Retirement is Changing

Bankrate says that the definition of retirement is changing -- and here are the reasons why:

The notion of a traditional, leisurely retirement is undergoing a transformation. It's likely to happen later in our lives, and it may involve working at least part time. There's a multitude of underlying reasons for this likely outcome: rising health care costs, a dearth of traditional pension plans, faltering Social Security and Medicare systems and, most of all, the fact that Americans are just not saving enough for retirement.

The article then goes into a bit of detail on the issues driving this change. One worthwhile quote:

One popular explanation for our moribund personal savings rate is the replacement of the work-and-save culture of the past with the ubiquitous spend-like-there's-no-tomorrow mentality.

Then, there's this ominous thought:

The oldest of some 78 million baby boomers, those born between 1946 and 1964, are eligible for Social Security benefits starting this year. The rest will become eligible over the next 18 years. Many will find themselves working past age 62 because they won't have enough saved or they'll need to keep company medical benefits.

But things are looking up:

Ironically, the good news is that American attitudes toward retirement savings may have turned a corner -- as a result of the bad news all around us. Hebeler says that as the national attention is focused on the credit crunch, failed mortgages and the souring economy, many of us are starting to ask more questions about saving.

It is ironic that the bad economic times are waking people up. I wonder what will happen when things get better -- will people remember the tough times and keep saving or forget them and go back to spending, spending, spending?

The path to riches (and a good retirement) is rather easy, but it requires one financial trait that most Americans don't have: discipline.

Comments

[Bad_Brad]

Well, my generation has had to endure many vomit-inducing media reports of the Baby Boom generation smugly congratulating itself for redefining everything from music to food to aging. I suppose it should come as no shock that, in the next couple of decades, we will get to hear about how Boomers are redefining retirement. Today, roughly 13% of our population is 65 or over. By 2050, it will be around 20%: http://www.census.gov/ipc/www/usinterimproj/natprojtab02a.pdf

If you think AARP is powerful today, wait until it represents over 20% of our population. Prediction - Congress will be hard at work coming up with myriad new entitlement programs to keep this demographic happy for years to come. Everyone not in that generation, well, we've come to the conclusion long ago that we're pretty much hosed.

The only upside is that there will be a disproportionate number of jobs at all levels across many fields vacated by the Boomers in the coming decades, so even if you are not that qualified, as a member of Gen-X you will probably have a lot of career avenues open to you that past generations have not. Believe it or not, one of the biggest economic problems that our country may face in the next two or three decades is a lack of workers (although illegal immigration is doing its best to fill the void, at least at the low end of the scale). The problem is, for my generation, we are going to be spending most of the money we earn on the retired set.

The right thing to do to fix Social Security would be to get it back to its original intent - a "safety net" for those who have outlived their money. At some point in the past 60 years, it has morphed into a government-funded retirement program, which it was not intended to be and it is not sustainable as that. The age to receive benefits should be set to something like 72.5 years of age and indexed for life expectancy changes each year. That would be the right way to fix it.

The more politically expedient ways to fix it, unfortunately, will be to get rid of the cap on Social Security earnings (while keeping the cap on benefits) and eventually, means-testing Social Security. This will create an awful and perverse disincentive to save for retirement, but it will still happen. Too many people have not saved for retirement, and they will be looking enviously at those who did and claiming it's not fair and the government needs to even things out. And the government will be happy to play along, because there are more voters that have not saved than voters that have saved.

And I won't even start on Medicare - our unfunded future Medicare liability makes Social Security look like chump change.

[Lord]

More Social Security bashing by the ill informed. Even by the pessimistic estimates of midcost, 78% of it is pay as you go, and that 78% will be off a base 160% of today's level. With a little luck, there won't be any problem at all. It is simply too early to say at this point. At a time of terminated corporate pensions and lagging savings, it will only become more important in retirement. Social Security is already means tested; up to 85% is taxed. While it may be fully taxed, anything more would convert it into a welfare that wouldn't even solve any financial problem it had.

Medicare, OTOH, has a real problem and that problem is healthcare. It isn't alone in this, the rest of country has the same problem. People who think we have the best healthcare and don't want anything to change about it, are in a delusional fantasy. Change it must or we will all be bankrupt and not be able to afford anything.

[Sarah]

Unfortunately, medical costs are increasing at such a rate that I fear it may soon be beyond the power of anyone to provide properly for their own retirement...

[Foobarista]

Lord, are you including the mythical "trust fund" in your calculations? If so, you have to account for the fact that there's nothing there but claims against future revenue. I know Krugman et al have argued that SS is "solvent", but only if you assume that SS gets funded out of general taxes (ie, to pay the bonds that make up the trust fund) as well as SS taxes. Since this means less taxes available to run the rest of the government, taxes will have to rise, SS payouts will have to fall, or both.

[Bad_Brad]

With a little luck, there won't be any problem at all. That's not very comforting. A few sobering numbers for you - in 1960, the ratio of payors into SS to payees was 6.1. Today, it's 3.3. By 2040, it is projected to be 2.1. Something has to give. Either benefits must be cut, or the tax increased in some way, or both. My guess is that your point above will hold about SS being more critical to Boomers in retirement than any prior generation due to the combination of pensions being done away with plus paltry savings rates. So the only politically expedient solution will be to increase the tax in some way, either by increasing the cap or simply increasing the rate, or both. Probably both.

I agree with you on Medicare. One thing that blows me away in all the talk of health care issues in the US is that the issue of cost is completely left out of the equation. Reality is, it's the fundamental problem. Our quality of care in the US is the best in the world. You could argue our system of delivery is unfair, that's really a philosophical debate. But there is no question that we pay more per capita than any other developed nation. And while energy and grocery inflation are new things in the US today, medical inflation has been double digits for years. Most plans I have seen politicians put out there sound great but they have a problem in that they purport to be able to defy gravity - they claim to be able to increase demand, hold supply constant, and reduce cost. It doesn't work that way.

["Mo" Money]

Just recently I read that the over 65 crowd is growing a 147% rate vs a 40% rate for all other ages. That fact by itself says there will be changes in retirement.

[Jim]

Foobarista, re: "only if you assume that SS gets funded out of general taxes" Its not funding SS out of general taxes, but instead repaying the debt the govt. owes to SS. The USA govt has borrowed SS reserve money to spend elsewhere. Its not 'stolen' but is accounted for as part of the national debt. Much of the debt is monies owed to the government itself. Theres nothing to worry about. THis debt is as trustworthy as any T-bill or any other debt of the US government. And thats as trustworthy as debt gets.

Jim

[Lord]

The trust fund is really a non-issue. The government won't be able to hide it's deficits behind the Social Security surplus, but that is an improvement, not a problem. Government will have to collect taxes to pay for spending, reduce spending, or borrow still more like it does today. Those that rail against Social Security only do so against benefits paid, not taxes collected.

Even with pessimistic estimates, Social Security can be balanced with less than 2% of payroll. A choice between 2% of payroll or a 22% cut in future benefits makes it quite obvious to me what the solution should be but I am willing to leave it future voters to decide. Boomers retiring later and working in retirement mean most likely the problem is much smaller than it appears.