The New Inequality: Retirement for Boomers

[JPatrick]

My percentages were an intuitive estimate (which is why I put the ? after them). Since then I've gotten some better numbers from the Employee Benefit Research Institute

Employee Benefit Research Institute | EBRI

For 2007 Americans over the age of 55 -- assets not including home or pension
< $10k -30%
$10-25k - 6%
$25-50k - 13%
$50-99k - 10%
$100k - 15%
> $250k 26%

For 2007
Americans total age 65-67 or greater receiving a pension: 30% (17% in private sector / 13% in public sector)
Age 65-67 -- mean pension income $18k - private sector $12.5k ; public sector $23.7k

So around 30% will receive a pension
26% have assets that look like they will be able to retire OK (the > 250k group); if we assume that 30% of this group also is getting a pension (same distribution as the general population) then

we have about 52% of the population that will be be having difficulties

It pays (or costs) to note the date of the figures--2007.
Given what happened on the journey to 2009 and what we may encounter beyond, I think we will be only dreaming of these rosy (?) estimates.

 

[JPatrick]

I've heard at least one congressman on Air America, talking to Randi Rhodes(?), float the idea of "spreading the wealth" of retirees - in essence, redistributing part of the assets of "rich" retirees to assist the "poor" ones, via some gov't scheme. Tellingly, the radio host didn't really object to the idea...!

No doubt the most shocking post I've found on this thread.

AAAAAAAARRRRRRRRRRRRRRRRRRR!!!

There's my share of the outrage...Anyone??

 

[Mulligan]

I believe Ziggy's assertion that pensioners might not save as much money for retirement is correct. Being a future pensioner I know most of my peers haven't either. Though not all pensions are just potential unfunded liabilities for taxpayers. The Missouri teachers retirement system is self funded with mandatory 13% contibutions monthly from both employee and school. What also helps is if a teacher quits teaching ( and alot do not last 5 years)they normally pull their money out, but by law the school match stays in the fund.

 

[Lawrence of Suburbia]

No doubt the most shocking post I've found on this thread.

AAAAAAAARRRRRRRRRRRRRRRRRRR!!!

There's my share of the outrage...Anyone??

Well, I would've thrown my shoe at the radio; but I was driving at the time.

 

[JPatrick]

Well, I would've thrown my shoe at the radio; but I was driving at the time.

Ah whatever, most of the shoe throwers I've witnessed lately were of poor aim anyway....

 

[Walt34]

As for the OP, I have no doubt that a significant percentage of people will end up in group#3. SS will provide them with just enough income to survive and they will have to find alternate sources of funding (work, reverse mortgages, kids, etc...) to have a shot at anything but the most Spartan lifestyle. But they lived through prosperous economic times with plenty of job opportunities and a 20-year raging bull market which could have boosted their retirement savings substantially. Had they taken advantage of these opportunities to save and invest, instead of ever seeking a more grandiose lifestyle, we would not be having this debate. So I am not enthused at all by the prospect of bailout out these people.

Agreed. DW and I have been LBYM for all our lives and the payoff should be now. Granted, I took a job that has a pension the likes of which hasn't been seen for years (100% COLAs, medical and prescription coverage for life) but who thinks about retirement at age 22? So I got lucky, admittedly it wasn't any great planning on my part, and in part I feel like I won the lottery, but I also paid my dues with 29 years in law enforcement. I can't count the number of times someone said "I couldn't do your job".

But we're also the ones who declined to clean out the savings or take a loan to go on a cruise with some other family members. And one of the ones who did that is now involuntarily working as a cashier at a job she hates. She's also the one who declined the opportunity for a free college degree when she was working at a university - one of the perks was two free classes a year for employees.

 

[Midpack]

DW and I are in Group #2, and worried about being forced to subsidize Group #3 in the decades ahead. Even though our net worth has dropped over 20% thru this recession, I am still considering RE for other reasons that never occured to me before the OP's point. I have been very fortunate to have a good high-paying job, but it almost seems creating additional "wealth" may have marginal benefits. I'd almost rather retire earlier with fewer assets, living on less than we originally planned. If we wait longer and accumulate more, it will largely be taken away so why bother...

 

[Sand Pounder]

DW and I are in Group #2, and worried about being forced to subsidize Group #3 in the decades ahead. Even though our net worth has dropped over 20% thru this recession, I am still considering RE for other reasons that never occured to me before the OP's point. I have been very fortunate to have a good high-paying job, but it almost seems creating additional "wealth" may have marginal benefits. I'd almost rather retire earlier with fewer assets, living on less than we originally planned. If we wait longer and accumulate more, it will largely be taken away so why bother...

Wow, that reflects my thinking exactly. The best argument against retirement (and the main reason I continue to work) is to keep my skills current. They can take away my wealth, but not my education and skills.

 

[old woman]

Some pension plans are having problems too. My brother and mom get union pensions and they have been told there won't be a bonus check this year. When the pension is over funded they get a bonus check instead of an increase so the union doesn't have to cut benefits in bad years. My brother's wife is a school teacher and is delaying her retirement since the pension rules are changing now. Their retirement investments lost money too but they will be fine. He is 59 she is 58 and mom is 82 living with them. They have a in home business and mom gives them 1,500 a month for her room and board, she has her pension, dad's pension, SS, interest, and income from selling her old house so she has about 30K left after room and board and no bills except car insurance.

 

[hankster]

I don't know where the percentages come from (although believable), but I think the OP is right. Two comments:

1) If group #3 is that large, it will transform the workforce. 70% of Americans can't all be WalMart greeters.

2) Groups #1 & especially #2 (incl DW & I) will be in serious trouble because the politicians must pander to the majority to get re-elected. And guess who that is --- group #3, many (but not all) who are in their predicament through their own lack of planning. Get ready to be fleeced...no good deed goes unpunished. If you know how to protect yourself from the fleecing, let the rest of us in on it.

Are we headed down the path to a variant of socialism, the incentive to plan for a rainy day seems to be fading away.

I believe it was Scott Burns who talked about this in one of his books. One measure he recommended was to use liquid assets to pay off the home mortgage, figuring that the means-testing would look at one's liquid assets only. This assumes the government doesn't cook up a scheme to count our home's value as part of the equation.

 

[donheff]

I think a lot of you are far too pessimistic about what the Feds will do to US (meaning boomer retirees). Remember, very few of US have any assets to confiscate. And politicians still have to deal with voters. How many young people will vote for a confiscatory approach to retirees that will bite them on their own arses when their time comes? Means testing on SS - sure. 20% capital gains - sure. Redistribution of our portfolios - come on. What is more likely is a general increase in income taxes to oh, maybe the Reagan era levels. Oh yeah, and an estate tax. Spend it while you can. As for SS itself, rather than disappear, I suspect younger folks seeing their stone broke boomer parents working at Wall Mart will push to shore it up - we all get old eventually.

 

[FUEGO]

Redistribution of our portfolios - come on.

I don't think it takes much to imagine a wealth tax on "the rich" like the French have. Something like a marginal rate of 0.5% to 1% that increases with higher levels of wealth and with a large exclusion for the first big chunk of your portfolio. Even something as little as 0.5% doesn't seem like a lot to ask. Until you consider that 0.5% would take more than 1/6 of the income stream from an ER taking a 3% SWR.

 

[samclem]

Remember, very few of US have any assets to confiscate.

And that's the problem. Since the "very few" are the payors and the "very many" are the payees, the payors get outvoted.

How many young people will vote for a confiscatory approach to retirees that will bite them on their own arses when their time comes?

I doubt the "reforms" will be specifically targeted at retirees, but instead at "the rich." Yes, some voters might look ahead and figure that these rates might hurt them later, but that will be a very small number. These would be Americans willing to delay today's gratification for a chance of more wealth in the future. If there were a lot of these people, our personal savings rate wouldn't have been hovering at less than 2% for the last decade.

As for SS itself, rather than disappear, I suspect younger folks seeing their stone broke boomer parents working at Wall Mart will push to shore it up - we all get old eventually.

Maybe, but I hope instead that they'll learn that relying on government is a mistake and instead increase their savings to take care of themselves and their families.

The percent of voters who pay no net taxes or are net recipients of government checks is approaching a majority (by some accounts it has achieved a majority). In the past, the two things that prevented a wholesale confiscation/redistribution of wealth were the courts and a general belief in America that private property rights, even those of the wealthy, were important and that confiscation was, in the end, bad for everyone. I'm now less confident in both the courts and a continuation of this public sentiment going forward based on current events.

 

[Rustic23]

I can tell you it would get my kids attention if the Feds confiscate my assets and I come to live with them! Talk about a landslide of new voters!

 

[FIREd]

I don't think it takes much to imagine a wealth tax on "the rich" like the French have. Something like a marginal rate of 0.5% to 1% that increases with higher levels of wealth and with a large exclusion for the first big chunk of your portfolio. Even something as little as 0.5% doesn't seem like a lot to ask. Until you consider that 0.5% would take more than 1/6 of the income stream from an ER taking a 3% SWR.

The insanity about the wealth tax is that you keep paying taxes on the same pot of money, year after year after year... Forget about "double taxation"... The wealth tax is the most intolerable form of taxes IMO (the estate tax is not far behind in my book). But luckily, the wealth tax is also difficult and expensive to implement and very few countries so far have shown a desire to go down that road (let's hope we keep it that way). Wealth taxes also encourage tax emigration. If you are a wealthy citizen, why not pick up your stuff and move to a country treating your wealth more favorably? Tax emigration has become a trend among wealthy French citizens. In 2006, 1000 wealthy French tax payers moved abroad taking with them their almost 3 billion euros in wealth. A thousand people may not sound like much (more than 500,000 people are subjected to the wealth tax), but the trend is accelerating and those who are leaving tend to be the very wealthy. People who created the wealth tax are outraged by this new trend of course (I guess they thought people would happily submit to the fleecing). Tax revenues from the wealth tax remain marginal at best (about 4 billion euros in 2008) yet other tax revenue streams are suffering because people who leave not only stop paying the wealth tax, they also stop paying property taxes, sales taxes, income taxes, capital gain taxes... But worse, they also take jobs with them (jobs that could to put 10% of the unemployed back to work according to some sources). Given the inefficiencies of such tax system, let's hope we stay off that path...