Posts Tagged ‘retirement’

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retirement

In the current budget debate, the loudest calls for Social Security cuts are coming from two lobby groups—Fix the Debt and the Business Roundtable—that led by CEOs who will never have to worry about their own retirement security.

According to the Institute for Policy Studies [pdf], the retirement assets of Business Roundtable CEOs average $14.5 million—more than 1,200 times as much as the $12,000 median retirement savings of U.S. workers near retirement age. A retirement fund of $14.5 million, combined with Social Security, would generate a monthly retirement check for these CEOs of $88,576. That’s 68 times what a typical U.S. retiree can expect to receive.

Many of these same CEOs are calling for spending reductions on so-called entitlements (via, e.g., a shift to “chained CPI” and raising the Social Security retirement age), while at the same time accumulating enormous retirement funds for themselves and leading companies that have slashed retirement benefits for their own employees.

Right now,

American workers face a “retirement income deficit” (i.e., the difference between the amount of money needed to maintain one’s lifestyle in retirement and the amount of money saved in retirement accounts) of $6.6 trillion, according to the Center for Retirement Research at Boston College. Six million American workers lived in poverty in 2010. This number is expected to grow by a third – to 8 million – by 2020. Without Social Security, 43.6 percent of all retired Americans would be living in poverty, according to the Center on Budget and Policy Priorities.

Among Americans approaching retirement (age 50-64), the bottom 75 percent by wealth had just $26,395 in retirement assets, on average. This is enough to generate a $156 monthly check to supplement their Social Security. The wealthiest 25 percent of this age cohort is slightly better off with $52,000 in retirement savings, enough for an expected $308 monthly check in their golden years.

As I say, only in America. . .

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Bernie Sanders and Elizabeth Warren are pushing back against the idea that we need to impose cuts in Society Security benefits—instead calling for an expansion of the program.

As Ezra Klein explains,

For years, pension experts have spoken of the “three-legged stool” of retirement savings: Social Security, employer pensions and private savings. In recent years, however, that stool has begun to wobble, and today, Social Security is basically the only leg holding it up.

In 1980, about 40 percent of private-sector workers had a guaranteed pension. By 2006, that had fallen to 15 percent. Today, the 401(k) reigns supreme, with a trajectory that is almost the precise reverse of guaranteed pensions: In 1979, 17 percent of workers had a 401(k). Today, 42 percent do.

Those 401(k)s, however, are woefully underfunded. In 2010, 75 percent of workers nearing retirement had less than $30,000 in their 401(k). Sixty percent of low-income households are at risk of being unable to maintain their already modest living standards in retirement.

Individual savings don’t look much better. About a third of households don’t have a savings account at all. More than 40 percent don’t have enough to cover basic expenses if they lost their main source of income. In a vicious cycle, the need for savings is so great that many workers are tapping into their 401(k)s early: In 2010, contributions to defined-contribution pensions totaled $176 billion, while early withdrawals — which carry heavy penalties — totaled $60 billion.

Today, Social Security provides 37 percent of the income for all Americans over 65, and about 80 percent of the income for seniors in the bottom half of the income distribution. Given the state of private and employer pensions, those numbers will have to rise in the coming years, or else the standard of living for seniors will fall.

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Right now, it’s a drag both to be getting old and being young because, as Floyd Norris explains,

What appears to be happening is that many people are postponing retirement if they can, while younger people are having trouble getting jobs.

In other words, when we compare the summer of 2013 to the summer of 2007, older people—who should be allowed the freedom to retire—are being forced to continue working much more than before, while young people are unable to find jobs that might someday allow them to have the freedom to retire.*

And there’s no yellow pill that will help them on their way.

*The two charts show the ratio of employment to population for each age group of men (in blue) and women (in red), regardless of whether those without jobs were seeking employment.

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Do you know why Social Security is so important? Because most Americans don’t have enough savings to retire on.

The average American (members of households whose income was in the middle fifth percentile of incomes) had, on average, only $34,981 in individual retirement savings in 2010. That’s because most American workers no longer have defined-benefit pension plans and don’t earn enough to adequately save for retirement. So, they are forced to have the freedom to rely on Social Security.

It’s the major way we, as a society, support (or at least keep out of poverty) our fellow citizens who have worked a large part of their lives and are now able to retire.

American-Dream

The other day, in an interview with NPR’s Marketplace, I made the argument that the American Dream was over.

Basically, I explained that working people (which I decided to talk about, although they started the interview by focusing on the so-called middle-class) were being squeezed on both ends: on one side, they were being squeezed by stagnant wages (if, that is, they were fortunate enough to have a job); on the other side, they were being squeezed by rising costs for healthcare, retirement, and their children’s college. What that meant is the working-class could no longer count on getting ahead, either themselves or their children. Only one group, the tiny minority at the top, was enjoying the American Dream.

Now, that’s a pretty standard argument, and one that Robert Putnam eloquently makes by focusing on Port Clinton, Ohio:

the story of Port Clinton over the last half-century — like the history of America over these decades — is not simply about the collapse of the working class but also about the birth of a new upper class. In the last two decades, just as the traditional economy of Port Clinton was collapsing, wealthy professionals from major cities in the Midwest have flocked to Port Clinton, building elaborate mansions in gated communities along Lake Erie and filling lagoons with their yachts. By 2011, the child poverty rate along the shore in upscale Catawba was only 1 percent, a fraction of the 51 percent rate only a few hundred yards inland. As the once thriving middle class disappeared, adjacent real estate listings in the Port Clinton News Herald advertised near-million-dollar mansions and dilapidated double-wides.

But here’s my question: how do we make the argument that for the majority of people the American Dream has ended—with all that implies for the contrasting fates of the American working- and ruling-classes—without romanticizing and putting a shiny gloss on the postwar period when the American Dream did in fact exist? How do we talk and write about the relative immiseration of the working-class and, at the same time, criticize the conditions of life for the working-class even when the American Dream was something people believed in? In other words, how do we invoke the end of the American Dream as a powerful metaphor of the current crises and still avoid a nostalgia for “the way things were”?

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That’s right: nearly 30 percent of Americans between the ages of 64 and 69 were employed outside the home in 2012. According to the OECD, that’s much higher than the European average of 9.6 percent and higher than all other OECD countries except Korea and Japan. And that percentage is growing, since it’s now higher than what it was just a decade ago (26.2 percent).

The high percentage of elderly Americans working is the effect of miserly Social Security and Medicare benefits (including an early-retirement age that’s higher than in many other countries, lower benefits for people who take early retirement, and a high and rising age for full benefits). And now they want to fix the system but cutting the benefits even further.

Only in America, as social wealth grows, are we increasingly forcing our seniors to have the freedom to sell their ability to work in order to survive.