Retirement Is Our Next Financial Crisis
The last financial crisis we faced threatened the nature of how we do business. Some say that capitalism nearly failed. And yes, it was bad – and continues to be bad. However, are we facing a larger crisis in the coming years?
The State Of Retirement
As the boomers begin to retire, they are going to be facing an increasingly difficult set of facts:
- More than 38 million working-age households (45 percent) do not own any retirement account assets, whether in an employer-sponsored 401(k) type plan or an IRA.
- When all households are included— not just households with retirement accounts—the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households. Two-thirds of working households age 55-64 with at least one earner have retirement savings less than one times their annual income, which is far below what they will need to maintain their standard of living in retirement.
- A large majority of households fall short of conservative retirement savings targets for their age and income based on working until age 67. Based on retirement account assets, 92 percent of working households do not meet targets.
The fact is, this retiring generation, and ones coming up, do not have the savings required to sufficiently live in retirement.
What Does This Mean
The quality of life for these folks is going to be impacted:
Many people will be forced to work well past the traditional retirement age of 65 — to 70 or even longer. Living standards will fall, and poverty rates will rise for the elderly in wealthy countries that built safety nets for seniors after World War II. In developing countries, people’s rising expectations will be frustrated if governments can’t afford retirement systems to replace the tradition of children caring for aging parents.
The factual element of the condition is going to break hard against expectations:
Jean-Pierre Bigand, 66, retired Sept. 1, in time to enjoy all the perks of a retirement system in France that’s now in peril. Bigand lives in the countryside outside the city of Rouen in Normandy. He has a second home in Provence. He’s just taken a vacation on Oleron island off the Atlantic Coast and is planning a five-week trip to Guadeloupe. “Travel is our biggest expense,” he says.
In Rochester, Minn., Elaine Case, 58, and her husband, Bill Wiktor, 61, both retired at 56 after three-decade careers at IBM. They have company pensions and will receive Social Security in a few years. They love to travel. Wiktor climbed Mount Kilimanjaro last year. They’ve taken a trans-Atlantic cruise and plan next year to hike Peru’s Inca trail.
“We’re both enjoying our second lives immensely and with gratitude,” Case says.
For many, the idea of retirement isn’t sitting idly beside the fire reflecting on a life well spent all the while the grandchildren play at their feet. Indeed, their vision of retirement is one of active leisure.
The road ahead is going to be tough. People are going too realize that they don’t have enough money, are going to have to go back or never leave work and adult children may be faced caring for their retired parents.
However, the lurking danger will be the opportunity to impact public policy. Watch for the Statists to reach into the funds of those folks who have saved, who have invested and who took pains to delay present day gratification for tomorrow’s benefit.
I mentioned some time back the irony in the income disparity debate. The absolute refusal by the liberal to allow the privatization of Social Security funds in an investment account all the while demonizing the wealthy who have done just that – invested money over a long duration.
Here we will have a group of investors who willingly subjected themselves to the chaos of the market only to have the gains at risk of those who would redistribute that money.
Many conservatives also oppose privatizing social security. There are a myriad of reasons, but the most important is that there is no guarantee base level of support. That means a stock crash, bad investment choices, or some other factor could create worse problems. Moreover all the money flowing into the stockmarket would generate huge profits for big banks, but could create speculative bubbles rather than real investment. That’s happened many times. In general most people think privatizing social security is a huge risk (and that we dodged a bullet by not privatizing when President Bush made his push just before the last crash). I think social security is healthy as it is now for quite some time, and immigration will help the US keep the funds secure. I’d need a lot of evidence that privatizing social security is worth the risk. An ideological approach that just says privatize almost everything isn’t enough, I’d need real evidence and need to compare arguments. Ideology usually misleads.
I don’t think anyone is talking about taking investment wealth from others, except for the usual capital gains tax. I don’t expect that to go up. I think you’re arguing against something very unlikely to happen.
Many conservatives also oppose privatizing social security.
I’ll have to look, but I don’t recall any.
There are a myriad of reasons, but the most important is that there is no guarantee base level of support. That means a stock crash, bad investment choices, or some other factor could create worse problems.
You understand the logical disconnect, yes?
On the one hand, your argue about income inequality – driven almost entirely by gains in the market. And then on the other – you complain that the market is too risky.
Seems that if people are willing to risk -and get wealthy- they should enjoy those rewards.
Moreover all the money flowing into the stockmarket would generate huge profits for big banks
How so? How does investing in Apple or Exxon generate profits for banks? Or Apple and Exxon for that matter. What it might do is drive up the price of those stocks helping all the pension plans on the way.
but could create speculative bubbles rather than real investment.
I doubt that.
I think you’re arguing against something very unlikely to happen.
Perhaps, but we’ve already seen it in other countries.
Liberals committed one of the greatest crimes in history against future retirees when they destroyed the private account option in Social Security. The further out you are on the demographic tide, the worse off you will be. Like the politicians who bankrupted Detroit over decades, the usual suspects will no longer be in office when the money runs out.
It is sad, but kicking the can down the road works really well.
The further out you are on the demographic tide, the worse off you will be. Like the politicians who bankrupted Detroit over decades, the usual suspects will no longer be in office when the money runs out.
The thing that kills me is this – I advocate private accounts to allow savers to invest in the market and I INVEST IN THE MARKET.
Democrats resist allowing individuals to invest in the market AND THEY INVEST IN THE MARKET.