Americans’ increasingly insecure twilight years

Hat tip to occasional links and commentary.

Why Social Security should be expanded

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Expand Social Security infographic via Democracy for America.

Click on Even when you do everything right, life happens for a case study by “Digby” on Hullabaloo.

Hat tip to Eschaton.

Reasons to worry about retirement

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Hat tip to The Big Picture.

Living longer and living on less

I’m thankful that I’m the age I am (76).   I have Social Security, a company pension and savings.  But President Obama has made it acceptable to whittle away at Social Security, company pensions are becoming a thing of the past, and saving money is easier said than done.

I was able to save money because I had no medical emergencies, no children to put through college and, most importantly, steady employment all my life.  Very few young Americans will be able to live the kind of life I led.  They live from one short-term job to another, saving money and then spending it throughout their lives.

And even if you have money to save and even if you are reasonably prudent, you can be misled or ripped off.  Most investors take on more risk than they realize.   They don’t realize that their gains in the bull market can be wiped out in the bull market.  They don’t realize how much of their savings are bled away by management fees.

Yves Smith had a good post about this on her naked capitalism web log.   She concluded as follows.

… … The big reason so many Americans are coming up short as far as retirement is concerned is that worker wages have stagnated, thanks to companies no longer sharing the benefits of productivity gains with employees as was once the norm.  We wouldn’t be having a debate about possible future Social Security shortfalls if wage gains hadn’t tailed off as a result of 30 years of policies oriented towards weakening the bargaining power of labor.

But you’ll never hear that from the finger-wagging 1%: if you’d only been more frugal and responsible, you’d have an adequate retirement.  For the lucky few that have no periods of unemployment, no divorce, no medical emergencies, no sick parents who need time and financial support, that might be the case.  But those of us who live in a world whose instability is in no small measure due to rent-seeking by those at the top of the food chain know better.

Click on Even Harsh Frontline Program on Retirement Investments Understates How Bad They Are to read her full post, which comments on a PBS Frontline program called The Retirement Gamble.

Why Social Security matters

Unlike tens of millions of Americans, I have all of the “three pillars of retirement” that, in theory, everybody is supposed to have.  I was lucky enough to work for a company, Gannett, that offered a pension to long-term employees.   I was lucky enough to be able to save and invest some money in my working years.  And, finally, like almost all Americans, I have Social Security.

But Gannett could fail, or it could be so financially straitened that it would reduce or abolish its pension payments.  I don’t have a contractual right to a pension.  I get it through the generosity of my former employer.   The pension is a fixed amount, so its buying power diminishes over time because of inflation.  In Rochester, there are more Eastman Kodak retirees than there are Kodak employees.  If Kodak goes bankrupt, which seems possible, they lose their pensions and Kodak’s generous health insurance.  This could happen with any company.

I have my savings invested in conservative Vanguard and T. Rowe Price mutual funds.   Although they fell in value during the 2008 stock market crash, and haven’t gained much since then, I still have a good financial cushion.  Knowing the history of the 1929 stock market crash, I am aware there is no absolute financial security.

But if worst comes to worst, I have Social Security, which is indexed to inflation and which gives me enough to live on, if not necessarily to live as I like, and I have Medicare, which guarantees a basic minimum of medical care.  All the proposals before Congress to “reform” Social Security and Medicare are proposals to take away this minimum economic security, if not for me, then for future generations.

A lot of misleading information is being spread about Social Security by people who should know better.  Here is what is important to remember.

• Social Security is not broke.  The Social Security trust fund has been building up a surplus, in the form of Treasury bonds, since the 1980s.  There is enough in the fund to pay full benefits for decades, and a small increase in payroll taxes could maintain full benefits for as long as it is possible to foresee.
• Although the fund is no longer taking in as much in taxes as it pays out in benefits, it is still in the black because of accumulated interest on these bonds.  These “government IOUs” are regarded as the world’s most secure investment by foreign investors.
• Medicare, with all its problems, provides medical care with greater efficiency and less overhead than any profit-seeking corporate health insurance plan.

There is no reason – none – to offer cuts in Social Security and Medicare as a bargaining chip to make millionaires and billionaires give up their tax breaks.   There is no conflict of interest between generations.   It is as much in the interest of the younger generation to have a secure minimum income when they grow old to work as it is for us 70-somethings.

Click on What the 2011 Trustees Report Shows About Social Security for analysis by the Center for Budget and Public Priorities.

Click on Not Even Corp Mgmt Believe Their Own Equity Return Assumptions for reasons why corporate retirees shouldn’t count on their pensions.

Wedge issues and generation gaps

I’m 74 years old.  I’m a member of the most fortunate generation in American history so far.  Like almost everyone in my generation who was willing and able to work, I held reasonably secure jobs at reasonably good wages.  Between my discharge from the Army and my retirement, I had only two employers.  Now I enjoy a secure retirement, based on Social Security, a company pension and my own savings and investments.

Few people under age 55 enjoy are so fortunate.  They have typically experienced layoffs, downsizings, flat wages (in inflation-adjusted terms) and diminishing pension and health benefits.  During the late 1980s and the 1990s, when I reported on business for the Rochester (NY) Democrat and Chronicle, some companies in Rochester negotiated two-tier wage contracts, under which existing wages and benefits would be maintained for the existing union members, but newly hired workers would get less.  The assumption was that people will fight to keep what they have, but accept being denied what they never knew.

Labor unions are based – or should be based – on the principle of equal pay for equal work, and the principle that an injury to one is an injury to all.  Besides being morally wrong, two-tier contracts are short-sighted.  The newly-hired second-class workers will direct their justified resentment not at the company, but at the union leaders and members who sold them out.  If sacrifice is necessary to preserve jobs, it should be shared by everyone, including management.

Now Paul Ryan, Alan Simpson and others propose a two-tier retirement system.  People of my generation would get to keep our Social Security and Medicare at current levels, but the new retirees would have to retire later and receive fewer benefits.  We current retirees would be foolish to fall for this.  The wrath of the generation behind us would fall not on those privatized Social Security and voucherized Medicare, but those of us who still enjoy retirement security.  I don’t believe that the proposed cutbacks are necessary, but, if they are, they should be shared equally by all.

You already see this in the split between union and non-union workers.  Some non-union workers, seeing the better wages and job security that union members get, do not conclude that they should have unions of their own.  Rather they think of the union members are enjoying special privileges that should be taken away.