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The coming retirement crisis

Jan 11, 2017

You may have heard that we Baby Boomers are no longer the largest generation in America; millennials passed us a couple years ago. But we really haven’t started to die off. There are still more than 74 million of us left, according to the U.S. Census Bureau.

But we have started to reach retirement age. The oldest of us will be 71 this year; the youngest approaching their mid’ 50s. Notice I said that we are reaching retirement age. That’s not the same thing as being able to retire. Most of us can’t afford it.

That’s in large part because we don’t have pensions. We have 401(k) plans instead, or variations on some type of personal retirement accounts. And we don’t have enough stashed away. That’s not just because we are profligate spenders, though some of us find it very tempting to spend money if we have it. It’s because the job market has been volatile.

Millions were unable to save, or had to dip into their savings, during the Great Recession, and when you have kids, it’s harder to squirrel money away. Financial experts blithely tell people that they ought to have saved eight times their annual salary before they retire.

I haven’t done that; I know almost no one who has, and for good reason. Very few have. According to the New School’s Center for Economic Policy Analysis in New York, the less fortunate half of those between 50 and 64 have median retirement assets of less than one year’s income. Even the top ten percent have less than two years’ pay socked away.

And very few of us have pensions, especially those of us who have spent their lives working in the private sector. Nearly two out of every five had a pension in 1980.

Today, it’s barely one out of eight. I wonder if anyone has thought of what society is going to do with the coming hordes of elderly, semi-impoverished boomers.

You still may be dealing with seventeen million of us by midcentury. Nevertheless, the Michigan Legislature, especially Senate Majority Leader Arlan Meekhof, seem hell-bent on ending pensions for new teachers, who now get a blend of a partial pension supplemented by a 401k.

But there are increasing indications this is a bad idea, and a lot of people are talking about a story in the Wall Street Journal on January 2nd. The headline said: “The Champions of the 401k Lament the Revolution They Started.” It tells how those behind the rise of the 401k in the early 1980s saw it as a supplement to pensions, but that employers quickly saw switching their workers to 401k plans as a marvelous way to cut their costs.

The biggest irony is that one of the 401k’s main architects, an attorney named Herbert Whitehouse, now finds himself without enough retirement savings. He expects to have to work into his mid-70s, and regrets what happened. “A pension is pretty valuable,” he told the paper.

It is indeed. So, by the way, are people. Teachers work extremely hard, doing work that is more important than touting hedge funds. They deserve some security, whatever the ideologues at the Mackinac Center say. And I don’t think we can afford to be a society that denies them that.

Jack Lessenberry is Michigan Radio’s Senior Political Analyst. Views expressed in his essays are his own and do not necessarily reflect those of Michigan Radio, its management or the station licensee, The University of Michigan.