Fair Game: Blaming Older Workers for High Unemployment

We've been writing a lot lately about whom and what to blame for sky-high unemployment. I've mentioned labor mobility and skills mismatch as factors. My colleague Ilan Moscovitz says it's mostly a lack of demand that's preventing employers from creating new jobs. Others have argued -- falsely, I think -- that high unemployment benefits are to blame. There's little clarity and even less consensus on this topic, which makes for good debates.

Here's another variable to add to the mix:

Source: Bureau of Labor Statistics, author's calculations.

This chart shows the percentage of those who are age 65 and over who participate in the labor force, meaning they're either employed or actively seeking employment. What it shows is clear: In a trend that's really picked up over the past 5-10 years, more of the older end of the population is remaining in the workforce rather than exiting into retirement.  

How does impact unemployment? A paper by the Federal Reserve Bank of San Francisco explains it nicely (emphasis mine):

U.S. population growth averages about 1% per year. Assuming no change in labor force participation, the economy would need to create about 100,000 jobs per month on net to keep the unemployment rate at its August 2010 value of 9.6%.

Holding the labor force participation rate constant, job growth above 100,000 per month would bring the unemployment rate down, while job growth below 100,000 would push the unemployment rate up. However, changes in participation can make a huge difference. The higher the participation rate, the greater the number of jobs needed to keep the unemployment rate down.

To put it bluntly, we count on older workers moving into retirement to make room for newer, younger workers. The jobs cycle is like a conveyor belt, with one end bringing new workers into the workforce, and the other pushing older workers off into retirement. Right now, the latter end of that belt is working slower than it has in at least 20 years.

When I began thinking about this topic, I expected the 65+ labor participation rate to show a huge spike over the past two years as the financial crisis obliterated assets and pushed retirements out of reach. That was surely the case for many, but this chart doesn't show much of a change in trend around the 2008 meltdown. Working well into our later years is a phenomenon that began long before the financial crisis.

Why is that, and what's causing the trend? It's hard to say definitively. The fact that we're healthier and living longer could be one reason. The need to pay for educations whose price blows relentlessly higher year after year is another reason. More women participating in the labor force is another still.

What's likely the biggest reason, though, is the change in how we fund our retirements.

In decades past, retirement was primarily based around a pension. Work for a certain period of time, and you're good to go. That's still the case for many of us; besides Social Security, large employers including ExxonMobil (NYSE: XOM  ) , Intel (Nasdaq: INTC  ) , and Ford (NYSE: F  ) support retirees through various types of pension plans. But there's no question that a serious shift in the dynamic of retirement funding has taken place over the past few decades. We've gone from a predominant pension system toward more individually funded means such as 401(k)s and IRAs. In his book While America Aged, Roger Lowenstein notes that 60% of American jobs were covered by a pension in 1960. Today, it's less than 20%, with the remaining workers left with either 401(k)s or private savings. For better or worse, we're on our own.

And for many, it's been worse. Why? Because left to our own devices, too many of us are terrible savers and even worse investors. In their book Nudge, Richard Thaler and Cass Sustein note that "roughly 30 percent of employees eligible to join a 401(k) plan fail to enroll." For those who do, the gnats-to-bright-lights inclination to buy high and sell low is well-documented. A recent survey by Towers Watson shows 40% of workers are delaying retirement because they worry about how they'll pay for it. Bottom line: Many self-directed plans simply haven't been sufficient ways to finance retirements. To make up for it, we're working longer.

And that's just another variable in the ever-frustrating road to putting our ranks of unemployed back to work. As if it weren't already complicated enough.

Thoughts? Fire away in the comment section below.                   

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel owns shares of ExxonMobil. Intel is a Motley Fool Inside Value pick. Ford Motor is a Motley Fool Stock Advisor selection. Motley Fool Options has recommended buying calls on Intel. The Fool owns shares of ExxonMobil and Intel. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 19, 2010, at 4:47 PM, mtf00l wrote:

    Don't forget that Social Security doesn't provide for inflation because government doesn't count the necessaries.

    Also, a discussion on why companies no longer support pensions might be interesting as well.

    A 401(k) will rarely if ever work to replace a pension. There are many reasons I can think of from psychological to purely financial. If I need the money to pay my mortgage today, how can I divert that money into a 401(k). Do I need to become an active day trader to protect my gains should I have any after management fees? Which "fund" company or which "money management" company do I trust that money with? Will they have my interest and future in mind or will the need to generate commissions drive their decisions? Who do the fund managers serve? Are they "speculating" on sub standard MBS? How can I find out? How much time will that take away from my job? Will I have a job because of these same fund managers gambling with all the money?

  • Report this Comment On October 19, 2010, at 5:20 PM, BobMichigan wrote:

    Typical stupid article.

    As unemployment increases and companies lay off based on seniority, the average age of workers will increase without any change in actual retirement age.

    I also like how your graph "zero's" at 6% to make the change look more dramatic.

    You couldn't think of anything to write today?

  • Report this Comment On October 19, 2010, at 5:29 PM, TMFHousel wrote:

    "As unemployment increases and companies lay off based on seniority, the average age of workers will increase without any change in actual retirement age."

    That may be true over the past two years. But what explains the ongoing trend over the past 10, during times of full employment?

    "I also like how your graph "zero's" at 6% to make the change look more dramatic"

    I never understood this criticism. The axis is clearly marked. I don't think there's anything shady about compressing a scale to better show a change. Making it a full scale and showing what looks like a flat line can be just as misleading.

  • Report this Comment On October 19, 2010, at 5:43 PM, akutach wrote:

    BobMichigan,

    The chart is clearly labeled - it looks like what it is which you appear to have misinterpreted badly: A 50% increase of the participation rate over 65, and not a 50% increase in the proportion of all employed. Either way, it reflects a significant and seemingly abrupt shift in behavior of aging Americans though I would like to see the data go back a few more decades.

    However, I find Morgan's personal, or our social, supposition that the over-65 crowd deserves BLAME disconcerting. Disclosure: I'm 40. Why can't the over-65 group work in good conscience whether they need it or not? In a consumer driven economy, if they're both productive and consumptive then they're occupying and creating jobs.

  • Report this Comment On October 19, 2010, at 5:46 PM, TMFHousel wrote:

    akutach,

    Fair enough. Perhaps "blame" was inartfully worded. "Another variable to think about" is probably more appropriate.

  • Report this Comment On October 19, 2010, at 6:03 PM, travlinjohnFool wrote:

    There are an increasing number of people the age of 65 due to the Baby Boom. This trend will continue until all of the Baby Boomers are accounted for and the population attributed to this phenomenon starst to decline. Additionally a decrease in the number of 65 year old in the work force won't take place as long as the government continues to raise the retirement age. Right now a person born in 1946 isn't eligible for full retirement until the age of 66.

  • Report this Comment On October 19, 2010, at 6:05 PM, TMFHousel wrote:

    "There are an increasing number of people the age of 65 due to the Baby Boom."

    Note, though, that the chart is the *percentage* of this demographic that's in the workforce, not the raw number.

  • Report this Comment On October 19, 2010, at 7:11 PM, reagan0 wrote:

    Looking at the graph, the trend appears to start around the year 2000. Does the date, April 14, 2000, mean anything to anyone? That was the date that changed the lives, and futures, of many people -- myself and a lot of baby-boomers, included.

    By the year 2000, most boomers were over 40. Anyone who's out of work after age 40 is going to find it difficult to find employment that is suited to their experience and skills. Many find themselves under-employed at a critical time of their lives -- and must accept the real probability that they'll be working until they keel over. No retirement. Period.

  • Report this Comment On October 19, 2010, at 9:07 PM, mythshakr wrote:

    I tell my co workers and friends over 40 if you are not saving the max you are allowed in your 401k/IRAs you are so screwed when it comes to retirement. If you are not learning how to manage and invest your savings actively you are probably just about as screwed. Many say their house is their only retirement because their expenses eat up any operating funds for savings. They are so screwed.

    It's pretty plain looking back that our elected leadership sold the average workers retirement down the river at the altar of the financial services industries during the 80's. The only impact that was cared about was to the business community that was allowed to walk away from traditional pension plans. No consideration was given to the individuals who had no clue the personal implications of this action.

  • Report this Comment On October 19, 2010, at 9:25 PM, LazyOldMan wrote:

    As a boomer, I expected to live longer and to need the extra money to support myself. I know several people who work not for the money, but for the medical insurance. The real world looks a lot different when you are young and healthy. But, the point made above about having income means I can buy things I couldn't afford if I were not working right now... is really true, too. I found the article presented some interesting information that I really hadn't thought about. But getting more people working isn't the whole answer. People need to be able to produce enough work to increase the net worth of the society. That is a huge problem with the current economic situation.

    I have lived long enough to think we as a society can come out of this, again. But, there will be changes in the society that have to happen... including maybe we all have to work until we die to generate the wealth to pay for what our politicians are spending today. And to pay our bank executives what they feel they deserve in remuneration ($144 billon last year). The Gordon Gecko ethical standards of the current financial leaders in the country may be enough to sink us all in the end anyway. I just hope we don't go that way.

  • Report this Comment On October 19, 2010, at 9:37 PM, xetn wrote:

    Perhaps you didn't think about the declining purchasing power of the dollar as having any impact.

    Just as a case in point, in 2010 you would need at least $126.85 to purchase what $100.00 would have provided in 2000. This is using the Fed's own CPI inflation calculator: http://data.bls.gov/cgi-bin/cpicalc.pl , which may or may not be reflective of real life. (They manipulate the real effects of inflation). So, the above illustration probably is low and provides much incentive for seniors to stay in the workforce.

  • Report this Comment On October 19, 2010, at 9:44 PM, anniebigtits wrote:

    Rosie the riveter and Hitler!

    Thank god she was busy

  • Report this Comment On October 19, 2010, at 9:57 PM, wtatm wrote:

    Morgan,

    Great article... and a great graph.

    As a life insurance actuary, I have watched with increasing dismay, as the demographics of Social Security have gotten increasingly out of whack with reality, due to political manipulation. When Social Security was introduced in 1935, the retirement age was 65... and life expectancy was 62. Today, the government has only raised retirement to age 66+ (eventually 67)... while life expectancies are nearing 80. This is the major reason that FICA taxes were 1% of the 1st $3,000 of wages in 1935... and 6.2% of the 1st $106,000 or so in wages today.

    Your graph underscores a scary reality. When the rate began increasing from 12% in 2000, everyone in that 12% was born in 1935 or prior. The workers in that group... mainly folks born in the late 20's and early 30's, were born during a "baby bust". The 18% figure today includes no one from the "baby boom", which began in 1946. Those folks begin turning age 65 in a couple months.

    If the 18% figure holds going forward, 18% of a far larger cohort of people will decide through choice (many still want to work) or need (have to work) to stay in the workforce. This will put further pressure on our economy to create enough jobs to lower unemployment. It's an uphill battle.

    Again, thanks for the insight into an additional contributing factor to our high unemeployment.

    Jim

  • Report this Comment On October 19, 2010, at 9:58 PM, techy46 wrote:

    Wow. Couldn't it be that globalization and productivity increases (read automation) now allows fewer workers to produce the necessary goods and services thus enterprises can become leaner. Many obsolete industrial and service jobs will never come back but newer jobs will require more current technical skills (old fields vs wind farms). We shouldn't look to blame someone else for our own ignorance or laziness.

  • Report this Comment On October 20, 2010, at 1:48 AM, SvjatojDurak wrote:

    Leading edge boomer here - I turn 64 in a couple of months. Beyond the issue of demographics and the issue of "do I have enough", there has been a sea-change of perspective on "retirement" among many of my age-mates and me". Success is not reaching retirement age with $1.5 million in the investment accounts (which, admittedly few will) - success is doing something meaningful with your life - all of it. So, I'll continue to "work" - hopefully contributing to the world - until I get too sick and/or feeble to do so.

  • Report this Comment On October 20, 2010, at 9:37 AM, Jbay76 wrote:

    I think this article would have been better if there was a breakdown in sectors. It is typical that over 65 age workers are found in academic/research settings, jobs like Wal-Mart. I also agree with Akutach that the wording of the title of this article is in poor taste. This is America, and when/if I turn 65 and still want to work, I should have the freedom to and if you don't like, go to another country and push that blame-game crap!

    i only read this article because I wanted to confirm my suspicion of what was written, not because I thought it provided any benefit to us readers. I was right.......

  • Report this Comment On October 20, 2010, at 9:55 AM, ficklevoter wrote:

    I'll be 66 in Dec and I expect to work another year or two due to the cost of education. I expected my daughters' Bachelor degrees to cost about five times what mine cost but my older daughter, at the same university that I attended exactly thirty years earlier, paid fifteen times what I paid.

    Thanks for the good writing. The title is fine, too. Anyone who is offended is too sensitive to work for an employer in the US in 2010.

  • Report this Comment On October 20, 2010, at 10:21 AM, TMFHousel wrote:

    "I think this article would have been better if there was a breakdown in sectors. It is typical that over 65 age workers are found in academic/research settings, jobs like Wal-Mart."

    I'm not sure why the type of job would matter, and I'd like to see evidence of the latter.

  • Report this Comment On October 20, 2010, at 10:22 AM, TMFHousel wrote:

    "The title is fine, too. Anyone who is offended is too sensitive to work for an employer in the US in 2010."

    Ha, awesome! And I mostly agree ...

  • Report this Comment On October 20, 2010, at 10:23 AM, TMFHousel wrote:

    "Wow. Couldn't it be that globalization and productivity increases (read automation) now allows fewer workers to produce the necessary goods and services thus enterprises can become leaner."

    Yes. But I'm not sure how leaner payrolls and a lesser need for American employees would cause older workers to work longer. The opposite, you'd think.

  • Report this Comment On October 20, 2010, at 10:32 AM, feelingsfoolish wrote:

    Worked steadily since college graduation in 1972. Weathered recessions, corporate downsize fads, employers offering no benefits, influx of cheap labor. Saved what I could, started an IRA in 1981, took advantage of every 401(k) offered. Finally landed a job that lasted almost 15 years that provided decent income for the last three despite a 25% reduction beginning early in 2007. Company closed at the end of 2009, I haven't found an employer willing to take me on at ANY price since. I neither want to nor can afford to retire; patiently waiting for SSA benefits to begin in 6 months (I EARNED what I'll collect) while my savings goes for health insurance at $1,000 per month until I qualify for Medicare. YES I'd LOVE to be one of those 60+ folks the essay speaks of in the workforce today but even with my resume, work history and multi-faceted background I can't find a job....

  • Report this Comment On October 20, 2010, at 11:16 AM, mtf00l wrote:

    Still waiting for the discussion of why companies scraped pensions...

  • Report this Comment On October 20, 2010, at 11:27 AM, TMFHousel wrote:

    "Still waiting for the discussion of why companies scraped pensions..."

    I think a succinct answer is this: they can't afford them. It's too easy and too tempting to push obligations into the future. Once that future arrives, the bills that come due can be catastrophic.

  • Report this Comment On October 20, 2010, at 12:03 PM, devoish wrote:

    So lower the retirement age to 60, provide four years of college and collect SSI taxes on all income, including investment, to pay for it. Not just the first 100k.

  • Report this Comment On October 20, 2010, at 1:08 PM, mtf00l wrote:

    @TMFHousel

    Thank you for the succinct answer. I tend to agree. That said how again are 401(k) accounts suppose to replace pensions when the same employers are reducing salaries while prices are rising?

  • Report this Comment On October 20, 2010, at 1:15 PM, Borbality wrote:

    all I know is that, as a younger person, I am not even going to have any hopes of selling my house for a bigger one or having more than one child, especially considering I hope to retire before I turn 60. Times are a changin for real. No debt is going to be the only way to do it, and this is still wishful thinking.

  • Report this Comment On October 20, 2010, at 1:16 PM, katalinvn wrote:

    Oh my ! One can't win! 60+... 70+....blame it on the old folks ! Yes, I stopped working at age 71 and would be still working, but i lost my job in 2008. So did i help the job market ? Did a younger person got my job ? No, it went to India...there ....somebody DID get my job and it is not even paying FICA or us taxes .

    Now that i am forced to be on Medicare all i hear is how society can't afford to sustain Social Security or Medicare .

    There a couple of reasons why i and many older people want to work:

    a - i am good at my job with an excellent work ethic

    b - Did NOT want to be on Medicare

    c - Perhaps leave a little money for the grandchildrens' education.

    Additionally to my job i also lost half of my 401K.!

    You know what ? I am still not ready for belladonna .....

  • Report this Comment On October 20, 2010, at 2:09 PM, Turfscape wrote:

    Amazing how the point of an article can be so easily missed (as the comments show). Folks, the concern here is not "Old folks suck and need to quit their jobs"...the concern is that we are poor savers and investors.

    Morgan, I agree. As a whole, financial education is sorely lacking all across the U.S. This didn't matter nearly as much when we had defined benefit retirements. You could know how much to expect and have a reasonable expectation of your quality of life, based on that benefit.

    In the 21st century, we have much to learn. One of those things is financial education. We need to ACTIVELY teach our children about investments and savings. We cannot rely on our insurance rep, company benefits coordinator, the guy who comes in to give a seminar about the company 401k plan, or Jim Cramer to provide for our retirement. And, unless we actively teach our children about long-term strategies, holding a cash reserve, compound interest, and the difference between a stock broker and a CFP, they too will be forced to look for work when they are 70 years old.

  • Report this Comment On October 20, 2010, at 2:11 PM, TMFHousel wrote:

    Thank you, Turfscape. I do feel like I could have done better on the headline, but .... the amount of people who go from the headline straight to the comment section never fails to amaze me. Not just on this article, for even this website, but media in general.

  • Report this Comment On October 20, 2010, at 2:12 PM, TMFHousel wrote:

    err, should have been " *or even this website "

  • Report this Comment On October 20, 2010, at 2:56 PM, mtf00l wrote:

    Awesome, I've now read the article several more times and don't see the "financial education is lacking" anywhere. What I do see in paragraph 7 + or - is

    "Bottom line: Many self-directed plans simply haven't been sufficient ways to finance retirements."

    err, does that sound about right?

  • Report this Comment On October 20, 2010, at 3:17 PM, katalinvn wrote:

    Turfscape, i did not miss the point.... Perhaps we are a bit touchy these days (old folks) since there is so much written about what society can and can not afford. I did not mean to dump my anger at anyone.....perhaps not enough is written and spoken about how the jobs disappear and not because of 'productivity' gains. As a former IT professional for a very large company i know where the jobs went (not only mine but thousand of others ).

    I am an old lady who came to this country from central europe in 1960 and did very well . Worked hard, earned good money and have no financial worries per se. What worries me is not the lack of financial literacy of our chidren and grand children

    but how well they get prepared to compete in the global workplace and earn a decent living wage.

  • Report this Comment On October 20, 2010, at 3:26 PM, mtf00l wrote:

    @katalinvn

    Well written! Good for you.

    I've blogged elsewhere, jokingly, that we need to use our military might to enforce a global minimum wage. What do you think about that. =D

  • Report this Comment On October 20, 2010, at 4:16 PM, unix04 wrote:

    Turf, financial education is one of the vital underlying points, but it's pretty clear this article was written to suggest a source for our high unemployment rates, which the author of the article attributes to the expanding workforce of people over the age of 65. Whether the comments hit the nail on the head is a different matter, but they were generally going in the right direction.

    Mr. Housel, I took a look back to the 2009 census to get a better idea of your proposal:

    http://www.census.gov/compendia/statab/2010/tables/10s0588.p...

    The rate you posted from 2000 to 2010 is pretty consistent with the numbers in the census report (around 4 million jobs in 00' to around 6 million in 08). Being 2010, the job differential would be somewhere over 2 million jobs. To adjust for population increase of people over 65, you could argue that they may be taking up to 2.5 million jobs since 2000. (the number may be on the generous side, but not outrageous)

    Given that the current number of unemployed people hover around 15 million, we are looking at about 15% of the unemployed population. If we were to flush those 2~2.5 million seniors out of the workforce, and replace them with the unemployed, our unemployment rate may be effectively hovering in the 8~8.5% range.

    This is still quite high in my opinion. At best, if seniors moved on into retirement without working, it would have helped ease unemployment here and there, but taking into account people who work part time jobs (that should be working full time), people who have given up on the job hunt and people who's benefits have run out (and get dropped from the statistics), I can confidently argue that the seniority have a small impact on our current countries' unemployment woes.

    I do not believe they are anywhere near the cause of high unemployment, or even a major factor in it. Debt, credit deflation, liquidity issues and contraction of jobs gained during the bubble are more likely to be factors than seniors taking up jobs that the younger generation would take.

    On a more interesting and final note, the labor participation rate of seniors were close to 50% in the late 40's, but the unemployment rate hovered between 4~5.5%. But what do these rates mean anyway? =)

  • Report this Comment On October 20, 2010, at 4:26 PM, TMFHousel wrote:

    "On a more interesting and final note, the labor participation rate of seniors were close to 50% in the late 40's, but the unemployment rate hovered between 4~5.5%. But what do these rates mean anyway? =)"

    False. It was 25% in 1948. And the overall (all ages) participation rate was much lower back then (58% then vs. 65% today) because of fewer women in the workforce. Also, the unemployment rate was nearly 7% in the late '40s.

  • Report this Comment On October 20, 2010, at 4:54 PM, unix04 wrote:

    I stand corrected on the participation rate. The graph at 50% was for men. But I'll stick with the unemployment rate:

    ftp://ftp.bls.gov/pub/special.requests/lf/aat1.txt

  • Report this Comment On October 20, 2010, at 4:55 PM, Turfscape wrote:

    unix04 wrote:"this article was written to suggest a source for our high unemployment rates, which the author of the article attributes to the expanding workforce of people over the age of 65."

    Because...they can't afford to retire! Point is that there has been a shift from reliance on a defined benefit retirement plan to a contributory, self-directed retirement plan. A good size hiccup occurs in the economy, and self-directed plans are suddenly worth 25% of what they were worth 5 months prior. Ooops, guess it's back to work for Grandma Scape.

    You can't just hand someone a retirement plan and say "okay, you're in charge...don't screw it up". There has to be some very solid understanding of finance and investment practices. This also outlines my hesitation to sign on to the "abolish Social Security and let me invest it myself" bandwagon. Yes, that might work for me...but it won't work for society as a whole. And we are all a part of a society. We are not a collection of islands that don't have any impact on each other.

    So, the article (and my comments) are not complaining that 'old folks' are taking up jobs...it's that folks that would be retired are being forced to compete for jobs to make ends meet. That's not a good thing...

  • Report this Comment On October 20, 2010, at 5:00 PM, mtf00l wrote:

    @Turfscape

    "it's that folks that would be retired are being forced to compete for jobs to make ends meet."

    Now that i agree with...

  • Report this Comment On October 20, 2010, at 5:09 PM, unix04 wrote:

    Turf, to each his/her own, but when you start/finish your article on the topic of unemployment, the reader is generally lead to believe it's about unemployment. Your point may be the most meaningful point in the article, but financial education takes up little space in the entire article.

    The author could have certainly focused on the topic of education and expanded on it, but taken into context of the entire article, lack of financial education is more a support for the argument than the argument itself.

    If the article was meant to discuss lack of financial education, it could've been executed better. (No offense to Mr. Housel)

  • Report this Comment On October 20, 2010, at 5:12 PM, unix04 wrote:

    Actually, I withdraw my comment. I shouldn't be posting after lunches. I understand your point Turf =)

  • Report this Comment On October 20, 2010, at 5:14 PM, TMFHousel wrote:

    "If the article was meant to discuss lack of financial education, it could've been executed better. (No offense to Mr. Housel)"

    But it wasn't. And no offense taken :)

  • Report this Comment On October 20, 2010, at 9:30 PM, Eliz1000 wrote:

    I've known people to have enough to retire but not enough to cover their medical care before medicare becomes available. Insurance is high and is often not covered once retired, especially for those who haven't stayed with one company for at least twenty years. Now with present health care rules who would dare retire without private health care insurance? Public health care seems to dismiss plans for helping sustain an older person.

  • Report this Comment On October 21, 2010, at 1:35 AM, mullaroundman wrote:

    Thanks Housel! The analogy to being on a conveyor belt is amusing. I hope those Hidden Gems guys will help me get off of it before I reach 65. Please keep your observations and thoughts coming.

  • Report this Comment On October 21, 2010, at 2:13 AM, PoundMutt wrote:

    Not enough to retire on? Fear Not! Obama and Pelosi will confiscate

  • Report this Comment On October 21, 2010, at 2:21 AM, PoundMutt wrote:

    ALL investments (INCLUDING IRAs and 401(k)s), set up the UNIVERSAL PEOPLE'S RETIREMENT PLAN, and pay each according to his need as determined by the Democratic Socialist Party (the DONKEY Party!)

  • Report this Comment On October 21, 2010, at 9:23 AM, bbrockva wrote:

    "...40% of workers are delaying retirement because they worry about how they'll pay for it." May not be because they saved insufficiently, may be because of the Great Recession.

  • Report this Comment On October 21, 2010, at 11:03 AM, mtf00l wrote:

    As long as I can get my Air Jordan's and a Speedo for less than $100 I wont need a 401(k)! =D

  • Report this Comment On October 21, 2010, at 2:18 PM, fug57fug wrote:

    "As unemployment increases and companies lay off based on seniority, the average age of workers will increase without any change in actual retirement age."

    Not every employer is union (yet). In the rest of corporate America, companies lay off the older, higher paid employees first and keep the younger and cheaper. Further, most union positions in the US are government employees and exempt from layoff.

    This acts to actually lower the average age. The chart shown acually understates the problem for this reason.

  • Report this Comment On October 21, 2010, at 10:09 PM, topsecret10 wrote:

    How about considering this... It will cost you $9.06 to buy what $1.00 did In 1950 ! http://data.bls.gov/cgi-bin/cpicalc.pl Thats an Increase of 806% ! http://www.marshu.com/articles/calculate-percentage-increase........... and by the way,how much have real wages gone up (adjusted for Inflation ? ) How much do you pay IN TAXES now compared to 60 years ago ? Lots more to this than your simple little chart.... TS

  • Report this Comment On October 22, 2010, at 12:12 AM, TMFHousel wrote:

    topsecret,

    "and by the way,how much have real wages gone up (adjusted for Inflation ? )"

    Real (adjusted for inflation) disposable income per capita has nearly tripled since the late '50s.

    http://research.stlouisfed.org/fred2/series/A229RX

    "How much do you pay IN TAXES now compared to 60 years ago ?"

    Marginal tax rates are a fraction of what they were 60 years ago.

    http://www.fool.com/investing/general/2010/10/06/warren-buff...

  • Report this Comment On October 22, 2010, at 12:16 AM, TMFHousel wrote:

    Sorry, looks like that link doesn't work. Here it is:

    http://tiny.cc/0ezox

  • Report this Comment On October 22, 2010, at 12:57 AM, topsecret10 wrote:

    Fair enough,so that means that we are still down 500% !! :)

  • Report this Comment On October 22, 2010, at 12:59 AM, topsecret10 wrote:

    Pretty cool calculators though.... TS :)

  • Report this Comment On October 22, 2010, at 8:32 AM, TMFHousel wrote:

    No, we're not down 500%. Real -- that's *after* inflation has been taken into consideration -- incomes have tripled since the '50s. The calculations you're looking at are nominal. Nominal incomes are up over 10fold since the '50s. Factor out the 8x inflation you mention, you you get several hundred percent real growth.

  • Report this Comment On October 22, 2010, at 11:03 AM, Turfscape wrote:

    Morgan wrote:"No, we're not down 500%. Real -- that's *after* inflation has been taken into consideration -- incomes have tripled since the '50s."

    Bah! You keep messing up perfectly good, self-serving opinion with your obnoxious facts! I'm tired of all this fact-based rebuttal...I'm turning on Fox News.

  • Report this Comment On October 22, 2010, at 11:28 AM, topsecret10 wrote:

    TMFHousel wrote Morgan wrote:"No, we're not down 500%. Real -- that's *after* inflation has been taken into consideration -- incomes have tripled since the '50s."

    You fail to recognize that REAL WAGES have not kept up with Inflation. If you add the price of FUEL Into the mix,then we are coming up with REAL numbers.... How could the economy so drastically affect Social Security?

    Three economic factors directly affect the financial stability of the Social Security Trust Funds: inflation, wage growth, and employment. As Chart 1 shows, these three factors performed relatively consistently in the 1950s and 1960s, but changed drastically in the 1970s.

    Inflation, which drives benefit costs, increased significantly in the late 1960s. But instead of returning to what was then viewed as the more "normal" level of the 1950s and early 1960s, inflation soared in the 1970s, ultimately reaching double digits and averaging close to eight percent over that period.

    Typically, high inflation is accompanied by low levels of unemployment. But the 1970s proved to be a decade of "stagflation" during which both inflation and unemployment were high.

    What happened with wage growth? In general, higher average wages are good for Social Security, because more taxes flow into the Trust Funds. But it is not the absolute level of wage growth that is important; it is the relationship of wage growth to inflation that is critical.

    As Chart 1 shows, wage growth in the 1950s was more than double that of inflation. In the 1960s, wage growth again outstripped inflation by a wide margin. In the 1970s, however, it actually fell short of inflation.

    As inflation drives up benefit costs, wages (and the taxes thereon) must grow to pay for benefits. The adequacy of financing for the 1972 law relied on the assumption that wage growth would continue at a rate roughly twice that of inflation. When wage growth failed even to match inflation in the 1970s, it resulted in a badly under-financed Social Security program.

    Unfortunately, this was not a temporary aberration. While inflation was expected to decline, actuaries were no longer willing to make long-range projections based on the assumption that wage growth would outstrip inflation as it had in the 1950s and 1960s. Under these conditions, the method of calculating initial benefits based on a combination of wage growth and inflation inevitably resulted in benefits growing faster than revenues.

    For those already on the rolls, the new law worked as expected: Changes in benefit levels reflected inflation. For new beneficiaries, however, initial benefit levels grew faster than wage levels. As a result, the percentage of wages replaced by Social Security benefits would increase from year to year, eventually rising to the point that many new beneficiaries would receive benefits higher than their earnings before retirement - a condition that is as unreasonable as it is unsustainable.(18)

    http://www.ssa.gov/history/notchfile1.html

  • Report this Comment On October 22, 2010, at 11:31 AM, topsecret10 wrote:

    Commerce Department data released today show that the share of national income going to wages and salaries in 2006 was at its lowest level on record with data going back to 1929.[1] The share of national income captured by corporate profits, in contrast, was at its highest level on record.[2]

    http://www.cbpp.org/cms/?fa=view&id=634

  • Report this Comment On October 22, 2010, at 11:35 AM, topsecret10 wrote:

    In 1938 Congress enacted the federal minimum wage, originally setting it at 25 cents per hour, as part of the Fair Labor Standards Act (FLSA). From the beginning, it was clear that the minimum wage would have to be raised periodically to keep up with rising prices and wage levels. Original proposals for the FLSA provided for a commission that would set the minimum wage after a public hearing and consideration of cost-of-living estimates provided by the Bureau of Labor Statistics (BLS). By this procedure, the wage would have been updated according to changes in the standard of living and inflation. The version of the FLSA that became law, however, left action on future increases to Congress and the president.

    This inherently political system has, not surprisingly, led to inconsistency in maintaining the value of the minimum wage. Depending on the dominant political philosophy of the times, the minimum wage has trended up or down in its inflation-adjusted value. The trend since its peak in 1968 has been downward, and the current wage of $5.15 is the lowest in 50 years

    http://www.epi.org/publications/entry/bp177/

  • Report this Comment On October 22, 2010, at 11:38 AM, TMFHousel wrote:

    "You fail to recognize that REAL WAGES have not kept up with Inflation."

    No, real wages *are after inflation*. After inflation. Post inflation. Sans inflation. Beyond inflation.

    If you disagree, tell me how much inflation has gone up -- including fuel, as you point out (even though that's already factored into CPI) -- and show me how that's outstripped nominal income growth over the past 60 years by a factor of five.

    Or how about this: nominal income has grown 10-fold since 1958. Can you show me what aggregate price index has grown 50-fold?

  • Report this Comment On October 22, 2010, at 11:38 AM, topsecret10 wrote:

    Turfscape Some FACTS are above you... TS

  • Report this Comment On October 22, 2010, at 11:49 AM, topsecret10 wrote:

    http://www.usinflationcalculator.com/ How does the US Inflation Calculator work?

    The US Inflation Calculator measures how the buying power of the dollar has changed over the years by using the latest Bureau of Labor Statistics (BLS) inflation information provided in the Consumer Price Index (CPI).

    A few examples provide a walk through of how the calculations are performed using the CPI.

    Example 1:

    Let’s say you spent $20 to buy some goods or services today. How much money would you have needed in 1980 to buy the same amount of goods or services?

    The CPI for 1980 = 82.4

    The CPI for 2008 = 218.8 (June 2008 CPI used)

    The following formula is then used to calculate the price:

    2008 Price x (1980 CPI / 2008 CPI) = 1980 Price

    Using the actual numbers:

    $20.00 x (82.4 /218.8) = $7.53

    Example 2:

    Let’s say your parents told you that in 1970 a movie ticket had a cost of 50 cents. How could you tell if movies have increased in price faster or slower than most goods and services? To convert that price into today’s dollars, use the CPI.

    The CPI for 1970 = 38.8

    The CPI for 2008 = 218.8 (June 2008 CPI used)

    The following formula is then used to calculate the price:

    1970 Price x (2008 CPI / 1950 CPI) = 1970 Price

    Using the actual numbers:

    $0.50 x (218.8/38.8) = $2.81

    Today, a movie ticket in the US will usually run at least $7. The price of a movie has increased faster than other goods or services in the US.

  • Report this Comment On October 22, 2010, at 11:53 AM, topsecret10 wrote:

    CORE CPI Is what you should be using. It,s what the Federal Reserve uses when establishing monetary policy :) Core inflation, or core CPI, is important because this is what the Federal Reserve looks at to decide whether or not to change the Fed Funds rate. Core inflation is simply the BLS's Consumer Price Index (CPI) minus food and energy prices.

    The Fed uses the core CPI because food and energy, specifically gasoline, prices are so volatile month-to-month. On the other hand, the Fed’s tools are so slow-acting. It can take six - 18 months before the effect of a rate change can trickle down into the economy.

    For example, inflation increases during the summer, when gas prices increase due to the vacation driving season. However, the Fed would not want to increase interest rates every summer. Instead, it must wait to see if those increases drive up the prices of other goods and services.

  • Report this Comment On October 22, 2010, at 11:53 AM, TMFHousel wrote:

    The calculator you use shows inflation of 7.5-fold. Nominal wages have grown 10 fold. Hence real growth.

    thanks for the debate.

  • Report this Comment On October 22, 2010, at 11:58 AM, JestYourFool wrote:

    Being a young baby-boomer, I am definitely concerned about my ability to retire. Right out of high school, I worked for a university as a secretary. However, I was "smart"; I went to college. Now school friends have 30 years with the university and are retiring from the state retirement plan, receiving 90% of their income with complete health benefits. I really wonder who was "smart"!

    One of my biggest concerns is that social security will reduce payouts to almost nothing. Did I recently read that the government is enticing employers to hire people by allowing them to forego paying their 7.5% of social security taxes? If so, they are raiding a fund that should be completely off limits for anything but social security payments!

  • Report this Comment On October 22, 2010, at 11:59 AM, topsecret10 wrote:

    1950 Pittsfield Massachusetts

    9 room modern brick home 2 bedrooms large living room

    $11,500

    Lets see, I wonder If the price of houses has affected peoples paychecks through the years.. :) TS

  • Report this Comment On October 22, 2010, at 12:06 PM, topsecret10 wrote:

    What we would very much like is an estimate as to what percentage of productivity gains is accruing the say, the bottom 85% of workers. This is because real wages on average have not gone up since 1973. .... http://counterecon.com/2009/08/13/productivity-benefits-not-...

  • Report this Comment On October 22, 2010, at 12:07 PM, topsecret10 wrote:

    Show me a chart or link that says nominal wages have gone up 10 fold..... TS

  • Report this Comment On October 22, 2010, at 12:11 PM, topsecret10 wrote:

    12 Benefits of Hiring Older Workers

    Looking for dedicated, focused, loyal employees? Your search is over. 1. Dedicated workers produce higher quality work, which can result in a significant cost savings for you. Stories abound of highly committed older workers finding others' potentially costly mistakes regarding everything from misspelling of client names to pricing errors and accounting mistakes.

    2. Punctuality seems to be a given for older workers. Most of them look forward to going to work each day, so they're likely to arrive on time and be ready to work.

    3. Honesty is common among older workers, whose values as a group include personal integrity and a devotion to the truth.

    4. Detail-oriented, focused and attentive workers add an intangible value that rubs off on all employees and can save your business thousands of dollars. One business owner I know once told me that one of his older workers saved his company more than $50,000 on one large mailing job. The 75-year-old clerical worker recognized that all the ZIP codes were off by one digit. Neither the owner's mailing house nor his degreed and highly paid marketing manager had noticed it.

    5. Good listeners make great employees because they're easier to train--older employees only have to be told once what to do.

    6. Pride in a job well done has become an increasingly rare commodity among younger employees. Younger workers want to put in their time at work and leave, while older employees are more willingly to stay later to get a job done because of their sense of pride in the final product.

    7. Organizational skills among older workers mean employers who hire them are less likely to be a part of this startling statistic: More than a million man hours are lost each year simply due to workplace disorganization.

    8. Efficiency and the confidence to share their recommendations and ideas make older workers ideal employees. Their years of experience in the workplace give them a superior understanding of how jobs can be done more efficiently, which saves companies money. Their confidence, built up through the years, means they won't hesitate to share their ideas with management.

    9. Maturity comes from years of life and work experience and makes for workers who get less "rattled" when problems occur.

    10. Setting an example for other employees is an intangible value many business owners appreciate. Older workers make excellent mentors and role models, which makes training other employees less difficult.

    11. Communication skills--knowing when and how to communicate--evolve through years of experience. Older workers understand workplace politics and know how to diplomatically convey their ideas to the boss.

    12. Reduced labor costs are a huge benefit when hiring older workers. Most already have insurance plans from prior employers or have an additional source of income and are willing to take a little less to get the job they want. They understand that working for a company can be about much more than just collecting a paycheck.

    Any business owner who's hesitant to hire an older worker should consider these twelve benefits. Older workers' unique skills and values--and the potential savings to your company in time and money--make hiring them a simple matter of rethinking the costs of high turnover in a more youthful workforce vs. the benefits of experience and mature standards older workers bring to the mix. You simply do not have the time or resources to deal with high employee turnover. The next time you need to make a hiring decision, you should seriously consider older workers: Their contribution to your company could positively impact your bottom line for years to come.

    http://www.entrepreneur.com/article/167500

  • Report this Comment On October 22, 2010, at 12:22 PM, TMFHousel wrote:

    "Show me a chart or link that says nominal wages have gone up 10 fold."

    Punch in the dates 1958 and 2009. It's 10.9 nominal growth in hourly wages.

    http://www.measuringworth.com/datasets/uswage/result.php

  • Report this Comment On October 22, 2010, at 12:54 PM, Turfscape wrote:

    topsecret10 wrote:"Turfscape Some FACTS are above you..."

    Replace FACTS with statistics, and your statement will be accurate. Or replace FACTS with "facts"...

  • Report this Comment On October 22, 2010, at 1:19 PM, topsecret10 wrote:

    Turfscape I guess you can look at anything you want In black and white. You are missing my point completely,as well as the author. Nominal wage growth Is just one piece of a much larger puzzle. Failing to understand the bigger picture can cost you a lot of money as an Investor. If you choose to Ignore FACTS that are relevent to this particular discussion,you do so at your own peril as an Investor. I am here to further and broaden this discussion,not argue about who Is wrong or right about a certain economic reality. The author brings up good points,but fails to tie everything together In the real world economy. 6,000,000 people will lose their unemployment benefits In early November,do you think that nominal wage growth matters If It does not take Into account the UNEMPLOYMENT figures. REAL UNEMPLOYMENT Is around 20% so does this mean that we are making progress since NOMINAL wages are rising ?

  • Report this Comment On October 22, 2010, at 1:25 PM, topsecret10 wrote:

    Average annual growth rates (per cent) of real wages for male workers in manufacturing... 1860-2007 Growth rate 2.3% Golden age 1950-1973 3.8% Globalisation 1973–2007 1.1% http://www.riksbank.se/upload/Dokument_riksbank/Kat_foa/2010...

  • Report this Comment On October 22, 2010, at 1:57 PM, Turfscape wrote:

    topsecret10 wrote:"You are missing my point completely,as well as the author."

    Please, enlighten me on the author's point...

  • Report this Comment On October 22, 2010, at 4:23 PM, topsecret10 wrote:

    Turfscape I Said that you are missing MY point with regard to the article. Actually It Is obvious that you have not read anything that I said........ TS

  • Report this Comment On October 22, 2010, at 8:09 PM, WindupMan wrote:

    mtf00l wrrrote:

    "Also, a discussion on why companies no longer support pensions might be interesting as well.

    A 401(k) will rarely if ever work to replace a pension...."

    Spot on. We've gone from having professional fund managers handle our pensions, with more or less guaranteed payouts to now having each individual responsible for their own 401(k)s and IRAs.

    This sounds good in principle, but as we've seen, ALL of the risk is shifted to the individual, and many people are poor decision makers when it comes to money. A sure recipe for disaster...

    I wonder what percentage of these 65+ year-old workers are covered by a 'traditional' pension plan? I'm betting it's a small number.

  • Report this Comment On October 24, 2010, at 9:38 PM, slobko wrote:

    "The higher the participation rate, the greater the number of jobs needed to keep the unemployment rate down."

    Really? From the context, "Participation rate" here means the percentage of people older than 65 who are in the work force. If that rate is constant, then the number of jobs needed does not depend on the rate. Right? So it is the INCREASE in the participation rate that is the problem, not the size of the participation rate.

    So you should have said something like, "The faster the Participation rate is increasing, the more greater is the number of new jobs required to keep the unemployment rate down."

    Yes, that's harder to read, harder to understand, and less likely to emphasize your point. It has, however, the advantage of being correct.

    On another point, the birth rate also has an effect on unemployment. The change there has been larger and is a much bigger factor in our unemployment problems.

  • Report this Comment On October 24, 2010, at 9:41 PM, slobko wrote:

    Oooops. strike "more" from "more greater".....

    :)

  • Report this Comment On October 24, 2010, at 11:20 PM, TMFHousel wrote:

    slobko,

    Note that in the section you referred to I was quoting someone else. Also:

    "So it is the INCREASE in the participation rate that is the problem, not the size of the participation rate.?"

    Not really. If there are 100 people competing for 80 jobs, you'll have 20 unemployed. If 90 people compete for 80 jobs, you'll have 10 unemployed. The rate of change isn't a factor. It's the level.

  • Report this Comment On October 25, 2010, at 1:37 PM, Computerjockey wrote:

    Let's not forget the increase in the number of middle-class and higher women who are now part of the workforce compared to 40+ years ago. Not to mention the number of unemployed who refuse to take lower paying jobs and therefore remain unemployed. There is plenty of blame to go around, so why bother picking on one group?

  • Report this Comment On October 26, 2010, at 2:46 PM, snapperreef wrote:

    CJ, Anyone unemployed because they refuse to work for a given wage can't/shouldn't be included in the count.

    The dust up over the graph might better be looked at in terms of CAGR of the % of 65+ working. Over the time 1990-2000 it hangs at 1% or less, for 2000-2010 it jumps to ~34%.

    Having retired on a defined public pension + SS, I know I am better off than I have done with my IRA type savings--until the taxpayers wise up and vote to elect a legislature which will reduce my pension goodies.

    Mr. Housel, one of the reasons I choose not to work is that having become a Fool several years ago(pre 65) I spend most of my time reading articles like yours and learning from them, also books like those of Murray Rothbard,"America's Great Depression" and H Hazlitts, "Economics 101" from which I have learned that unemployment in recessions is almost solely due to interference of govt and/or banking. These 2 entities will allow wages to stay artificially high so that entrepreneurs cannot afford labor and must spend more in rent and capital.

  • Report this Comment On October 26, 2010, at 4:28 PM, toddjk wrote:

    Morgan -

    This is a great article, and you're being too hard on yourself. The title is fair and appropriate. The level of participation has gone up because the age group in question has been lousy savers and irresponsible consumers, building up debt they can't afford, using their homes as ATM's, and even being irresponsible family planners - i.e. having more kids than they could afford to raise.

    I read an alarming statistic recently - and I can't site the reference, but I'll bet you're familiar with it. Over 50% of people aged 55 and over have LESS than $25,000 saved for retirement. Not saved in a bank, but saved for retirement! These people will frankly need to work until they die or will have to go on government assistance. Talk about a calamity waiting to happen.

    The reality is the folks at the end of the conveyor belt you mention aren't able to get off, and so when someone who is 35 - has a family and a mortgage, who needs to work to raise his/her kids and provide for his family - gets laid off, while he should be able to slide into a position of someone getting off the conveyor belt, he can't get a job in a timely fasion because the guy that should be getting off the belt refianced his 30-yr. mortgage 7 times and still has 25 years left to pay, hasn't contributed at all to a 401k because it was more appealing at 40 to have a nicer car, or sent his kids to priviate school for high school and college, etc. Not everyone is irresposible, and some are less fortunate than others, but our economy is in large part driven by people buying things they can't really afford and probably don't need. Then at 60 they turn around and realize they've got nothing saved for retirement so they stick around at work while folks who have been laid off or recently graduated from college are out of luck. I'm lucky I'm not one of those people, but it could happen to anyone - and what we're finding out is that once you're shoved off the conveyor belt, it's hard to get back on - even harder to get back on at the same spot.

    Unfortunately we take our cues from our government - borrowing to get stuff we don't need or shouldn't buy, until there's no one left to borrow from and we're broke. It's not unfair to blame oilder workers for sticking around too long - for many of them, if they'd been smart, they could be enjoying their retirement instead of working through it, and the unemployment rate would go down. But unfortunately it's only getting worse...

  • Report this Comment On October 29, 2010, at 1:59 AM, tricktrack wrote:

    toddjk, your comment "... our economy is in large part driven by people buying things they can't really afford and probably don't need..." is probably true. But the flip side to that is how many people are employed making products or providing services that people can't afford or don't really need? How many have been laid off from those same fields once demand diminished?

    For all the anecdotes people can offer about how older people are lousy savers and irresponsible with money, there are an equal number of stories about people in their 50s and 60s raising their grandchildren because the real parents are either unfit or unwilling to do it. Perhaps they were foolish for putting their kids through college while making too much money to qualify for much aid, giving in when Princess insisted on having a $50,000 wedding, or covering their offsprings' behinds when they made stupid choices financially and otherwise.

    For many people, non-public schools were the only alternative to their local cesspool disguised as a center of education. Also, don't forget that because people married and had kids later, many people in their 50s aren't empty nesters yet.

    The point is, making generalizations about everyone born in an arbitrarily selected time frame isn't valid. Now, as far as the conveyor belt goes, I'd be perfectly willing to remove certain people in their 60's, 70's and above going for yet another term on Capitol Hill.

  • Report this Comment On November 02, 2010, at 7:50 AM, entrupn wrote:

    Morgan House, Needs to be put in a "house", 6 feet under the ground. What an ASS. To write an article like this. Our economy is a mess because of GREEDY companies, GREEDY insurance companies, GREEDY banks, and GREEDY politicians who cannot do thier jobs well or at ALL. This is something that you should know about , you stink at yours if this is an example of it. Middle aged people have to be able to survive TOO. And just like many many younger people VERY often extenuating circumstances happen to individuals so they are UNABLE to retire. We can only hope that these VERY nice, VERY qualified people who still need to work, don't every run into you or people with your thinking. BUT we know that they do everyday. You sir are a POS

  • Report this Comment On April 06, 2011, at 3:30 PM, castlepenn wrote:

    Thank you for posting this. I think that there is some truth to the claims above, especially since employers are much more likely to hire more "experienced" employees. This is also a great concern to me because I <a href="http://www.topdollarforyourproperty.com">owe more on my house than it is worth</a> and consequently am desperate for income!

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