This is the best retirement advice I've even read. Walter Russell Mead writes And Now For The Really Bad News.
The bad news is that corporate and public pension plans are horribly and perhaps irredeemably underfunded. ,,,That’s the bad news. The really bad news is worse. According to the same issue of the Economist, returns on all classes of assets — stocks, bonds, real estate, commodities — could be depressed for years.
So your pension is in jeopardy, your portfolio has taken some big hits, and no matter how much you (or your employer) socks away, you won’t get much return on your savings.
What to do?
The best and perhaps only real choices that most of us have involve two changes. First, save more and make realistic assumptions about your future rate of return. There is no way around it; if you want to be financially secure or even sort of secure in the future, you must sock more money away now. Nobody cares as much about your retirement as you do; if you don’t save for yourself you can’t count on the government or a benevolent employer to do it for you. Save, save, save. This is true whether you are twenty or whether you are seventy; Americans have let themselves get out of the habit of saving, and we need to get back to it. Whether your income is large or small, you need to look for ways to cut expenses. That will help you save now; it will also mean you will know how to retire more cheaply. We need less Martha Stuart and more Ben Franklin in our national character these days. Thrift, friends. It’s a virtue.
Second, and perhaps even more important, adopt reasonable goals. Stop thinking that the goal of your working life is to get rich enough to quit at 65 and have fifteen years of active leisure. The goal of a working life is to find ways of contributing to the common welfare that sustain you and your family, that fulfill you and help you to grow. As you go on in life, you should be looking to keep contributing. The goal isn’t to play golf at Palm Beach or veg out in front of the tube. Retirement is a time to change careers: work part time, or work at something you love that pays less — but that still contributes something to your income.
You want a working life that pays the bills but keeps you connected to the world in interesting and useful ways. These don’t have to be big earth shaking jobs; it can be healthier, more satisfying and morally better to work a few hours a week as a crossing guard keeping in touch with the kids in your neighborhood than to sit around watching daytime TV. A partial retirement where you work part time and at more user-friendly jobs can be better and more rewarding than total idleness and empty leisure. Many people with fully funded pensions and ample savings volunteer or go back to work because the boredom and feeling of uselessness become unbearable.
Think of your goal as a long period of partial retirement involving part time and/or community focused work followed by a short period in much older age of living entirely off your savings. This is a goal that many of us can achieve more easily than the old style of retirement — and makes for a richer, more interesting and quite possibly longer and healthier life.
Slow, gradual retirement isn’t just more affordable; it is a better way to live and a more noble goal. We can choose to overcome bad news by living better lives.
Next state over from me, little Rhode Island is showing all of us what happens when its pension system begins to fail under the weight of its promises.
From Walter Russell Mead, Rhode Island Pension System Collapsing
Rhode Island is one of the bluest states in the country, and one where public sector unions have long worked with sympathetic politicians to create a true blue system of well paid public employees retiring comfortably on generous pensions with cost of living raises automatically thrown in.
The only problem is that the state could never afford the beautiful utopia it was crafting, and so politicians and union leaders chose the path of systemic deceit. Taxpayers weren’t told what the bill for the system would be; public service workers weren’t told that the pension guarantees they’d been sold were worthless because taxpayers would not and could not foot the bill.
An economic crisis is nature’s revenge on those who make and those who accept false promises; it is a holocaust of lies when the dross is burned away and only what is real and true remains.
A lot of people who believed Rhode Island’s lies will now be looking for part time work in what they were told would be a secure retirement. As far as I can tell the union leaders and politicians who concocted this disaster between them have no plans to suffer any cuts in their own pay or pension plans — and intend to go on “serving the public” without any accountability at all.
Mead includes this great quote from Thomas Carlyle, Bankruptcy rules
Great is Bankruptcy: the great bottomless gulf into which all Falsehoods, public and private, do sink, disappearing; whither, from the first origin of them, they were all doomed. For Nature is true and not a lie. No lie you can speak or act but it will come, after longer or shorter circulation, like a Bill drawn on Nature’s Reality, and be presented there for payment, — with the answer, No effects. Pity only that it often had so long a circulation: that the original forger were so seldom he who bore the final smart of it! Lies, and the burden of evil they bring, are passed on; shifted from back to back, and from rank to rank; and so land ultimately on the dumb lowest rank, who with spade and mattock, with sore heart and empty wallet, daily come in contact with reality, and can pass the cheat no further.
The top financial worry among Americans is funding their retirement, 58% of adults according to Gallup.
Retirement As We Know it Is “Dead”
There's good reason to worry, says Michael Pento, senior economist at EuroPacific Capital. "Retirement is on life support, if not indeed dead as we know it today," he tells Aaron Task in the accompanying interview.
"Where is the income going to come from to sustain a viable retirement?" Pento asks. The problem, as he sees it, is simple -- income and asset values have plateaued over the last decade, while pension and entitlement programs are underfunded.
"Americans are have negligible savings, the real estate market is still in secular decline, stock prices are in a decade's long morass, real incomes are falling, public pension plans are insolvent and our entitlement programs are bankrupt."
Pento believes these issues could be resolved if the government takes the right steps. What might those be? He recommends lowering taxes, reducing inflation and balancing the budget as a means to increase the value of the dollar. If the dollar had more purchasing power and interest rates were higher, retirees would be able to live off their fixed income, he says.
Nationalizing your 401(k)s to make them 'guaranteed retirement accounts' and to bail out the underfunded union pension plans.
In February, the White House released its “Annual Report on the Middle Class” containing new regulations favored by Big Labor including a bailout of critically underfunded union pension plans through “retirement security” options.
The radical solution most favored by Big Labor is the seizure of private 401(k) plans for government disbursement -- which lets them off the hook for their collapsing retirement scheme. And, of course, the Obama administration is eager to accommodate their buddies.
Vice President Joe Biden floated the idea, called “Guaranteed Retirement Accounts” (GRAs), in the February “Middle Class” report.
In conjunction with the report’s release, the Obama administration jointly issued through the Departments of Labor and Treasury a “Request for Information” regarding the “annuitization” of 401(k) plans through “Lifetime Income Options” in the form of a notice to the public of proposed issuance of rules and regulations. (pdf)
House Republican Leader John Boehner (Ohio) and a group of House Republicans are mounting an effort to fight back.
It's been done in Argentina and in England as I wrote in Pension Apartheid.
I've been posting on the huge problem of public pensions for some time. I'm glad to see that people are waking up and seeing it for what it is like Fred Barnes on the New Fat Cats
John Edwards was right. There are two Americas, just not his two (the rich and powerful versus everyone else). The real divide today is, on one side, the 20 million people who work for state and local governments and the additional 3 million who’ve retired with fat pensions. On the other, the rest of us, roughly 280 million Americans. In short, there’s a gulf between the bureaucrats and the people.
Governor Chris Christie of New Jersey puts his fight with teachers and their union in roughly those terms. He says there are “two classes of citizens in New Jersey: those who enjoy rich public benefits and those who pay for them.”
he pension explosion has created a fiscal crisis in many states, cities, and towns across the country, California being the worst off. Not only are pensions for government workers a perilously unfunded liability for many states, their soaring cost is causing sharp cuts in other programs.
“Paying for those pension promises is already crowding out funding for higher education, for parks, and for other areas like health care . . . and that crowding out is only going to get worse,” California governor Arnold Schwarzenegger said last week.
State pension funds have gone up 2,000 percent in the past decade. The unfunded pension debt in California is $500 billion, according to a new study by Stanford University’s public policy program. It’s seven times greater than the state’s general obligation bonds, says Schwarzenegger adviser David Crane.
A staggering pension shortfall “is not just [in] California,” Crane told me. “It’s every state.” Nationwide, unfunded retirement benefits are $3.2 trillion, according to Chris Edwards of the Cato Institute. On top of that, he estimates the unfunded debt for the health coverage of state and local government retirees is $1.4 trillion.
Who's to blame? Well, in California, you can blame Jerry Brown for the California's half-trillion pension mess.
"Thank" Jerry Brown. As Governor "Moonbeam" of California in 1978, he signed the "Dill Act," which gave California public employees the right to collective bargaining.
Brown, who has been governor, Oakland mayor, and attorney general, now wants to be California governor...again. Four big, grateful government labor unions are backing him...again.
Here's Meg Whitman on California Pension Reform
We must raise the retirement age for non–public safety workers from 55 to 65. We must require state employees to contribute a larger portion of their salary to help pay for their retirement benefits. We must extend the vesting period, and we must bring new government workers in under a different deal where they receive a defined-contribution retirement plan similar to the 401(k) plans that most taxpayers have.
Jerry Brown, who enacted collective bargaining for the public-employee unions during his governorship in the 1970s, bears direct responsibility for the unfunded liability in our state retirement system. Brown has teamed up with union bosses to attack my policies and my business background because, for them, pension reform is unacceptable. They believe your tax money is their entitlement.
Little did I know when I wrote Who's Next about our skyrocketing debt and how we will ever pay it, that other countries besides Argentina have looked with salivating glee at private pension plans.
Here is a warning to us all. The Argentine state is taking control of the country’s privately-managed pension funds in a drastic move to raise cash.
So, over $29bn of Argentine civic savings are to be used as a funding kitty for the populist antics of President Cristina Kirchner. This has been dressed up as an anti-corruption and efficiency move. Aren’t they always?
Now the seizure happened in October but somehow I never read about it until recently.
Argentina to seize pension funds, markets tank
Argentina's center-left President Cristina Fernandez on Tuesday signed a bill for a government takeover of the $30 billion private pension system in a daring and unexpected move that rocked domestic markets.
Critics said the government was looting pension funds ahead of a tough budget year when it has to find billions of dollars to pay and service debt, but the president said the private pension fund administrators were the looters.
"The failed experiment" of private pensions is finished, ANSES Director Amado Boudou said at the ceremony with Fernandez, before hundreds of political supporters.
The reform took Argentina's 10 pension fund administrators, known as AFJPs, by surprise and an industry group decried government claims that the funds had performed badly.
"The AFJP system is a solid mechanism that can be perfected, that has had an almost constant growth trend in the 14 years of its existence," Sebastian Palla, president of the Union of Argentine Retirement and Pension administrators, said in a statement.
Then I read The man who stole your old age: How Gordon Brown secretly imposed a ruinous tax that has wrecked the retirements of millions.
So, on one fateful night in that suite overlooking Hyde Park, they decided that, once in power, they would launch a massive multi-billion-pound raid on a gold-plated, copper-bottomed sector of the British economy - its pension funds.
Up until this point, company pension funds had enjoyed an important tax break on the financial investments they made in order to build up the capital from which employees could be paid when they retired. By long tradition, the funds paid no tax on the dividends they received from those investments.
The view of Brown and his penthouse cronies was that this concession had to stop.
Gordon Brown decided pension funds were a ripe target and knowingly destroyed what was once one of the great pension systems in the world. Eleven million people with company pensions and a further seven million with personal pensions were affected by the sleight of hand dreamt up in that posh Park Lane penthouse.
But it's even worse writes Alex Brummer, the city editor of the Daily Mail in his new book, The Great Pensions Robbery.
Most public sector schemes still operate a retirement age of 60 whereas the rest of us have to soldier on to 65 to get our reward.
Public sector pensions are also not just salary-linked but index-linked to keep pace with inflation.
As the size of the public sector has ballooned under New Labour by up to one million workers, so the number of active members of these final-salary schemes has soared - from 4.2 million in 1995 to 5.2 million in 2007.
The Institute of Directors describes this mismatch in pension provision between those working for government and those in the entrepreneurial sector of the economy as nothing short of 'apartheid'.
And it is potentially dangerous as well as unfair.
'If private sector workers rebel against paying other people's pensions, we are heading for strife,' warns pensions expert Ros Altmann. 'I'm not saying that public sector workers don't deserve generous pensions. They do. But so does everybody else.'
As for the other half who have tried to save for a comfortable old age, those in the private sector have seen their pensions plundered, while those in the public sector, though feather-bedded for the moment, have a system that is ruinously expensive, unsustainable and can no longer be defended.
Doesn't that sound distressingly like what could happen here? Take a look at Steven Malanga's piece on The Beholden State. How public-sector unions broke California.
Retired and want to hit the road and see America but you haven't saved enough money?
That's right. Couples are finding second careers driving 18-Wheelers.
At a truck stop diner along Interstate 5 near Tigard, Ore., Daniel and Becky Ford were fueling up on pancakes and black coffee for the 2,200-mile run to Dallas they were about to make in a Freightliner tractor-trailer stuffed with auto parts.
It was the 10th week on the open road for Mr. Ford, 57 years old, and his 51-year-old wife, who chucked their old life in rural Pennsylvania in May for a cramped truck cab that keeps them moving 22 hours a day.
Their new career is taking them to places they always dreamed of visiting but couldn't afford. "When the money is tight and you have other worries, you can't be too adventurous," says Mrs. Ford, a former hairstylist. "Becky and I serve as our own boss," says Mr. Ford, a former carpenter. "We can stop wherever we want."
This fall, the American Trucking Association plans a billboard and television ad blitz to lure older drivers.
"We just thought if Ma and Pa can drive the Winnebago, maybe they can drive the 18-wheeler," says Tim Lynch, a senior vice president at the trade group.
Since 2000, the number of service and truck drivers 55 or older has surged 19%, to about 616,000, according to the federal Bureau of Labor Statistics. The percentage jump is quadruple that of truck drivers overall.
If your older parents insist on driving and they still can safely, it's a good thing because they are far less likely to enter a nursing home or an assisted living center.
The American Journal of Public Health published the results of a study by researchers at John Hopkins based on extensive interviews over 10 years.
"The independence that accompanies a driver's license and car has long been linked anecdotally to a better quality of life for seniors."
Some $20 billion in pension benefits lays unclaimed on the books of companies of all sizes.
That statement is from Ellen Bruce, director of the pension counseling program at UMass in an article in the Boston Globe, To draw pension, some must hunt for it.
legitimately earned pension benefits go unclaimed because companies have been bought or sold, because surviving family members are unaware of the benefits due them, or because records go lost or missing and survivors can't muster the resources to collect.
The Pension Action Center is part of the Gerontology Institute at UMass and offers its services free of charge to New England residents.
The Financial Planning Association and the National Endowment for Financial Education have teamed up to create an online life-stages financial planning tool.
Life Events & Financial Decisions is definitely a site to bookmark if only for as a checklist for the Business of Life™.
With demographic pressures increasing, more companies and countries are putting the retired back to work. Newsweek reports.
Whether these changes are good or bad news to workers depends on whether they anticipate retirement with eagerness or dread. In the United States, a full third of recently retired seniors now go on to pursue a second career, reports a new study by Putnam Investments. And according to a survey by AARP, the top U.S. lobbying and advocacy group for senior citizens, half of working-age Americans now expect to work into their 70s, whether by financial necessity or by lifestyle choice. In Japan, 78 percent of baby boomers between the ages of 55 and 59 say they plan to work beyond the official retirement age of 60.
If anything, it's surprising that we didn't challenge the popular association of old age and idleness much earlier. After all, the roots of the modern concept of retirement go all the way back to the era of Germany's "Iron Chancellor" Otto von Bismarck, who founded the first welfare state in the 1880s. At that time, the average worker toiled in a factory and lived to be 50. Retirement, for those few lucky enough to reach it, was conceived as a small recompense for physical and mental exhaustion. Happily, few of us today associate work with that kind of bodily strain. Instead, it's often a way for older people to stay active and integrated in a rewarding social network. That's the positive side to working longer and retiring later. We may also no longer have a choice.
From the Center of Retirement Research at Boston College, this White Paper just out says.
"Social Security is a real problem and we need to fix it and that involves pain," says Jeffrey Brown lead author of a paper which seeks to critically examine the "The Top 10 Myths of Social Security Reform."--
A constructive debate about the future of Social Security should accept that a problem exists and focus on alternative methods of restoring long-run, sustainable fiscal balance to the program," he says. "Simply denying that the problem exists will not make it go away.----
"We shouldn't kick the problem down the road for 10 years for others to deal with it nor should we pursue policies that don't fix the problem but appear to," he says. "There are no easy solutions. Someone's ox must be gored. We either need more revenue or to pay less out of the system. People either don't understand that or they choose to ignore it."
According to the White Paper, the top ten myths of social security that should be debunked on both sides of the aisle (full copy here) are:
1. Social Security is financially sound for "decades to come."
2. Economic growth will eliminate the existing problem.
3. Social Security is in "crisis" and will not be there when today's younger workers retire.
4. Personal accounts can save Social Security without benefit cuts or tax increases.
5. Allowing individuals to redirect their contributions from the trust fund to personal accounts will provide a higher rate of return.
6. Personal accounts will worsen Social Security's financial problem.
7. Personal accounts will cause benefit cuts.
8. Personal accounts are risky and the current system is safe.
9. Transitioning to personal accounts is too costly.
10. Social Security reform is bad for the poor / women / minorities.
Facing age discrimination in searching for a job, the 55-Plus Crowd takes to eBAy Auctions.
Many people age 55 and older are turning to the online marketplace.
For some retirees, eBay has become a kind of financial lifeline, supplementing pension plans or savings that may not be sufficient.
Others have uncovered a latent entrepreneurial streak in themselves or simply see eBay as a creative outlet; they enjoy the sales process and the interaction an eBay business gives them with people around the world.
More than 27% of all workers hold at least half of their 401(k) balance in company stock. Some 7% have their entire account in company stock.
Generally financial planners say no more than 15% of your overall stock should be in your employer's stock. The debacle of Enron, with hundreds of thousands losing their entire retirement savings is the lesson in point.
Given the recent rash of lawsuits against Merck & Co, Krispy Kreme, General Motors, AIG, EDS and others alleging that company executives breached their fiduciary duty by NOT getting workers out of company stock, things are changing
More and more companies are hiring outside consultants to oversee the handling of company stock in employee retirement plans.
For employees it's an extra layer of protection. For independent fiduciaries like State Street and US Trust , it's a rich new source of business.
Retirement Plans Get New Safeguards, Wall St Journal (subscription only)
On March 4, Kiplinger's Personal Finance Magazine and the National Association of Personal Financial Advisors are offering free financial advice to help people jump start their retirement planning. The number to call is 1-888-919-2345.
Here's a blog many of us can relate to - What Retirement? Approaching yet another generational frontier, making it up as we go.
I find I need a brand new category that I'm sure will fill up quickly as the social security debate goes on. What to do? Frankly I don't know. I do believe that global aging is a far bigger threat than global warming - the demographics are incontrovertible and the science is not.
I'm going to just sit and listen for a while while I contemplate this chart from Agewave