The retirement income crisis ahead
A tough-minded and smart take on how financially unprepared people are for retirement. This is a New York Times piece, but it’s relevant to our Canadian situation as well. All in all, it offers a strong argument for enlarging the Canada Pension Plan to provide a greater piece of the retirement savings that people will need.
http://www.nytimes.com/2012/07/22/opinion/sunday/our-ridiculous-approach-to-retirement.html?_r=3
Seventy-five percent of Americans nearing retirement age in 2010 hadless than $30,000 in their retirement accounts. The specter of downward mobility in retirement is a looming reality for both middle- and higher-income workers. Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day.
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D - coupla things here. Other than the "working poor", which are actually BELOW middle class, this is a case of Aesop's fable of the ant and grasshopper. Why shouldn't middle class retirees take a hit in living standard, if they don't save? It means they were living beyond their means. Besides, if they retire owning a house, they both lower their operating costs as well as having a flexible nest egg to fall back on.
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To maintain living standards into old age we need roughly 20 times our annual income in financial wealth. If you earn $100,000 at retirement, you need about $2 million beyond what you will receive from Social Security. If you have an income-producing partner and a paid-off house, you need less. This number is startling in light of the stone-cold fact that most people aged 50 to 64 have nothing or next to nothing in retirement accounts and thus will rely solely on Social Security.
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So somebody who is middle class would need to save MILLIONS throughout their working career. Ideally, they'd begin to save as soon as they graduate from school. Student debt, kids and house mortgages preclude that more than ever today. Student debts are bigger than ever. House mortgages are much more expensive for the young today. And the cost of raising a kid needs to consider the ever-higher tuitions that have already hammered so many young parents.
D - so where is the generational twist in this?
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So it’s not surprising that denial dominates my dinner conversations, but it is irresponsible for Congress to deny that regardless of how much you throw 401(k) advertising, pension cuts, financial education and tax breaks at Americans, the retirement system simply defies human behavior. Basing a system on people’s voluntarily saving for 40 years and evaluating the relevant information for sound investment choices is like asking the family pet to dance on two legs...
As we all know, these abilities are not common for our species. The current model for retirement savings, which forces individuals to figure out a plan for their retirement years, whether through a “guy” or by individual decision making, will always fall short.
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D - that's right. Boomers, the first ME generation, cannot be blamed for eating the seed corn of the younger generations. Their selfishness is just 'human nature' - and you cannot blame them for that, right?
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In March, according to the Employee Benefit Research Institute, only 52 percent of Americans expressed confidence that they will be comfortable in retirement. Twenty years ago, that number was close to 75 percent.
I hope that fear can make us all get real.
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(I DID post that as plain text. POS Google blogger... grr.)
D - perception is NOT reality. For example, the demographics most at risk of violent crime are least afraid of it and v.v..
Fear is not reality. So: so what.
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D - so what is the problem? Boomers and politicians currying favour with them suggest a sudden no-plan bump in retirement income from pensions. Lord forbid if the generation that exemplifies Aesop grasshopper accept a decrease in their short-sighted, unsustainable standard of living! There are plenty of young ants to be parasites on!
First the Boomers pay only a few measly % of their income for the 1st half of their working careers. GenX paid the higher rate, almost 10%, for their WHOLE working lives. The sins of the father- unbalanced accounting legs of the Boomer and the pension plan - are visited on the son. And the son's son, unto 3 generations.
Now, as CARP has been pushing for, they want a last-gasp money grab just before the Boomers retire, so they need not pay more than a pittance for a few years to gain decades of increased payouts.
D - this is GENERATIONAL theft. It's eating the seed corn. It's the older grasshoppers enslaving the entire colony of young ants.
And it is WRONG. It is UNFORGIVABLE to even suggest.
This policy platform will get much play for the next decade or two.
We need to be READY.
D.
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