Oddly, we’ve never talked about retirement issues before, except one old meeting on Social Security. Yet, there’s a growing chorus of warnings about our fragmented retirement system, and some serious people are starting to wonder whether future generations of Americans will be able to retire in the financial comfort we all have come to expect.
As I’ve mentioned, American’s retirement system is a three-legged stool employee pensions, personal savings and investments, and Social Security. Neither one was ever intended to be the sole source of Americans’ retirement income, and none are adequate for that.. To say that retirement depends on these three legs means that Americans’ secure retirement depends on:
- Adequate wages
- Adequate savings and earnings on those savings, and
- The willingness of future governments to keep their promises on Social Security and, for about 1 in 7 of us, public sector pensions.
Right away, you can see the potential problems with each of these, and you can add another: That employers have shifted the risks of retirement onto the backs of workers by replacing defined benefit retirement plans with defined contribution plans, like 401(k)s and other vehicles that depend on the stock market to pay off.
But, despite a lot of doom and gloom, exactly how big the looming retirement crisis will be is hard to say because it requires making a lot of assumptions about the future. Will wages stay flat? Will stocks grow as fast as in the past? Will state and local government DB plans all be eliminated? Will we decide to slash Social Security benefits?
This is a complicated topic, but we’re up to it. To help (hopefully) I’ll open by explaining a few of the basic facts about each of the three legs of our retirement system (private pensions, savings, and Social Security). Then, if I can figure it out, I’ll explain a little bit about why experts are projecting a dim retirement future for so many Americans.
Discussion Questions –
- Private pensions: Who gets them and who does not? How much do they earn? How well funded are they?
- Savings/Investment: Same.
- Social Security: How generous are its benefits? How big is its funding shortfall? How easy would that be to make up?
- How do experts predict the future of Americans’ retirement, given all the unknowns about future wages, savings, earnings, etc.?
- How bad is the looming retirement crisis? Which types of Americans will be hit the hardest?
- What can and should be done about all this?
Is a pension crisis coming?
- Yes. The failure of 401(k)s and the coming retirement crisis. Specifically, why 401(k)s are such a bad retirement deal for many, many Americans.
- No, or at least only kind of. The retirement crisis won’t be that bad! A must-read. Or, read this here.
- Oh, yes a crisis is coming! A rebuttal.
Social Security –
- 60% of Americans think that Social Security will never pay them one dime. This is crazy wrong.
- Nine misconceptions about social security. A must-read.
- More on the whole “SS trust fund is an accounting fiction” thing.
- Social Security does face a shortfall. Some ways to fix that. [UPDATE: Full list of ideas for patching SS is here.]
- Or, maybe we should raise Social Security benefits to compensate for the loss of secure private sector pensions.
- Of course, keeping our economy strong with good wages and a strong stock market is a must. Government action alone can’t solve the retirement problem.
- We talked about state and local government employee pensions a few months ago.
NEXT WEEK: Should the Government Still Be Promoting Home Ownership?