Economic Insecurity and Older Americans

[pb4uski]

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Originally Posted by Midpack I don't want to believe this, but it's hard to argue with, even with solid to upper middle class and even some wealthy 'Millionaire's Next Door.' We held formal 401k seminars every year, and several others in between, basically focused on retirement planning - showing people how to easily estimate what they'd need, how to save & invest, etc. Year after year it fell on deaf ears with many of them. It seemed that some were saving 10-15%, and others would save less or nothing or empty out their 401k for any emergency. Never understood it...life on Soc Sec alone will be a big reduction in standard of living for many. We really tried to find ways to get the message to sink in, and failed every time...

I totally agree, but what peeves me off is that some of those who failed to save now expect those who did to bail them out. To the degree these folks get swept into the population that modhatter describes, I have NO sympathy for them - they had the opportunity to save for tomorrow but decided not to in order to have more money for fun while I sacrificed.

For the folks in madhatter's post who never really had a realistic chance, I could be sympathetic, but how do we tell the difference today between those who could have been prosperous today but are not as a result of their poor decisions and those who never really had a fair chance at prosperity?

[ERD50]

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Originally Posted by Midpack Never understood it...life on Soc Sec alone will be a big reduction in standard of living for many. We really tried to find ways to get the message to sink in, and failed every time...

Maybe like the cigarette packs now - pictures of old people eating cat food and such. On every paycheck - this could happen to you if you don't put away X% of your salary each year!

-ERD50

[modhatter]

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Originally Posted by pb4uski For the folks in madhatter's post who never really had a realistic chance, I could be sympathetic, but how do we tell the difference today between those who could have been prosperous today but are not as a result of their poor decisions and those who never really had a fair chance at prosperity?

By yearly income. There is a difference between what a family earning $30,000 a year vs. $60,000 a yr. can save.

[aleabo]

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Originally Posted by modhatter By yearly income. There is a difference between what a family earning $30,000 a year vs. $60,000 a yr. can save.

Do you really think that family making $60K/year can save a lot? In the best case they can put aside $4-6K per year, and mostly they will be used as emergency funds. Depends of course where people live, in some rural areas quite possible.

[stoutboy]

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Originally Posted by Khufu Instead save through SS or an annuity. Because only survivors collect, the whole cohort does not need to save as much and can fund a consumer economy instead. This is why the Chinese savings rate is anywhere from 30% to 48%. Because every individual has to save for the worst case even though it is not very likely.

This does not explain the Chinese penchant for saving. Traditionally, in an agricultural economy like China, it was the duty of younger family members to care for the elderly, so people weren't saving money to see them through their old age. It has more to do with a dread of debt--this also stems directly from China's agricultural past, when landlords imposed usurious interest on peasants, which deprived them of their land and kept them in a practical state of lifelong bondage. In the more modern setting, credit from banks was not widely available to consumers until the last decade or so. So people saved to make the major life purchases: housing, furniture, cars, etc. That is now changing, and use of credit is becoming more and more prevalent.

[stoutboy]

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Originally Posted by aleabo Well, maybe young people will save more, maybe they will decide that society has to be changed..Some kind of European socialist model..guarantied pension, free medicine..

I don't think younger people can save more. So many face crippling student debt and are entering a workforce where they take home less in salary (adjusted for inflation) than their peers 30 years ago. If they can find a job. The shift of the tax burden on the middle and working classes from the 1980s on (reflected in the massive rise in wealth disparity, costs of tuition, health care and other like goods) has made making one's way in the world a substantially more difficult proposition than in the past. In the meantime, our society's response is: "Shut up and go shopping."

[haha]

One attraction of frugality is that it gives the finger to our incredibly upside down society and economy. Some time over the last few years my perception of things that one can buy has shifted. I am much more inclined to see the displays in stores as just more crap to get in my way and compicate my life. This even goes for electronics, increasingly the learning curves and huge attention to detail say to me-not worth it.

Ha

[samclem]

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Originally Posted by modhatter We have only two choices. We say "to bad". Your not my problem and I don't want you taking any of my money to help you out. Or we say, thank goodness I am one of the smarter ones who was fortunate to have a good job, save money and stay with my spouse to the end, and I am glad to be contribute to society to help those not as fortunate as I.

I think this is a false dichotomy. There's another option besides not helping the poor and forcibly taking the money from some to give to others. That option is "voluntary charity". Somewhat out of fashion in some countries today, it is the way mankind has cared for our poor since time began. When we forcibly take assets from people to be given to others, we deprive the potential givers of a chance to feel good about helping people. We deprive the recipients of a chance to feel grateful to those who have helped them. Most importantly, we allow people with "enough" to get off "cheap," to believe that their responsibility is done once they pay their taxes. Similarly, rather than digging into their own pocket, some "contribute" by seeking to pass laws that take other people's money for the benefit of the poor. That's a cheap imitation of true concern and love based on self-sacrifice that helps others. Look at Western Europe and other places with very generous social welfare programs--charitable giving is far lower than in the US as a percent of income. "I paid my taxes, that's my part."

[Independent]

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Originally Posted by MichaelB 60% of women and 41% of men age 65 and older do not have enough income to cover their basic expenses without assistance. Income includes SS, pension and retirement savings, and a paper published by WOW shows more than half of all households with only older people need financial assistance from private or public programs, or family, to get by. Here is a write up in the NYT Older Women Struggle to Make Ends Meet - NYTimes.com Here is a link to the study http://www.wowonline.org/documents/O...briefFINAL.pdf Especially challenged were women living alone and renting. This reinforces the need to save throughout one's entire life.

I haven't noticed any comment about the definition of "economic security" in the study. Their minimum needs are $22,000 annually for a single renter, and $33,000 for a couple who are renting.

Note that a worker earning the minimum wage for a full-time, year-round job makes about $14,500 before taxes. And, we have hard working people in the US who earn minimum wage. That's one reason why people can arrive at 65 without much for savings.

[brewer12345]

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Originally Posted by haha One attraction of frugality is that it gives the finger to our incredibly upside down society and economy. Some time over the last few years my perception of things that one can buy has shifted. I am much more inclined to see the displays in stores as just more crap to get in my way and compicate my life. This even goes for electronics, increasingly the learning curves and huge attention to detail say to me-not worth it. Ha

Along the same vein, I have started to distinguish between consumable goods and stuff that will A) likely increase in price over time and/or B) has some enduring tanginble value so I can sell in the future if I wish even if I ave gotten some use out of it. Far more willing to buy the latter than the former.

[aleabo]

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Originally Posted by Independent I haven't noticed any comment about the definition of "economic security" in the study. Their minimum needs are $22,000 annually for a single renter, and $33,000 for a couple who are renting. Note that a worker earning the minimum wage for a full-time, year-round job makes about $14,500 before taxes. And, we have hard working people in the US who earn minimum wage. That's one reason why people can arrive at 65 without much for savings.

I personally think that all 401K program is big mistake, to say at least. Instead of putting 12-15% of my salary in 401K and worry about right choices, market conditions, etc, I'd be happy to have my SS\Medicare taxes increased on the same amount and have guarantee SS and free (or all almost free) health insurance after retirement. This is basically European model ( and as far as I know Canada is close to it)

[haha]

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Originally Posted by aleabo I personally think that all 401K program is big mistake, to say at least. Instead of putting 12-15% of my salary in 401K and worry about right choices, market conditions, etc, I'd be happy to have my SS\Medicare taxes increased on the same amount and have guarantee SS and free (or all almost free) health insurance after retirement. This is basically European model ( and as far as I know Canada is close to it)

THe trouble is that they can and might means test you out of it, or put very stringent controls on who gets what at what age. To be completely cured of these ideas, gain some direct interaction with the Medicare or Social Security bureaucracy.

Ha

[NW-Bound]

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Originally Posted by Khufu A truly individualized system would miss the main benefit that both SS and insurance company's annuities have: the mortality credit. Individually, each of us would have to save for the worst (longest) case of survival, say, 95 or 100 years. Very expensive and most people will save too much because they will die well before that. Not an efficient system. Instead save through SS or an annuity. Because only survivors collect, the whole cohort does not need to save as much and can fund a consumer economy instead. This is why the Chinese savings rate is anywhere from 30% to 48%. Because every individual has to save for the worst case even though it is not very likely. Really, this should be taught in high school so that all Americans understand what an extraordinarily stupid step it would be to revert to individual precautionary savings.

I understand what you meant was that because the Chinese do not have a social program to take care of the old, its citizenry has to ramp up the individual savings rate, hence the consumption rate was too low for an optimal economy. What I read was different however. Namely, it was because of failed economic policies of the past that the Chinese are too scared to trust their government. More about this below.

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Originally Posted by stoutboy This does not explain the Chinese penchant for saving. Traditionally, in an agricultural economy like China, it was the duty of younger family members to care for the elderly, so people weren't saving money to see them through their old age. It has more to do with a dread of debt--this also stems directly from China's agricultural past, when landlords imposed usurious interest on peasants, which deprived them of their land and kept them in a practical state of lifelong bondage. In the more modern setting, credit from banks was not widely available to consumers until the last decade or so. So people saved to make the major life purchases: housing, furniture, cars, etc. That is now changing, and use of credit is becoming more and more prevalent.

I am no expert on Chinese economy, but recently read this info from the Web (WSJ perhaps). It said that the Chinese are commonly saving 40% or more of their income, because the state has abrogated its promise to take care of the citizens in their old age. People now have to fend for themselves! What was implied was that the savings rate was not that high, back in the Mao's days. Of course back then, the peasants were subsisting on a couple of rice bowls a day and would not have much to save anyway.

Perhaps someone more knowledgeable will either confirm or correct what I have read and recounted above.

But one thing is certain. All that wonderful utopia ideas promised by Communism have gone up in smoke, in countries such as the defunct Soviet Union to the few regimes like Cuba and North Korea that are still clinging to the ideas of Karl Marx and Lenin. Soon after the fall of the Soviet Empire, we read about the hardship endured by its retirees and veterans. Without production by the young generation, there is no free ride for the older retirees.

Now that Greece's debt binge has caught up with that nation, I wonder if the young Greeks will increase their savings rate because they now realize their government's promises are not worth much. This will be interesting to watch in the years ahead.

[stoutboy]

Chinese in the Mao era didn't make the kind of money that they do now, but they still had high savings rates. They had these same rates of savings in the Republican and imperial eras as well. You can also look at overseas Chinese, especially those in the West. The propensity to save is imbued in Chinese from a very young age due to the historical and cultural factors I mentioned.

Quote:

Originally Posted by NW-Bound I understand what you meant was that because the Chinese do not have a social program to take care of the old, its citizenry has to ramp up the individual savings rate, hence the consumption rate was too low for an optimal economy. What I read was different however. Namely, it was because of failed economic policies of the past that the Chinese are too scared to trust their government. More about this below. I am no expert on Chinese economy, but recently read this info from the Web (WSJ perhaps). It said that the Chinese are commonly saving 40% or more of their income, because the state has abrogated its promise to take care of the citizens in their old age. People now have to fend for themselves! What was implied was that the savings rate was not that high, back in the Mao's days. Of course back then, the peasants were subsisting on a couple of rice bowls a day and would not have much to save anyway. Perhaps someone more knowledgeable will either confirm or correct what I have read and recounted above. But one thing is certain. All that wonderful utopia ideas promised by Communism have gone up in smoke, in countries such as the defunct Soviet Union to the few regimes like Cuba and North Korea that are still clinging to the ideas of Karl Marx and Lenin. Soon after the fall of the Soviet Empire, we read about the hardship endured by its retirees and veterans. Without production by the young generation, there is no free ride for the older retirees. Now that Greece's debt binge has caught up with that nation, I wonder if the young Greeks will increase their savings rate because they now realize their government's promises are not worth much. This will be interesting to watch in the years ahead.

[justplainbll]

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Originally Posted by haha THe trouble is that they can and might means test you out of it, or put very stringent controls on who gets what at what age. To be completely cured of these ideas, gain some direct interaction with the Medicare or Social Security bureaucracy. Ha

+ 1

[Midpack]

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Originally Posted by samclem I think this is a false dichotomy. There's another option besides not helping the poor and forcibly taking the money from some to give to others. That option is "voluntary charity". Somewhat out of fashion in some countries today, it is the way mankind has cared for our poor since time began. When we forcibly take assets from people to be given to others, we deprive the potential givers of a chance to feel good about helping people. We deprive the recipients of a chance to feel grateful to those who have helped them. Most importantly, we allow people with "enough" to get off "cheap," to believe that their responsibility is done once they pay their taxes. Similarly, rather than digging into their own pocket, some "contribute" by seeking to pass laws that take other people's money for the benefit of the poor. That's a cheap imitation of true concern and love based on self-sacrifice that helps others. Look at Western Europe and other places with very generous social welfare programs--charitable giving is far lower than in the US as a percent of income. "I paid my taxes, that's my part."

+1. I would have dismissed this POV as nonsense 20 years ago, but the last 50 years has clearly shown this in the US. Despite good intentions, the more public benefits offered, the more dependents there are. Sadly now we've seen generations in the same family relying on public benefits. And the disconnect between giver and givee is more real than I would have guessed. While there are many who deserve help from the rest of us, there are also too many who could do more to help themselves (and our culture has made it far more "acceptable" to take money than was the case 50 years ago). A cruel reality...more benefits just won't solve the intended problem as far I can tell from any countries experience...

[Hamlet]

I think that this is a terrible idea.

I prefer to maintain as much control over my money as possible.

I accept the need for some sort of safety net, as a large number of people will fail to provide adequately for their retirement.

However, I don't think it is good to make absolutely everyone massively dependent on government programs that can change with the political winds.

Quote:

Originally Posted by aleabo I personally think that all 401K program is big mistake, to say at least. Instead of putting 12-15% of my salary in 401K and worry about right choices, market conditions, etc, I'd be happy to have my SS\Medicare taxes increased on the same amount and have guarantee SS and free (or all almost free) health insurance after retirement. This is basically European model ( and as far as I know Canada is close to it)

[Midpack]

Quote:

Originally Posted by aleabo I personally think that all 401K program is big mistake, to say at least. Instead of putting 12-15% of my salary in 401K and worry about right choices, market conditions, etc, I'd be happy to have my SS\Medicare taxes increased on the same amount and have guarantee SS and free (or all almost free) health insurance after retirement. This is basically European model ( and as far as I know Canada is close to it)

Sounds good doesn't it, AARP would agree. Too bad the changes in demographics & longevity, without remotely commensurate adjustments, have made Soc Sec an increasingly bad deal for recipients. Where it was a bonanza for recipients at the start, current payers are not going to get very good "returns" for their contributions. The chart below shows that in 2030, couples will get less than they contributed toward Soc Sec, nevermind any kind of "return" on their contributions. It's only due to the horrific imbalance between Medicare benefits and taxes that couples see any "return" at all.

You'd be in favor of your children and grandchildren paying more for your benefits than they will ever get out of Social Security when their time comes?

http://www.urban.org/UploadedPDF/soc...r-lifetime.pdf

[MuirWannabe]

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Originally Posted by samclem I think this is a false dichotomy. There's another option besides not helping the poor and forcibly taking the money from some to give to others. That option is "voluntary charity". Somewhat out of fashion in some countries today, it is the way mankind has cared for our poor since time began. When we forcibly take assets from people to be given to others, we deprive the potential givers of a chance to feel good about helping people. We deprive the recipients of a chance to feel grateful to those who have helped them. Most importantly, we allow people with "enough" to get off "cheap," to believe that their responsibility is done once they pay their taxes. Similarly, rather than digging into their own pocket, some "contribute" by seeking to pass laws that take other people's money for the benefit of the poor. That's a cheap imitation of true concern and love based on self-sacrifice that helps others. Look at Western Europe and other places with very generous social welfare programs--charitable giving is far lower than in the US as a percent of income. "I paid my taxes, that's my part."

+1 Right on.

[MichaelB]

Midpack, a Ponzi scheme is a criminal endeavor, Social Security is a social insurance program.

samclem, the poor have not been cared for over time. They died in poverty, and were doing so when SS was introduced. Charity is a fine option, but it is no substitute for a social insurance program. Assets are not being forcibly taken, they are the result of free choice in a democratic society.

The data in the study linked in the original post is aggregate and average, much like that in the urban.org study linked earlier. There is not enough segmentation or detail to support implied or stated conclusions.

There are a number of false dichotomies here. Only poverty or social insurance is one. Another is that poverty or financial security in retirement is primarily the result of personal choice and frugality earlier in life. Other factors are involved, many of which are beyond individual control.

No society has really found an answer yet. Perhaps we will need another century or so. I suspect an economy needs to have an aggregate surplus which is used to support or complement individual savings for retirement.