Older Germans have been made expensive promises that they have relied on in planning the rest of their lives. And they have the electoral weight, for now, to ensure that they will be kept. This will likely be the beginning, not the end, of reforms to make those viable.Demographically, I am technically a Baby Boomer, although I was born at the very end of the era. The first wave of boomers are now turning 70, while I am in my (somewhat) early 50s. I've never assumed I would be able to retire early and I expect to be working for nearly 20 more years. Still, I fully expect it to be tougher for those who are younger than me, especially the Millennials. So does Mead:
Similar efforts will play out all over the Western world, where Blue Model retirement programs are running into both cold, hard arithmetic and the heat of a debate between two big generations, the boomers who’ve planned for retirement on a Blue Model basis and the Millennials who are expected to pay for it. Here in the U.S., in an election where both candidates fully embrace the Blue Model social programs, including social security, such generational issues are on the back-burner—for now. But given these realities, it probably won’t be too long before the fight over retirement will be back with a vengeance.
And when you look at the German deal as a paradigm—for someone will propose something like it—you can understand how American millennials would be angry. Millennials are being explicitly asked to work longer so that their parents can retire at unrealistically young ages: when 65 became the standard retirement age across the Western world, in the mid-20th century, it was much closer to the age of death than it is today. According to the World Bank, German life expectancy at birth was 69 in 1960 and is 80 today; in the U.S. those numbers are 70 and 79 respectively. The older generation, of course, rejected any attempts to change this in the past, essentially writing themselves larger and larger retirement checks as they came to live longer and longer.Of course they would. Most people would. It's an entitlement, doncha know. But the beauty part is that a lot of us won't be stepping aside, either:
And now the bill is coming due. To add insult to injury, as these reforms are gradually implemented, older, senior managers will continue to work for more years, rather than clearing room at the top by retiring. So if you’re a millennial, you’ll be working longer, at less pay and at a lower position, to fund benefits for the older generation that, realistically, probably won’t be viable for their own. Some deal.This is true. I have no intent of stepping aside from my position. Even if I wanted to, it wouldn't be an option. The bills keep coming in and while we save for retirement, I'd surely love to be saving more than is possible at the moment. On the bright side, my student loan bills are long since paid off; young people these days are generally starting around 20K or more in the hole by the time they get their bachelor's degree. Meanwhile, the party's on at The Villages and Del Webb and such.
The status quo is not going to last. We need to be talking about these issues, but instead we're discussing an orange guy's deportment. We are not a serious nation.
16 comments:
With few exceptions, my peers and I began full time work within a year of high school. These millennials seem to want to take several yrs off prior to getting real, so... Hey kids... I did my part on the front end, so quit yet crying.
These millennials seem to want to take several yrs off prior to getting real, so... Hey kids... I did my part on the front end, so quit yet crying.
In some cases, that's exactly right. Still, in other cases the crying is going to be justified. Except they won't be crying.
Not all those seniors that are hanging on in the workforce are executives, and the execs aren't hanging around because they're worried about paying the rent: their cushions are well established. Middle-management and down, the extra experience is going to get harder to justify at the higher salaries.
if they waited til they were 25 to pay any measurable level of taxation, and 35 to breed... they get no sympathy. i had kids in the work force before i was 40. i've been a contributor to the future longer than most.
This is so simple, I'm surprised nobody thought of it before. Oh, wait, Senator Rod Grams did, 20 years ago. You simply tell these folks now entering the workforce that they still have to pay 7% of their income towards retirement, but that it goes in a private (government-approved, if you insist) investment account-- an IRA-like thing.
Those in their 30s pay 5% to their IRA and 2% to SSA. Those in their 40s, 3% private, 4% SSA, and in your 50s, you keep on doing what you have been doing. When you retire, you get the full benefits promised (with the general fund picking up the rest). But by the time those now in their 40s retire, they will draw a reduced SS benefit, while many of those drawing benefits now will have "dropped out" of the program. Thus, SS is gradually phased out and the private accounts phased in, leading to a much more secure retirement system with higher benefits. And economic growth would take off rapidly with that kind of private investment inflow.
Middle-management and down, the extra experience is going to get harder to justify at the higher salaries.
Yes. That's been a trend for at least a decade now, maybe longer.
i had kids in the work force before i was 40. i've been a contributor to the future longer than most.
Also yes, but there aren't many people in our generation who made the same choices.
I'm all in favor of privatization in a similar way to what Grams noted, but one thing that we need to address is what Gino hinted at. Social Security, in whatever form, private or public, requires robust birthrates and participation in the work force to work. We're chipping away at both and are wondering why the whole deal is collapsing. You need people to either pay FICA tax or buy equities, and if young people aren't there or aren't working, good luck with that.
And the SOA, which otherwise is an excellent organization, is refusing to warn the public about it. Pretty darned sad.
As I indicated, the saving grace to SS privatization may be the robust economic growth produced by all that influx of capital. Of course, government would have to get out of the way and make capital investment (or work) worthwhile, which may be the bigger hurdle.
SOA? If you mean the trust fund, it doesn't exist except as a bookkeeping entry.
It won't be a problem for long. Social Security outgo will exceed income in four years. At that point, they plan to start cashing IOUs from the General Fund. But the General Fund still has a deficit so how can it repay IOUs?
We're like the guy in Dumb and Dumber, depending on Harry and Lloyd to make good on the debts. Except instead of an IOU for a car, it's our pension.
It won't be a problem for long. Social Security outgo will exceed income in four years. At that point, they plan to start cashing IOUs from the General Fund. But the General Fund still has a deficit so how can it repay IOUs?
Exactly. That's going to be a fun conversation.
SOA= Society of Actuaries. The guys who apparently have created a study that suggests we're SOL (shucks outta luck) in meeting our unfunded liabilities, but suppressed it. In other words, like the IEEE, Tau Beta Pi, and others, it's a private society being coopted by the government.
Really, the argument over privatization is emphasizing the finance guys over the actuaries. Finance guys can, and should, point to historic returns as a guide to future expectations--but the actuaries actually have the key to the kingdom in terms of whether those expectations are practical. And again, without robust birth rates and participation in the economy, the finance model breaks down.
So while a private system is better than a public one--no appeal to the taxpayer for missing funds, and the private sector is indeed more productive than the public--I just don't think it solves the problem. It's more of a culture issue.
Actually, a privatized system DOES solve the problem, simply by virtue of that it is NOT a government program. Right now, the SS surplus goes into special US bonds that constitute the "trust fund." Congress spends the money and the bonds are essentially a bookkeeping entry-- an IOU promise by one branch of government to pay another. And you don't own your share of that, or have any vested interest in your promised benefits. But IF you took your FICA taxes and put them in your own account, they would belong to you and you would be guaranteed their value. They would even go to your heirs if something happened to you before or early in retirement. Chances are the returns would be higher than the (depending on your income) 1% return or less, and in the meantime the economy would be growing mightily based on your investment. Those trust fund bonds are NOT invested in the US economy.
I think you are suggesting that diverting some FICA taxes to private accounts would create "transition costs" to pay out current benefits. But we have to pay those anyway, as we start cashing in those trust fund bonds, or to make up the shortfall after they run out. By transitioning, over the next 30-40 years, we eventually get to the point where SS has no more obligations to pay out, unlike the current system, which just gets worse every year.
Jerry, somebody's got to buy those mutual funds, stocks, and bonds. I agree 100% that privatization makes the problem easier to solve, but the root problem is that when population growth is zero or negative, as in Japan and the like, good luck sustaining long retirements. See what I'm getting at?
Same thing with what happens when someone doesn't participate in the economy; it gets incrementally more difficult/less profitable to sell those units of resources. So we have both a method problem (government vs. private sector) and a demographic problem--and I'd argue the demographics are the bigger deal.
Sorry, I'm not understanding. With privatization (phased in) everybody becomes responsible for their own retirement by buying up those stocks and bonds (which makes the economy grow). Demographics don't matter because you are the only one paying for your retirement benefits, and retiring at a time of your choosing. In Chile, lots of people started retiring early, because their investments had done so well. If you have a spotty work history, you might want to work longer.
Jerry, demographics matter a lot--the Japanese have the highest level of savings in the world, more or less, but because they forgot to have kids, they're in a situation where are actually developing robots for elder care. We're not quite in the boat they're in, but it's getting closer and closer. Kids that don't exist, or don't take part in the work force, aren't paying FICA taxes or buying mutual funds.
But again, demographics only matter if we're all "sharing" in a pay-as-you-go, government-run retirement system. Japan has the same sort of system, and the same sort of problem. But if we get government out of it and each finance our own retirement, those of us able to do so (and having 7.5% of your income to do it with) will be fine regardless of demographics. Those that don't save that money (it should be mandatory) end up on welfare, covered by our tax dollars, unfortunately but out in the open rather than hiding behind that "FICA guy."
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