Baby Boomers' Parents Would Envy Their Retirements

Helaine Olen does a lot of good exposing the dark side of the finance industry in her book Pound Foolish, but I can't get on board with this statement she made in a recent article: "For the first time in living memory, it seems likely that living standards for those over the age of 65 will begin to decline as compared to those who came before them."

Olen describes how most Americans don't have nearly enough money in their 401(k)s to retire. That much is true. But assuming this means retirees will be worse off than previous generations is one leap too far.

First, the IRA wasn't created until 1974, and the 401(k) didn't come about until 1978. If we're making comparisons to the past, forget about today's 401(k) balances being inadequate. A generation ago, they didn't even exist.

Now, we often hear that most workers in previous generations were covered by a pension. But that just isn't the case. According to the Employee Benefit Research Institute, pensions (both public and private) peaked in the early 1990s, when fewer than 4 in 10 Americans over age 65 were covered. Only a quarter of older Americans were covered in 1965. Today, it's around 34%. Pension income made up 20% of all income for Americans over age 65 in 2010. That's actually higher than the 15% recorded in 1975, according to the institute.

The real issue here is Social Security, since it's long been the backbone of most Americans' retirement and will continue to be for decades.

Listen to politicians, cable news hosts, and alarmist journalists talk about Social Security's future, and you get a universal message: The program is underfunded, it's going bankrupt, and cuts are inevitable.

There are simple ways to make Social Security sustainable, and in fact, the program has a promising history of implementing fixes when its solvency is in jeopardy.

But let's assume politicians sit on their hands, and nothing is done to fix Social Security. What happens to retirees?

Social Security is projected to hit a point around 2033 where it can only rely on payroll tax revenue to fund benefits. After that, it will be able to pay retirees about 75% of currently promised benefits until 2087.

A 25% benefit cut would be a political disaster, but it almost certainly wouldn't mean retirees would be worse off than their parents.

Consider the numbers we're talking about, here.

Initial Social Security benefits rise over time with a calculation tied to wage growth, not just inflation. That's allowed average real (inflation-adjusted) monthly benefits to double over the last half-century:

Sources: Annual Statistical Supplement to the Social Security Bulletin, 2012; Bureau of Labor Statistics.

If real benefits grow 1% annually (the trend rate over the last decade) between now and 2033, average inflation-adjusted monthly Social Security payout will be nearly $1,600 a month. At that level, a 25% cut would reduce real benefits to around $1,200 a month, or roughly to where they are today. Yes, the do-nothing, doom-and-gloom scenario envisions initial Social Security benefits basically staying flat over the next two decades. This is what passes for a "crisis" these days.

But this raises a question. If pension coverage is higher now than it was in the 1970s, if 401(k)s and IRAs didn't exist until three decades ago, and if Social Security benefits used to be lower, how did Americans used to retire?

The truth is, many of them didn't. They worked until they died.

The whole theory of retirement for all is a relatively new idea. You can see here, before World War II, the majority of American males age 65 and up were still active in the labor force. Previous generations of Americans worked into their 70s and beyond at levels we couldn't fathom today. The labor force participation rate for males over age 65 would have to fully double from where it is today -- meaning retirement in that cohort would have to fall by half -- before we return levels that prevailed in the 1960s and 1970s. Oddly, that's a nostalgic time some consider "the glory days" of American retirement.

We have to differentiate between things not getting better as fast as they used to and things getting worse. They are easy to conflate, but two very different things. For Boomers, the gap between "this isn't ideal" and "your living standards will be worse off than your parents" is pretty deep.

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

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  • Report this Comment On August 12, 2013, at 6:00 PM, MartyTheCanuck wrote:

    Very good article again.

    But there is a tremendous a gap between retirees with pensions ( mostly public-sector workers ) and those without ( ie those who are paying for public-sector workers pensions ). This is what excites many politicians and journalists. Especially when some get to retire much sooner than 65.

  • Report this Comment On August 12, 2013, at 6:02 PM, TMFHousel wrote:

    ^ But that gap has always existed. To make the argument that we'll be worse off than a previous generation it would have to be something new. It isn't.

  • Report this Comment On August 12, 2013, at 6:04 PM, RASiegfried wrote:

    Social Security is a PONZI Scheme. Get rid of Social Security put all the money in your own account and you would retire with millions in your own Account Exampe $5,000.00 a year for 35 years 10% = $1,490,635.00. $5,000.00 / 12.40% social security rate = Gross pay $40,322.00 to produce $5,000.00 of retirement fund money. 21 years old + 35 years= 56 years old with $1,500,000.00 retirement money. $1,500,000.00 in a 6% tax free bond = $90,000.00 a year / 12 = $7,500.00 a month for life and pass on the $1,500,000.00 to children to add to their retirement. Government is stealing from us for themselves.

  • Report this Comment On August 12, 2013, at 6:09 PM, TMFHousel wrote:

    <<in a 6% tax free bond>>

    Where do those exist?

  • Report this Comment On August 12, 2013, at 6:16 PM, Baaab wrote:

    Morgan, your figures do not include the impact of inflation on the purchasing power of these dollars. What would your graph look like if inflation was factored in?

  • Report this Comment On August 12, 2013, at 6:19 PM, TMFHousel wrote:

    Yes, as the chart notes, the figures are adjusted for inflation.

  • Report this Comment On August 12, 2013, at 7:02 PM, SkepikI wrote:

    Morgan- granted your memory may not extend this far, but 6% (and higher) tax free bonds existed for many years and will again after the Fed stops oppressing interest rates on bonds. WHICH I know you understand having written about it to yawns several times (me too)

  • Report this Comment On August 12, 2013, at 9:34 PM, kyleleeh wrote:

    @RA Siegfried

    In addition to the comment Morgan made I would like to add:

    1. How many 21 year olds do you think are making 40K a year?

    2. Where are you getting 10% as a long term average return?

  • Report this Comment On August 12, 2013, at 10:27 PM, RouteReflector wrote:

    <<Social Security is a PONZI Scheme>>

    Social Security is insurance; it's not an investment account. It follows the same general model as most other insurance setups in that people are paid with other people's money. If you want to consider it a Ponzi Scheme, in all caps or not, feel free, but say the same thing about your health insurance, homeowner's insurance, and car insurance.

  • Report this Comment On August 13, 2013, at 9:24 AM, MartyTheCanuck wrote:

    Morgan

    Your chart shows that the average monthly payment in SS increased 50% between 1975 ( 850$ ) and 2010 ( 1277$ ). How did the average public-worker pension increased in the same time frame ? Is the gap stable, increasing or decreasing ?

  • Report this Comment On August 13, 2013, at 9:57 AM, WPON1963 wrote:

    Positive article about social security. Fool.com provides a balanced perspective of the economy and investing. However, am saving like a mizer, just in case social security goes belly up.

  • Report this Comment On August 13, 2013, at 12:09 PM, SkepikI wrote:

    @kyleleeh-

    Well Morgan's comment was short term right and long term wrong.

    <How many 21 year olds do you think are making 40K a year?> All of the ones who worked hard enough to get an engineering degree instead of having a beer with their friends and being a barista....

    As far as 10% return long term, its hard to see how you do that looking forward, BUT I've been able to do better than that over 30 years looking backward. My ONLY complaint is I should have started younger....

  • Report this Comment On August 13, 2013, at 12:31 PM, astuber9 wrote:

    Morgan,

    Great article but I cannot figure out how the real benefits have increased so much in the last 15-20 years despite no growth in wages. From 1995 to 2010 your chart shows real benefits increased 24%. Real wages did not grow by that amount unless the media is also lying about that, can you explain that?

  • Report this Comment On August 13, 2013, at 3:19 PM, kyleleeh wrote:

    << All of the ones who worked hard enough to get an engineering degree instead of having a beer with their friends and being a barista....>>

    I've never met a 21 year old engineer in any field, nor have I met an employer who would hire a 21 year old into an engineering position unless they absolutely had to. Most 21 year olds are not even able to live on their own. All the demand for engineers in the whole world could not absorb even a quarter of the population in that age group, it's ridiculous to think that more then a fraction of us are going to be engineers.

    The fact remains that income for people in that age group is far from the amount RA Siegfried is using in his calculations to claim that we would all be millionaires by 56 if not for Social security.

  • Report this Comment On August 13, 2013, at 3:21 PM, TMFHousel wrote:

    Also keep in mind that if everyone became engineers, engineers' pay would fall through the floor. Similar to what's happening to those with law degrees right now.

  • Report this Comment On August 13, 2013, at 6:10 PM, SkepikI wrote:

    ^ Well, perhaps I exaggerate a bit but there are a whole lot of 22 year old engineers with BS degrees in Chemical, Mechanical, Electrical, Industrial etc that get hired every year fresh out of school for their skills and hard work at some university somewhere. Then there are the 21 year old Engineering Techs with 2 year degrees that get hired at starting salaries about 40k... If you never met any of these people, I can see why you have such opinions. They abound in nearly every industrial field. AND then there was my shipmate on a nuclear submarine who had a BS in Electrical Engineering from Purdue and graduated...wait for it - 21.

    If you have never met a 21 year old employed engineer, I can excuse you because it is rare. If you never met a hired working engineer with a BS degree at 22, which is not rare at all, you are just not looking....

    And Morgan, I've been told about that day for the past 40 years (ever since I graduated from yes, engineering school) It hasn't happened yet. The glut of engineers predicted for the 90's was just gobbled up and we kept right on needing more. The truth is there are a whole lot of people unwilling to work hard enough to graduate from an engineering program with a BS.

    The last time I checked the unemployment rate among engineers was something like 2%. So its no guarantee, but its pretty good odds....

  • Report this Comment On August 14, 2013, at 12:02 AM, kyleleeh wrote:

    << If you never met a hired working engineer with a BS degree at 22, which is not rare at all, you are just not looking....>>

    I don't think it's me not looking, so much as you living in the past. The average time to get a bachelors degree is 6 years nowadays. most 21 year olds are sophomores at best. I'm sure it wasn't this way back in your time, when there was not as much you needed to know and not as many hours that you needed to work to pay tuition, but times have changed.

  • Report this Comment On August 15, 2013, at 1:31 PM, bwbishop wrote:

    In 2012, the average starting salary for engineers was $59k. If you know an engineering making $40k, well, they have issues. Even back in my day when I graduated the average starting salary was over $50k (2005). Maybe if you factor in engineering grads in non-engineering jobs the average is down near $40k, but I doubt it.

  • Report this Comment On August 15, 2013, at 1:32 PM, bwbishop wrote:
  • Report this Comment On August 15, 2013, at 1:43 PM, bwbishop wrote:

    With regards to kyleleech's comment about the average degree taking 6 years, that is a very skewed comment. If you look at only the top 50 universities, 55.5% of students graduate in 4 years. Only once you add in all the lower-tier colleges does the average get that high. Smart people, at good colleges aren't taking that long.

  • Report this Comment On August 15, 2013, at 1:56 PM, mdk0611 wrote:

    I think you also have to distinguish between the parents of early boomers (1946-50) and late boomers (1960-64). Late boomer parents pretty much hit the sweet spot with respect to:

    * The % covered by defined benefit plans and with access to 401(k)s and IRA's

    * The age they are entitled to full Social security benefits, and,

    * What their level of SS benefits are compared to how much they paid into the system (although older boomer parent's score on this one as well).

  • Report this Comment On August 15, 2013, at 2:03 PM, kyleleeh wrote:

    @bwbishop

    Looking only at the top 50 universities would be the very definition of "skewed"

    " Smart people, at good colleges " do not make up more then a small fraction of 21 year olds.

  • Report this Comment On August 15, 2013, at 5:58 PM, Gorm wrote:

    A recent MW article says about half retiree age Americans are burdened with a mortgage and one third with credit card debt. That is a MAJOR hurt especially when you look at how poorly prepared are boomers, ie low amount of savings outside 401ks.

    Retiring on SS is not retiring!!

  • Report this Comment On August 15, 2013, at 6:02 PM, MikeinDenver wrote:

    @ RASiegfried You calculate the savings without SS at 12.4% but you and everyone else knows no employer is going to just start paying the employee that portion that was theirs under SS. So unless it was mandated by the government it isn't going to happen. And who has the money to lobby that doesn't happen..the companies that would most benefit from it. The only reason employers currently pay "their" share is because they are required. I would think you MIGHT see a small portion of that go to the employee but the rest is going to the company bottom line pure and simple. So in reality your calculation would require a salary more in the $60k range for your figures to come out. Among other things.

  • Report this Comment On August 15, 2013, at 6:14 PM, workhard1 wrote:

    I worked 32 hours a week & put myself through college in 4 years with a 3.96 GPA & had a $39,000 job secured before I graduation. Individuals that choose to accumulate significant debt & party their way to a 6 year B.S. just make different choices. Today I know which demographic I prefer to hire because I have data to proove which group generates more profit for my business. It is amazing how most of my employees also choose to max out their 401K contributions as well. Funny how resposibility tends toexhibit itself in many areas

  • Report this Comment On August 15, 2013, at 6:19 PM, cmalek wrote:

    "At that level, a 25% cut would reduce real benefits to around $1,200 a month, or roughly to where they are today."

    The implication being that the result would be something retirees could live with, or on. However, between now and 2033, the cost of living would have risen as fast, if not faster, than the average benefit.

  • Report this Comment On August 15, 2013, at 6:21 PM, TMFHousel wrote:

    cmalek,

    Those figures are adjusted for inflation.

    -Morgan

  • Report this Comment On August 15, 2013, at 6:45 PM, tbunzel wrote:

    With all due respect when my father reitred 30 years ago he was able to make a fair interest rate of 6% in the bank. Because such a rate is no longer available, thanks to the crooks on Wall Street, financial advisers have convinced me to take "reasonable risk" in order to earn the same return. MY conservative portfolio is down -- the reality is that money in the bank DOES NOT GO DOWN, which is the way retirement should work. Peace of mind and all that. So regardless of anything else, the crooked financial industry has screwed any retiress without real pensions. I should not have to "take risk" to live comfortably having saved my money. I can't really plan for the "long term" because if 2008 happens again my conservative fund could lose 20-30% So you're not must a Motley Fool, you're a damned fool.

  • Report this Comment On August 15, 2013, at 7:01 PM, LazyOldMan wrote:

    OK I am just sample of one boomer, but I just retired from an engineering job, My income will be close to 10K per month, I have invested in insured bonds, and preferred stocks that are paying a good yield and a few growth stocks. I really don't care what the bond market does because when the bonds mature I get the principal back and meanwhile I get the income. I have no debt, house paid off, recent car paid off. I expect to be able to get by just fine on this level of income. Yea I don't make as much money as I did, but it is enough. And, I am enjoying the time with the grandkids and going back to school. If you want a good retirement work for it. It isn't that hard or too late.

  • Report this Comment On August 15, 2013, at 8:27 PM, thedoge wrote:

    This whole Social Security privatization scheme is, in any case, an impractical hallucination. The Employee Benefit Research Institute (thanks for the link, Morgan; lots of solid information there) lists the issues that would be involved here: http://www.ebri.org/pdf/briefspdf/1198ib.pdf

  • Report this Comment On August 15, 2013, at 9:08 PM, paxmaker wrote:

    The substance of my retirement was based on a public sector retirement plan to a job to which I was recruited and in which I stayed with promotions for over 30+ years. Periodically, I along with others was counseled on planning for retirement with a guaranteed COLA after 3 years into retirement. Now, in retirement for 10 years, our legislature voted to approve a new retirement plan, which the governor signed into law, that effectively eliminates the COLA for at least 10 years and on a new base of only the first 25K. I can legitimately claim having had my retirement income cut, based on this taking of property, with no claim of bankruptcy be the state. This is in litigation, but gets no sympathy from the press of public, since class envy seems the viral game of the day.

  • Report this Comment On August 15, 2013, at 9:38 PM, twobeerjohn wrote:

    Let me tell you, inflation doesn't hurt that bad when you have your house and cars paid off. It makes it a lot easier to retire. Retirees who go into retirement with these bills will surely have a tougher time, but it is their own fault. I have never had a car payment in my life and haven't had a house payment since 1992. I'm 53 and stashing like crazy for retirement. Yahoo!!!!!!!!!!!!!!!!!

  • Report this Comment On August 15, 2013, at 10:39 PM, 2motley4words wrote:

    Morgan:

    The following remark is similar to one that I made a few months ago, but I'm compelled to make the point again because the comments to this article present the same issues that have attended the comments on several of your previous articles:

    What impresses me as much as your ability/willlingness to put the lie to conventional "wisdom" is your patient forbearance when faced with commenters who don't read (or perhaps read without comprehension) your article and then attack a straw man that they've constructed; you certainly show greater equanimity than I would were I in your stead.

  • Report this Comment On August 15, 2013, at 10:48 PM, khalidobeidat11 wrote:

    having unpaid fixed mortgage debt helps in hedging against inflation. I have low mortgage rate and I'm in no hurry to eliminate this hedge. I'd rather invest the money in a more rewarding investment and keep the hedge

  • Report this Comment On August 15, 2013, at 11:46 PM, matt2bu wrote:

    Mr.Housel drank the cool-aid so don't listen. There is no reason for working until you die if you are an American citizen. This should not be accepted as normal. US citizens are not getting, nor have they ever been compensated fairly from wealth generated from public domain, from the right to leverage the dollar to preferential interest rates and access to loans and bail-outs. Oh, by the way this is not communist thinking, rather clear thing.

  • Report this Comment On August 15, 2013, at 11:56 PM, Chontichajim wrote:

    Very accurate, but there are some other considerations not easy to quantify. My father did benefit from 500% appreciation in his home value which meant selling and moving north to Washington for retirement. Probably can't count on that anymore. Also as the retired generation becomes the most wealthy in an extended family, there is more support available to grandchildren. Hopefully they can avoid education debt using accounts opened for them by relatively wealthy grandparents.

  • Report this Comment On August 16, 2013, at 12:22 AM, Menogynjim wrote:

    Once again,this is pure fantasy. The reason SS goes up is to account for inflation. A 25% cut in 2033 would be very difficult to accept for retired people and leave them in dire straights.

  • Report this Comment On August 16, 2013, at 1:02 AM, Thror wrote:

    <<The average time to get a bachelors degree is 6 years nowadays. most 21 year olds are sophomores at best. I'm sure it wasn't this way back in your time, when there was not as much you needed to know and not as many hours that you needed to work to pay tuition, but times have changed.>> -kyleleeh

    What? I graduated 20 years ago, BSEE. I guarantee you that the way electricity works hasn't changed in all that time. A few of the senior level electives may have been updated (somewhat), but 95% of everything I learned still applies today.

    Not a lot of new tech has become popular during my career (I wish VHDL/Verilog design had been available). Things don't change as fast as you think, though (if you're lucky) your job will require you to pick up new skills every year.

    Look, even in "my day", plenty of people took 5-6 years to get it done, especially if you're working and can only manage part-time. But if your school makes it impossible to get it done in 4 years (36 months), given a full class load (16-20 credit-hours each semester), then they're milking students for more tuition, plain and simple.

  • Report this Comment On August 16, 2013, at 2:34 AM, ershler wrote:

    The oilfield is the place to go for young men to go to make alot of money. It requires average physical ability and less then average mental ability. I've met plenty of guys 21 and under making $80K a year with a highschool degree. They work 12 hour shifts for two weeks then two weeks off. The down sides are when you start you will be treated like crap for at least six months, the work is dirty and more dangerous then the average job and the schedule isn't great for family life.

  • Report this Comment On August 16, 2013, at 4:28 AM, kyleleeh wrote:

    << But if your school makes it impossible to get it done in 4 years (36 months), given a full class load (16-20 credit-hours each semester), then they're milking students for more tuition, plain and simple.>>

    no argument with you there. But you have to deal with the world the way it is, not the way it should be.

  • Report this Comment On August 16, 2013, at 7:40 AM, MrFinance223 wrote:

    Morgan, you make some very good points. However, I'm not sure how you can cound on a continued real growth in SS of 1% per year. Also, you did not factor into your analysis the higher cost of retiree health care chewing up more of their pension benefits, and the fact that retirees are living a lot longer than they used to.

  • Report this Comment On August 16, 2013, at 7:49 AM, TMFHousel wrote:

    <<the fact that retirees are living a lot longer than they used to.>>

    I address that point in this article. In short, retirees aren't living a lot longer than the used to. The increase in life expectancy over the last half-century has largely been a factor of lower child mortality.

    http://www.fool.com/investing/general/2013/05/02/the-biggest...

  • Report this Comment On August 16, 2013, at 7:49 AM, TMFHousel wrote:

  • Report this Comment On August 16, 2013, at 7:53 AM, Bobby44 wrote:

    Ah yes; the true secret to retirement -- start at 21 to think of 65! It did not happen to me and it will not happen to anyone else either.

    We must take responsibility for our own financial health as well as our physical health. That does not mean we will not use 'public' support in the form of SS and IRAs. We just can not rely on them or a 'public' pension. All of them are subject to political will nd out of our control.

    Life is choices. College, trade, labor, sales, crime. If you are not employable in 4 years you made the wrong choices. You can push reset anytime but the earlier you start - the better.

    Remember the 'have nots' vote and can influence the government to take from the 'haves' through pension reforms. Protect yourself outside of plans.

    So the 3 rules for a fine retirement - start early, prepare properly, protect yourself. (did I mention start early?)

  • Report this Comment On August 16, 2013, at 8:36 AM, writeridge wrote:

    Morgan,

    If you put $378 (1940's ssi payment) in the Bureau Labor Statistics CPI calculator, the inflation adjusted amount for 2010 is $5, 887.51. Seems like what the right hand giveth the left taketh away.

  • Report this Comment On August 16, 2013, at 9:43 AM, TMFHousel wrote:

    writerridge,

    Yes, precisely. Which is to say: 1940s inflation-adjusted average benefits where much lower than they are today. That's the point of the article.

  • Report this Comment On August 16, 2013, at 9:58 AM, wagz4me wrote:

    I agree with Bobby44....nobody I know was smart enough to start saving money in their 20's...myself included. As a 401K plan administrator, part of my job is to help employees get started investing in their plans....I've yet to come up with a way to explain to a 20-something that this is a good idea,

    So, we watch our parents work until they drop (mine did). We live in families where finances are probably not discussed openly (not in front of the kids!!!), and we learn from that example. I started saving in my 50's....NOT my 20's. I am retiring in two years at age 62, and I will use what SS can give me, and supplement that with other options.

    I didn't like the example my parents set for me, so I educated myself and made different choices. I will have achieved my goals at age 62: when I do finally stop working, I will not be able to buy a business, the house of my dreams or the freaking vineyard. BUT: I will have lots of love in my home, a reasonable car, food on my table, reasonable health, and a decent place to live-all debt free. I think that makes me richer than most, and for that I am so very grateful.

    The art of saving and managing money should be taught in schools.....most families can't handle the subject. Until we can learn how to adequately teach that (and deal with all the reasons why we can't teach it to some).....kids will only see what their parents do, and learn from that example.

    Great article, and quite a different perspective for sure...kudos to the author!

  • Report this Comment On August 16, 2013, at 10:39 AM, NozRydr wrote:

    retirement schmirement. Modern invention. Maybe not all it's cracked up to be.

    Work is good for the soul. So is some time off off but too much time off? /meh/

    Seen plenty of coworkers and friends hit it big and retire early. Watched them more than a decade now. Don't want the life they have. A good lot of them have returned to work at one thing or another -- and not necessarily for the money.

    Me? Working till they throw dirt in my face and as long as the good Lord and my health allows. I like my work. Will change it up/do something else if it comes to pass if there's no longer meaning in it.

  • Report this Comment On August 16, 2013, at 10:45 AM, MrFinance223 wrote:

    <<the fact that retirees are living a lot longer than they used to.>>

    Morgan said:

    I address that point in this article. In short, retirees aren't living a lot longer than the used to. The increase in life expectancy over the last half-century has largely been a factor of lower child mortality.

    My grandpa could expect to live to 79 when he turned 65 in 1950. My Dad turned 65 in 1996 and could expect to reach 82. I am not 65 yet, but if I was today, I could expect to live to 84. So it seems like each generation is gaining 3 years of life expectancy. You don't think that is significant? I surely do. Try living 3 years with no income and you will see.

  • Report this Comment On August 16, 2013, at 11:24 AM, mdk0611 wrote:

    Whoa - When comparing the 40's benefits, remember that participants paid in 1% of their first $3000. of income. In other words, $30. per year. And some of them only paid in for 10-12 years.

    Even when adjusted for inflation, that's considerably smaller that what the Boomers (some of whom have paid into the system for over 45 years) paid in.

  • Report this Comment On August 16, 2013, at 11:40 AM, mainelefty wrote:

    All the envy of public employees underscores the non public sector drop in job security over the last twenty-five years. The creation of the pension guarantee fund and the simultaneous allowance of stripping assets from pension funds whenever the market is high (thank you Ronald Reagan and Friends) has turned defined benefit plans into more Wall Street style casino fodder.

    Ask any Delta pilot.

    Ask anyone who used to bake twinkies.

    How bout those Chrysler pensions.

    BTW, great article, the biggest threat to Social Security is the hype from fast money cons and shysters who want to gamble with its money. The taxation ramifications for when the notes it holds (it's likely the money was used for faroff and in many cases forgotten military adventures) are cashed are probably a good subject for review.

  • Report this Comment On August 16, 2013, at 12:08 PM, SkepikI wrote:

    ^ yep, lots of those...and then there are the opposing examples including UAW and GM, plus a future draft pick to be named..ha.

    I have little doubt some folks cannot be trusted to run their own retirements, and so sticking them with the nanny state's pitiful 2%? return on investment, raided from time to time by PUBLIC fast money cons and shysters is the only way. Oh and don't forget the fake disabilities, SSI fraud and the thievery of the thousands (millions? we can't even seem to guess let alone stop it) who divert funds from dead people and unsuspecting real recipients.

    THE ONLY way out of these traps, public, private, altruistic, crooked is to have alternatives that YOU control. AND to educate yourself enough to do at least a decent job of it. Those I know who have and with the foresight and fortitude to start in their 20's (even 30's) can expect to "retire" sometime in their 60's.... Ironically, many of these I know personally continue to work at SOMETHING, maybe even for pitiful pay because they LIKE it! and now can afford to work at what they like for pitiful pay.

    AT LEAST if you are reading this article you are doing something about it....

  • Report this Comment On August 16, 2013, at 12:47 PM, ershler wrote:

    wagz4me,

    It can work out the opposite if you have a family history of saving. Every year I sold a calf at the 4-H fair but the first $500 went into a saving bond. I started maxing out my IRA at the ripe old age of 19.

  • Report this Comment On August 16, 2013, at 2:05 PM, MaxMMM wrote:

    "living standards for those over the age of 65 will begin to decline as compared to those who came before them"

    This is because of the stealing from the younger generation.

    http://www.newworldparty.org/2008/11/stealing-from-children....

  • Report this Comment On August 16, 2013, at 2:09 PM, skepticinvestor wrote:

    My parent's generation is much better off than us because you forgot about housing. My parents have a pension and social security but they bought their house in the mid 1960's for $17,000 and sold it 5 yrs ago for $600,000. For 30 years their mortgage payment was $97 per month. In their late 80's today, still living off the proceeds. My mortgage is high and won't be paid off by the time I retire plus my payment is high which means less saving in order to pay it plus my house didn't appreciated like my parent's house.

  • Report this Comment On August 16, 2013, at 4:06 PM, astuber9 wrote:

    ^

    I did not do the math but your parents housing return is probably not that much better than inflation as Morgan and Robert Shiller have pointed out a number of times. Also don't forget about all the money they spent on maintenance and taxes. I own my house and think it is a fine investment, just not a great one.

  • Report this Comment On August 16, 2013, at 4:10 PM, TMFHousel wrote:

    skepticinvestor,

    That may be true for your grandparents, but it's not nationwide. You can see from Yale economist Robert Shiller's data below, real (inflation-adjusted) nationwide home prices are effectively unchanged since the 1950s.

    http://www.econ.yale.edu/~shiller/data/Fig2-1.xls

  • Report this Comment On August 16, 2013, at 4:17 PM, mdk0611 wrote:

    astuber -

    Do the math. Inflation adjusted, they bought the house for 100-120k in 2013 dollars and sold it for 600k. In addition, consider that their "rent" was $97 (partially deductible) and real estate taxes. So around the time they sold it they were "renting" a 600k house for probably in the range of $1000 - 1500. per month.

    Morgan does bring up a valid point in that not every part of the country saw that level of appreciation.

  • Report this Comment On August 16, 2013, at 4:37 PM, TMFHousel wrote:

    And not only have real home prices stagnated for half a century, but interest rates at at all-time lows. Housing affordability (prices and interest rates) is better than it's been in decades.

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

  • Report this Comment On August 18, 2013, at 10:14 AM, Howch wrote:

    My 17 year old son just put his 1st $1000 into an S&P 500 index fund. Sure wish I had at that age!

  • Report this Comment On August 20, 2013, at 9:11 AM, roblric wrote:

    Baby Boomers also paid less for things while they were saving, buying their homes or getting a university education than their offspring today and most sacrificed the extra car, cel phone, or modern luxuries. Simple math will show inflation in Diesel, College Tuition, and Food does not allow the modern family to save than the previous generation. In addition, most college Grads today are also graduating with a personal College Debt for education equivalent to a price of a small house.

  • Report this Comment On August 22, 2013, at 10:26 PM, devoish wrote:

    "Low and inadequate savings are currently pervasive among Boomers, with 22 percent having no retirement savings. Among Boomers who reported a retirement savings level, nearly 40 percent have saved less than $100,000." - Insured retirement Institue http://www.irionline.org/news/article/id/682

    So basically that means that Gov't policies to promote using 401k's and IRA's to fund retirements have left 62 percent of boomers in a position to burn through their retirement savings in three to four years.

    good plan.

    Best wishes,

    Steven

  • Report this Comment On August 27, 2013, at 5:39 PM, Gary06 wrote:

    I'm one of those engineering students who graduated at age 21 (go Illini!), and started saving a minimum of 10% in my 401-k at age 22 (I wasn't allowed to join for a year back in those days). I paid for my own college and got out in 4 years, and only know a couple of idiots who didn't join the 401-k plan when eligible (the company had a generous match). Flash forward 36 years and I'm pretty well set, with a nice defined benefit pension that is reasonably well funded, plus a 401-k with about 12 times my current annual income built up in it. I still have a daughter in high school, and I generally enjoy my job, so I'm not in a big hurry to retire.

    I don't understand the comments about almost "no one" saving in their 20's. If you work for a company that matches or at least partially matches your contribution to the 401-k, like most companies I've looked at, then why wouldn't everyone start saving as soon as they could? That's free money! At least that's how I saw it many decades ago, and the miracle of compound interest wasn't a total mystery even then. If the average / typical person is as foolish as some of you describe, I fear for the future.

  • Report this Comment On August 27, 2013, at 6:24 PM, Doris411 wrote:

    I've worked public and private. For a position at the same level in the same profession, public paid about 60% of the private industry rate. (Of course, I was an accountant, not a politician.)

    When you talk about generous benefits, keep that in mind. Just think how much foregone earnings that missing 40% represents over a lifetime, before you say how overpaid public-sector retirees are.

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