 70s and 80s would have been damaging to the employment prospects of men), and how a job market responds to increases or decreases in the size of the labor force (in absolute or relative terms) is complex. (How did<\/i> the job market respond to increases in the percentage of women working? And were those changes gradual or rapid, anyway?) But there will<\/b> be an impact on the economy. <\/p>\n
As to the elderly to exhaust their savings, this will have a pretty clear impact on all manner of anti-poverty programs, and especially those programs targeted at the near-poor elderly \u2014 the poorest seniors aren\u2019t impacted (they\u2019ve never had pensions in the first place) but there are other programs: Senior freeze on property taxes, free mass transit, Medicaid, and others. It also seems fairly likely that we\u2019d see a push for an expansion of such programs, as the near-poor elderly expand beyond those who have always been at that income level and now reach those who have always been middle class, and are accustomed to such middle class expectations as a car, staying in their own house, shopping at Whole Foods, even going on a vacation every now and again. (You want to go to visit the grandkids and can\u2019t afford the plane fare? Tell your Congressman that the Amtrack senior discount should be more discounted!) <\/p>\n
And even for those who shepherd their money carefully and don\u2019t make demands of the government \u2014 I\u2019m no economist, but it seems rather likely that there will be ill effects on the economy as a whole to have retirees cut their spending on a large scale. <\/p>\n
What\u2019s the answer? You, dear reader(s), are not going to like this, but bear in mind that this comes from someone who, on average, is right-of-center politically: we will need to implement some kind of mandatory retirement savings, probably similar to Australia\u2019s Superannuation system (9% of pay, moving to 13% \u2014 I\u2019d have to check on the implementation timing). I\u2019ll flesh this out in a later post \u2014 but think about it. \u201cFeed the pig\u201d commercials can only take us so far. <\/p>\n<\/body><\/html>\n","protected":false},"excerpt":{"rendered":"
What follows is still a draft, really \u2014 I want to fine-tune it and add actual data but wanted to put this out for comments without waiting for time to polish it. So we\u2019ve heard about the Pension Crisis \u2014 the coming exhaustion of the Social Security Trust Fund (for those who believe its real) […]<\/p>\n","protected":false},"author":2209,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[450],"tags":[],"class_list":["post-858","post","type-post","status-publish","format-standard","hentry","category-actuarial"],"yoast_head":"\n