The Retirement Implosion
The LA Times today has an article that will affect you, whether you are a "Boomer", Gen X'er, or even a Gen Y worker...
Article
A quote from the article:
"We can't afford to wait until the retirement wave is upon us," Kohl said. "We must encourage businesses to adopt policies now to attract and retain older workers as they are confronted with the coming labor force shortage."
Soaring costs for Social Security and Medicare are commonly cited as the biggest economic worries arising from the retirement of 76 million baby boomers, the generation born between 1946 and 1964.
But on Wednesday, lawmakers focused on a different side of the topic ? the toll all the retirements will take on the rest of the economy. The oldest of the post-World War II babies are now 61 and the rush to retirement will speed up dramatically in the next several years, draining population and skills from the workplace."
We will all be dramatically affected by this unavoidable demographic reality starting very soon, 2010 as cited in the article. With a vastly reduced workforce, expect the economic growth of the US to slow on an accelerating curve, which affects how you work, how you are taxed, how your political impact is measured in laws that are proposed and passed, and how you (may not) retire.
Article
A quote from the article:
"We can't afford to wait until the retirement wave is upon us," Kohl said. "We must encourage businesses to adopt policies now to attract and retain older workers as they are confronted with the coming labor force shortage."
Soaring costs for Social Security and Medicare are commonly cited as the biggest economic worries arising from the retirement of 76 million baby boomers, the generation born between 1946 and 1964.
But on Wednesday, lawmakers focused on a different side of the topic ? the toll all the retirements will take on the rest of the economy. The oldest of the post-World War II babies are now 61 and the rush to retirement will speed up dramatically in the next several years, draining population and skills from the workplace."
We will all be dramatically affected by this unavoidable demographic reality starting very soon, 2010 as cited in the article. With a vastly reduced workforce, expect the economic growth of the US to slow on an accelerating curve, which affects how you work, how you are taxed, how your political impact is measured in laws that are proposed and passed, and how you (may not) retire.
Comments
Ultimately, there's going to be no way around social security and welfare reform, and by reform I mean drastic cuts.
Agreed. But before such an unpopular thing could ever happen (what with the ruling demographic, AARP, etc.) our economy may face a prolonged depression or recession... who knows, such an event could last a decade.
Nick
Ultimately, there's going to be no way around social security and welfare reform, and by reform I mean drastic cuts.
That's just wrong. "Welfare" spending is less than 1% of the federal budget, so not much savings there. It's more if you lump in Medicare and Medicare, but slashing insurance benefits for the poor and elderly isn't any kind of solution and you just end up paying anyway in emergency care. Unless your plan includes letting people older than you die in the streets cause you figure they'll have it sorted out by the time you need some assistance yourself?
As far as Social Security goes, I have yet to see a persuasive analysis that shows that SS has anything but fairly easy to fix long term funding problems, and those only around mid century.
There's been a lot of FUD thrown around about SS, of course, but pretty obviously because a federal "entitlement" program rubs some people's ideology the wrong way. The Bush type hysteria about the "crisis" has nothing to do with fixing anything and everything to do with eliminating a popular program associated with the Dems.
Unfortunately for Mr. Bush and his enablers, most people like Social Security just fine and aren't impressed with a lot of hand waving when the actual numbers put the lie to the plans to "fix" something that isn't broken.
But adda, surely you cannot disagree with the numerical reality this country (and the entire world, for that matter) will face in just a matter of years. It's a mathematical certainty.
The cost of health care for an aging population is a worry. Too bad the most promising solution, single payer insurance, is all but off the table here in "we hate socialist bastards" America.
Again, Social Security is not a "looming disaster" by any balanced analysis I've seen. Adjusting the income cap, slightly extending the retirement age, or even making slightly more optimistic economic projections than the "let's fix SS by killing it" crowd are flogging puts the program on sound footing well into the second half of this century. There may still be a problem up the road, but it's hardly a crisis.
When has _the American government_ ever printed money it shouldn't have? Yes, this happened in pre-WWII Germany, and happens a lot in Africa, but inflation in the US has remained extremely low since the Reagan administration (with a slight spike in George H.W.'s term).
The 70's had quite a bit of inflation ending with stagflation. The expectation of high inflation had become so universal that it is why Paul Volcker had to crank the fed rate to as high as 14% if I recall correctly. Inflation peaked at 13.5% a year in 1981.
The government ran the presses quite a bit in the 70's. They have already been doing so now. They have to do so even more in the future while hoping foreign interests don't dump all the dollars they already hold.
It ain't pretty.
Nick
There will be no cuts. Cuts are politically unpalatable no matter what party you happen to be in. Then we have the massive debt on top of it all. The only way the government will be able to solve it is print money to meet the paper expectations regardless of the devaluation to the currency. It already does this now so why wouldn't they in the future?
Nick
I disagree. There will be cuts. There will be enough backlash from the working community about having to pay double tax for social security, that it will overwhelm any consolidation of 65-plus voters.
Agreed. But before such an unpopular thing could ever happen (what with the ruling demographic, AARP, etc.) our economy may face a prolonged depression or recession... who knows, such an event could last a decade.
Yeah, there will probably be a recession, but these things happen.
I disagree. There will be cuts. There will be enough backlash from the working community about having to pay double tax for social security, that it will overwhelm any consolidation of 65-plus voters.
I think you and I are probably speaking past each other on this. I absolutely agree that the level of services and benefits will be "cut." I simply disagree on how this will be done.
If I promised you a retirement benefit of $1000 per month and cut it to $500, you can call me a lying bastard who promised X and delivered Y instead.
If I promise you a retirement benefit of $1000 per month and pay it while inflating the money supply to the point that the promised $1000 now only purchases $500 worth of goods and services then you can't claim to have had a promise broken.
The government seldom engages in the former while practicing the latter often. Both are the exact same level of cut though and all that changes is who gets blamed and the spin on it.
I'm interested on how one can be double taxed on social security in your view. Can you explain what you mean by that?
Core inflation is already higher than the government claims. They keep tossing out items that make it to high when they feel like it. That is the nature of government and statistics though, because when you make the rules and control the numbers you can make them say whatever you want. Many folks rightly believe we are already at a higher rate of inflation than measured and now the government is going to deal with boomers starting their retirement and likely recession in a relatively close time frame.
Those presses are going to start running even more because the easiest solution is to simply print money. No one on either side of the aisle has shown any desire for a real solution.
Nick
I'm interested on how one can be double taxed on social security in your view. Can you explain what you mean by that?
If the number of 65-plus Americans doubles over a period of 5 years or whatever, and there are no policy changes. . .
But I'm not sure what the actual figures are in regard to the number of boomers retiring soon compared to the existing base of 65-plus americans. Double might be more than the actual amount.
Anyway, I've long been a proponent of changing the social security cut-off from an absolute age to a relative percentage of the population. Say, the oldest 2%. I think in the 30's when FDR started the program less than 1% of the population was actually older than 65. Write to you congressman.
If the number of 65-plus Americans doubles over a period of 5 years or whatever, and there are no policy changes. . .
But I'm not sure what the actual figures are in regard to the number of boomers retiring soon compared to the existing base of 65-plus americans. Double might be more than the actual amount.
Anyway, I've long been a proponent of changing the social security cut-off from an absolute age to a relative percentage of the population. Say, the oldest 2%. I think in the 30's when FDR started the program less than 1% of the population was actually older than 65. Write to you congressman.
I get it, you were talking about a doubling in the rate at which we would be taxed to pay for Social Security.
I wanted to make sure you weren't talking about double taxation which is a phrase often applied to instances where the same money is taxed multiple times simply for changing hands. An example is that a company to pay a dividend to stock holders must declare a profit for which they have to pay the taxes. That taxed profit is given to the share holders who immediately owe a dividend tax on it as well. People call instances like that double taxation.
Am I right in understanding you were talking about a change in the rate of taxation to roughly double what it is now?
Nick
Politically, I'm also confused about why the folks most interested in slashing SS/Medicare are also the ones most opposed to the easiest solution: immigration of young workers.
I have to admit I'm a little confused about the "fewer workers = economic collapse" argument. There seem to be more examples in history of worker shortages spurring innovation and higher overall wages than there are of worker shortages causing reduced output. Starting from the Black Death - possibly the macabe trigger for the development of modern Western society - and right up to the Civil War (farm mechanization) and WWII (modern factory automation). Why shouldn't we assume that fewer workers will lead to innovation, higher productivity, and higher wages?
Politically, I'm also confused about why the folks most interested in slashing SS/Medicare are also the ones most opposed to the easiest solution: immigration of young workers.
I'm in favor of far more openness in immigration. Look at what's happened in Colorado recently. Spoiled crops and no workers to pick 'em.
Even with a drastic increase in immigrants, there will still be a shortage of workers. This is not an event that is limited to the US. It's happening in China, Japan, etc....
I don't think cutting benefits and killing SS is going to fly. There are so many people that paid into it and are dependent on it (and will be for a long time) that it's almost impossible. You'd have to phase it out over at least 25 years.
Raising the retirement age is a band-aid, but it should be applied as the life expectancy increases. It does help.
The real solution if we're to keep SS (and as I've said, I think we have to) is to change the way it's funded. One proposal is to eliminate the payroll tax, thereby giving every worker in America a 12% raise (6 and 6, from employer and employee respectively). Then we replace it with a national sales tax of whatever....2% or what not, maybe 3%. I haven't run the exact numbers, but at least it's less depenedent on the pyramid scheme we have now. Coupled with real tax reform, it could work very well.
I think you and I are probably speaking past each other on this. I absolutely agree that the level of services and benefits will be "cut." I simply disagree on how this will be done.
If I promised you a retirement benefit of $1000 per month and cut it to $500, you can call me a lying bastard who promised X and delivered Y instead.
If I promise you a retirement benefit of $1000 per month and pay it while inflating the money supply to the point that the promised $1000 now only purchases $500 worth of goods and services then you can't claim to have had a promise broken.
The government seldom engages in the former while practicing the latter often. Both are the exact same level of cut though and all that changes is who gets blamed and the spin on it.
I'm interested on how one can be double taxed on social security in your view. Can you explain what you mean by that?
Core inflation is already higher than the government claims. They keep tossing out items that make it to high when they feel like it. That is the nature of government and statistics though, because when you make the rules and control the numbers you can make them say whatever you want. Many folks rightly believe we are already at a higher rate of inflation than measured and now the government is going to deal with boomers starting their retirement and likely recession in a relatively close time frame.
Those presses are going to start running even more because the easiest solution is to simply print money. No one on either side of the aisle has shown any desire for a real solution.
Nick
Nick, I think you're wrong on this. Printing money as you've suggested is tantamount to hyperinflation which would have a devastating impact on the economy. I think you'll see a combination of means testing and continued raising of the age before beneifts kick in.
Starting from the Black Death - possibly the macabe trigger for the development of modern Western society
The black death had (eventual) good effects for two reasons:
1. The surviving peasants had more land per-capita, and their labors were more in demand, giving them higher wages and more food. Unless you plan on killing off the retiring workers, this will not parallel the current situation.
2. The overwhelming power of the church was broken due to the plague, and the resulting social upheaval resulted in a better society hundreds of years later. Unless you want to wait hundreds of years for our society to collapse and re-form, I doubt that 13th century Europe is a model you want to recreate.
The civil war destroyed the south, and it is just now recovering a century later, not really worth the innovations that were spurred on by the war (although ending slavery was a nice bonus).
Nick, I think you're wrong on this. Printing money as you've suggested is tantamount to hyperinflation which would have a devastating impact on the economy. I think you'll see a combination of means testing and continued raising of the age before beneifts kick in.
They already print plenty of money. We already have plenty of inflation. The government doesn't want to turn off the presses so they stopped reporting M3. They don't want to raise interest rates so they claim their own measurements are wrong.
This is just the latest example of how inflation is "overstated." They have already taken out items that were in previous measures like... housing.
I have no doubt that hyperinflation or even very high inflation is devastating to the economy. The thread is titled retirement implosion for a reason. Governments don't try to create hyperinflation. They just keep running the presses a bit more, borrowing a bit more, lying and fiddling with the data a bit more until...opps. The currency is destroyed.
There isn't a way to fix the boomer retirement problem. They spent more, indebted themselves and the nation more, saved less and promised themselves more benefits than any generation in history. Massive wealth has been squandered and the generations that follow have had less investment, have had to take on more debt and is also much smaller population-wise but somehow are required to "solve" the problem their parents never took on and also pay for their parent's mistakes in terms of national debt and repayment of social security "bonds" that must be repaid just to keep the already bankrupt system "solvent" for the few years it will be.
The printing of money will meet the paper claims. It will lay waste to the economy but then so will default so the choices are pretty much the same. Only in the inflation scenario those still working and running on the treadmill can recover. It is only those who have stepped off the treadmill (retired) who will be destroyed and that is why it will be used as well. Inflation is great for borrowers and bad for lenders. When the kids are passed on their parents debts and do not want to be borrowers, they can inflation them away while sticking it to the people who originated the debts. This is why I think it will be the most politically palatable solution.
Nick