Retirement Oz
Welcome to Oz, a magical land of make believe. Citizens everywhere have plenty to eat and lots of money in the bank. Life after work is a halcyon time. People fish, travel and otherwise enjoy recreational activities and peace of mind.
Sadly, life does not always imitate art and so it is with retirement.
According to just released Retirement Confidence Survey results, the Employee Benefit Research Institute reports an astonishing disconnect between retirement expectations and reality. Now in its sixteenth year, this study of attitudes of American workers and retirees suggests a continued gap between what people need and what they have, with two out of every three workers citing a savings balance of less than $50,000. At the same time, respondents acknowledge a longer post-retirement life span of twenty-five years or more. "Nearly 6 in 10 (58 percent) of current workers say they and their spouses do not expect to receive any health insurance from their employers when they retire", validating the need to accumulate even more savings along the way. Adding fuel to the fire, approximately sixty percent of respondents professed a desire to enjoy a comparable life style to what they have now yet have done little to determine how to achieve their financial goal.
Couple these findings with the fact that an increasing number of employer-provided plans are being frozen, terminated and/or replaced with lower-yielding defined contribution plans, if offered at all, and visions of the yellow brick road come to mind. Unfortunately, we don't have an Auntie Em to make up the difference. Trustees report that the Social Security program fails to meet a "long-range test of close actuarial balance by a wide margin" and that "Medicare's financial difficulties come sooner--and are much more severe--than those confronting Social Security".
So what now?
It is virtually impossible to fix a problem if you don't recognize its existence. Like the lion, we need courage to save more and spend less today. This is easier said than done. Record debt levels reflect a consumer preference for immediate gratification.
Individuals are not alone in their false sense of security. Federal and statehouse leaders are similarly in denial. Witness the agonizingly slow pace of retirement system reform that would promote savings, encourage investor literacy and enhance safety net solvency.
Where is the wizard when we need him? By the time the blame game starts, millions of individuals will be out of luck.
Sadly, life does not always imitate art and so it is with retirement.
According to just released Retirement Confidence Survey results, the Employee Benefit Research Institute reports an astonishing disconnect between retirement expectations and reality. Now in its sixteenth year, this study of attitudes of American workers and retirees suggests a continued gap between what people need and what they have, with two out of every three workers citing a savings balance of less than $50,000. At the same time, respondents acknowledge a longer post-retirement life span of twenty-five years or more. "Nearly 6 in 10 (58 percent) of current workers say they and their spouses do not expect to receive any health insurance from their employers when they retire", validating the need to accumulate even more savings along the way. Adding fuel to the fire, approximately sixty percent of respondents professed a desire to enjoy a comparable life style to what they have now yet have done little to determine how to achieve their financial goal.
Couple these findings with the fact that an increasing number of employer-provided plans are being frozen, terminated and/or replaced with lower-yielding defined contribution plans, if offered at all, and visions of the yellow brick road come to mind. Unfortunately, we don't have an Auntie Em to make up the difference. Trustees report that the Social Security program fails to meet a "long-range test of close actuarial balance by a wide margin" and that "Medicare's financial difficulties come sooner--and are much more severe--than those confronting Social Security".
So what now?
It is virtually impossible to fix a problem if you don't recognize its existence. Like the lion, we need courage to save more and spend less today. This is easier said than done. Record debt levels reflect a consumer preference for immediate gratification.
Individuals are not alone in their false sense of security. Federal and statehouse leaders are similarly in denial. Witness the agonizingly slow pace of retirement system reform that would promote savings, encourage investor literacy and enhance safety net solvency.
Where is the wizard when we need him? By the time the blame game starts, millions of individuals will be out of luck.
I agree with your comments. The low rate of personal savings in the U.S. is cause for concern.
With average negative saving rates in some countries, I wonder where people think the money will come at retirement? Houses maybe - surely if there is a massive sell of houses it will make the market go down (to say the least) and who will buy anyway; the following generations who is in lower number?I suspect people will have to adapt and change consumption pace to avoid extreme poverty at a time when they will be more vulnerable. The question is when the shift will happen?Maybe, however, this is a two-speed society with a portion saving a lot and a majority not saving. What will this majority do when it will be in retirement with a lot of time but not much to spend??What about emerging economies? could they take over and what does it mean anyway?
In the final analysis, the state of the pension industry and pensions in general is nothing more than a reflection of how human beings live. Some are responsible and some aren't. Nothing I know of, short of an increase in consciousness and self-awareness, will change this condition. The fact that pensions are an important element of our culture and the financial fabric of our society is not actually relevant. There are many other important elements of our culture that reflect this condition of a lack of consciousness. Our educational system, health care system, legal system, system of representative government and a host of other "systems" are dysfunctional and disconnected to their purpose. Nothing will change until more individuals exemplify courage to speak up. So long we wait for "someone else" to do it, we are to blame as individuals and as a society. Our culture will continue to deteriorate until enough people care. If you want to solve the pension crisis in this country, all that is needed is the will to do so. The solution is very simple indeed. Take all of the benefits promised in SERP and Top Hat plans and tax them at 100%. Alternatively, Congress can provide the Plan Sponsor the opportunity to put those benefits inside of a tax qualified plan (on a one time exemption basis) with the qualification that the benefits can only be funded and paid when the non-highly compensated have all of their promised benefits funded. In short, arrange the system so that executives come last - not first. All of the sudden you would find that the rhetoric about shareholder value changes and management would suddenly find the cash flow resources to fund qualified plans. I guarantee it!!!The funny thing is - Boards would probably let them do it. Problem solved. Everyone knows that this is true. Everyone also knows that the likelihood of this happening is remote to non-existent. It is time we stop lying to ourselves about priorities and values. Our collective willingness to tolerate inauthentic behavior in others and in ourselves sows the seeds of our own destruction. This is true on a collective business, cultural and social basis.