Economic Insecurity and Older Americans

[traineeinvestor]

If it was a truly individualized account, I would have no problem with this. While I am not a big nanny state guy, the masses have to be protected from themselves. And believe me there are plenty who do not or will not save.

One of the things I like about the Australian model is the element of choice - default options apply but you have the choice of selecting your own investments if you wish or even setting up your own private self managed scheme. I wish we have adopted something similar in Hong Kong (instead of the wealth destroying abomination we did adopt ).

 

[Khufu]

If it was a truly individualized account, I would have no problem with this. While I am not a big nanny state guy, the masses have to be protected from themselves. And believe me there are plenty who do not or will not save.

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.

 

[Mulligan]

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.

Good points, and I am not opposed to your suggestion. I do worry something needs to be done as many of the masses arent saving anything. We are still in the transitional phase that could get scary. I believe one of Micheals linked articles stated around 40-50% of male retirees have pensions. In 20 more years many of these people will die off and the annuity protection of pensions for many of the masses over 65 will be long gone.

 

[aleabo]

Hopefully the young guys now realize no one will be taking care of them when they retire and they will save for it. I think the boomers have been somewhat caught in between great pensions and no pensions, and lower SS and Medicare expectations. If they didn't pay attention, do things differently than in the past, and adjust on the fly as benefits were reduced, they may have let things slide.

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..

 

[traineeinvestor]

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..

Like Greece?

 

[aleabo]

Like Greece?

Like Sweden

 

[traineeinvestor]

Like Sweden

Sweden certainly has a lot of good things going for it - have a look at the list on the lower left hand side here: Swedish economy faces great uncertainty in 2012 (ignore the headline for present purposes).

But it sort of begs the question why the Swedish model works so well and what, on the surface, look like very similar models work so badly in countries like Greece, Spain etc? Unless and until that question can be answered I would be very reluctant to go to any system that offers people any kind of free ride (especially if the demographics point to an ageing population).

 

[ShortInSeattle]

Hopefully the future generations in this country will learn something from this and become more savvy in savings and frugal.

We're 33 and 35 and are saving assertively for a no pension, no SS future. It seems that to be OK in our retirement cohort you need to start early and save much. We worry about our friends who are delaying retirement savings because of poor job prospects or kid expenses.

I'm very grateful for being exposed to good books (Millionaire next door, Your money or your life, The wealthy barber) while I was a broke college student. A little education at the right time goes a long way!

 

[aleabo]

Sweden certainly has a lot of good things going for it - have a look at the list on the lower left hand side here: Swedish economy faces great uncertainty in 2012 (ignore the headline for present purposes).

But it sort of begs the question why the Swedish model works so well and what, on the surface, look like very similar models work so badly in countries like Greece, Spain etc? Unless and until that question can be answered I would be very reluctant to go to any system that offers people any kind of free ride (especially if the demographics point to an ageing population).

Spain, Greece traditionally more agriculture countries with low productivity. South, siesta Sweden industrial country with high productivity. It could be one of the reason. I have never compared those countries , cannot say.
What I'm trying to say, that I'm really afraid if retirement and medicine will be available only for chosen..it could end up in social problems what will be difficult to solve..already we have attempt to tax reach, all those comparison 99% vs 1%, etc..

 

[obgyn65]

I agree with this.

I fear that all of this is only going to get worse. Many, many boomers have a totally unrealistic idea of how far they can go on a 401K that is barely big enough to buy a new car.

 

[modhatter]

Like Sweden

+1

It is very difficult for lower income people and lower middle income people to save for retirement. Many struggle just to get by, especially single women. I think it unrealistic that voluntary retirement savings will occur with this population. And if they did save some money. Do you think it would be a very substantial amount. Since we are not from the Chinese culture, we need to change our culture in one way or another. Whether it be forced annuities, individual pension, or increase in social security deductions for a more generous payout. Everyone is not wealthy. Divorce has created financial havoc on this country, as many woman are left to raise children on their own with little or no support from the father.

Many were not able to go to college for one reason or another, so they remain in lower paying jobs often without health benefits. Many lack the intellectual capacity to secure a high paying job.

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. Rest assure those on the receiving end will not enjoy the life you will in your retirement.

 

[rescueme]

I stopped discussing retirement with my family and friends because it only upsets them. They seem to think that my retirement happened by winning the lottery instead of 30 years of careful saving and delayed spending in almost all areas of my life. The whole thing is depressing.

Been there, done (and still doing) that...

OHOH, I'm not depressed (along with DW). My/her family made their own decisions in life, and now have to live with the results. Who is to say they are wrong? While DW/me lived an LBYM lifestyle and put aside a good deal of our earnings toward our future, who's to say that others in our family were wrong?

You make your "bet", and you live with the results.

 

[Midpack]

It is very difficult for lower income people and lower middle income people to save for retirement. Many struggle just to get by, especially single women. I think it unrealistic that voluntary retirement savings will occur with this population. And if they did save some money. Do you think it would be a very substantial amount. Since we are not from the Chinese culture, we need to change our culture in one way or another. Whether it be forced annuities, individual pension, or increase in social security deductions for a more generous payout. Everyone is not wealthy. Divorce has created financial havoc on this country, as many woman are left to raise children on their own with little or no support from the father.

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...

 

[Chuckanut]

I am amazed by my peers whose retirement plan is to be a "waiter". Not working at a restaurant - but waiting for a rich relative or in-law to die, then live of the inheritance.

 

[pb4uski]

I am amazed by my peers whose retirement plan is to be a "waiter". Not working at a restaurant - but waiting for a rich relative or in-law to die, then live of the inheritance.

I had a peer who was counting on a substantial inheritance to fund his retirement. Due to a variety of reasons, some of his own doing, the inheritance was substantially less than what he was counting on, so he is still working.

He will be fine after all, but if his plan had been closer to the edge he would have had to work much longer than he was planning.

I kept trying to tell him not to include any inheritance in his retirement planning and if it comes it is gravy, but he wouldn't listen.

 

[pb4uski]

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]

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]

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]

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]

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]

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]

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]

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/OlderAmericansGenderbriefFINAL.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]

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.