Where’s JB?…and the troubled state of retirement security

July 18th, 2015 at 9:39 am

Hey, OTE’ers, ready for another round of “where’s JB?” I took the photo below on a bit of a jog yesterday from somewhere within these here United States (somewhere very beautiful). As usual, the winner gets to pick the music for a Friday interlude.

I’m here in ____ talking about the precarious state of financial security here in the US, where maybe half of those heading toward retirement are undersaved in terms of their ability to make ends meet once they stop working. One study shows that about a quarter of those between 50 and 64 have no savings to speak of at all.

The traditional way to think about this is the three-legged retirement stool: Social Security, pensions, and savings. Problem one is that the only healthy leg of that stool is Soc Sec.

Broadly speaking, the long trend in real wage stagnation for many workers began in the mid-1970s, so we’re now at a point where savings–what’s left over after you spend what you need (and want)–ain’t what it used to be for those on the wrong side of the inequality divide.

Defined benefit pensions that paid a guaranteed income in retirement have largely evaporated, to be partially replaced by defined contribution plans, which shifts the locus of risk from the firm to the worker. And many workers, especially those less connected to the job market (or in the “gig”/freelance economy) don’t even have these types of plans.

The good news is that both the government–more at the state than at the Fed level, though the Feds are in the game too–and the private sector are cooking up useful saving vehicles, often with low bars to entry and cheap fees, that enable anyone to start a retirement account, often tax-favored (like IRAs), even if your employer doesn’t offer one.

The bad news is that too many people, even if they have a strong impulse to participate in such a plan, lack the income stream to peel off a significant enough amount to save.

That, in tandem with demographic shifts toward those less likely to have much in the way of these sorts of savings, means we’re very likely headed for a lot more, not less, retirement insecurity.

And that, in turn, suggests the smart policy move would be to strengthen and expand Social Security, a portable, guaranteed pension plan that efficiently covers all workers with very low administrative fees.

A second policy implication is that this is another good reason to “make work pay” as in the Reconnection Agenda’s policy thrust. It’s great that financial service providers, along with states and the federal government, are thinking and acting in this space, but cart, meet horse: we can’t assume ample income and then start getting excited about clever new savings vehicles. We’ve got to simultaneously move the policy agenda that can promote income growth for the undersaved.

Where did I take this lovely photo?

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20 comments in reply to "Where’s JB?…and the troubled state of retirement security"

  1. Jonas says:

    Is it just me, or is that photo upside-down?

    Are you sure you’re not in Australia?


  2. Smith says:

    You are leaving out an obvious but overlooked point. All laws and tax policy changes to encourage and finance savings are a program for the rich and promote inequality. How so? If you are middle and especially low income, you have no extra income to set aside. Even if you did, if you hold any debt, you may be losing on the bargain (is r>i , is your rate of return greater than the interest on your debt). That is why Republicans and neo-liberal Democrats love tax savings incentives. They favor the middle class, especially those wealthy enough to put away the maximum each year, and whose employers often match that amount, often 3% of their salary. Offer someone making $30,000/year $600 now or much more money 37 years later, and they are probably inclined to take the $600 now. The trouble with a Social Security increase is that it is a regressive flat tax of 12%, which probably needs to gradually increase to 15%. How to remove 2% more a year from national income in enforced savings without causing even more slack demand in an underperforming economy? Lower the retirement age and/or increase current benefits. Deficit spending is for temporary stimulus and tax increases on the rich should be confiscatory to discourage excessive compensation, hence eventually leading to neutral revenue result.


  3. Jill SH says:

    FIrst seeing the image upside down in my google mail/Mac os computer, I was going to say “hanging by your heels out the back of the family van/SUV.”

    Now I see it right side up, my first guess is in my lovely home state of NH.

    But I’m confused by the directional arrows on the pavement. Have you also flopped the photo to confuse us even more? The arrows would indicate left-hand drive.

    So I’ve flipped and flopped the image. And have to say, it also looks very much like terrain I saw in Virginia.


  4. Jill SH says:

    Now here’s a post about the economic message.

    I see a corollary problem with Medicare-Medicaid. If you don’t have a pension (or maybe even if you do), you may not have ancillary medical insurance (Medigap) that might have been included as a defined benefit, so you’re liable for either out-ofpocket health care costs or insurance expense. If you do have 401k or IRA savings that can cover Medigap, you most likely don’t have long term care insurance.

    So let’s look at all those boomers hitting retirement without pensions, without significant savings, maybe only a house with a paid-up mortgage (or not), too tired/achy to keep working more than part-time, and definitely no long-term care insurance. ( I know way too many people in this situation. Having lived my life in the gig economy before it had that name — freelance designer — I’m perilously close to that situation myself.)

    These folks — sooner or later, once all assets are gone — will also flood the Medicaid roles. Medicaid expenses at the state level are driven by the aged in nursing homes, and it’s a budget buster for the states. The Federal government should start planning now to cover this long term care for the elderly through Medicare, and take it off the states, who will short change every chance they can. IE, for the poor/low income, a version of 100% Medicare, that includes long term care.

    So suggestion: Establish now a part of Medicare to be long term care, to be supported by a premium paid by a percentage (5-8%?) of a person’s NON Social Security income. It might not be a lot of money coming in to Medicare, but it would be some. It would help defray the inevitable cost of the Medicare/Medicaid double dippers. Medicare will have better leverage at keeping care standards at a quality level, whether it’s in-home, continuing care, or nursing home. And by getting it away from the states, cost and care standards can be uniform nationally, and the political vagaries of state policies will be alleviated.

    For the persons who enroll? Allow the retention of assets — that house, or the principal of the IRA — to pass on to their kids. Means test this if you want, but let’s not beggar people before we help them. The end of life should be a gentle time, not one fraught with financial worries, or quality of care hassles. Let families take care of their elderly loved ones, and not sweat the money stuff.


    • Smith says:

      I don’t get what that means “supported by a premium paid by a percentage (5-8%?) of a person’s NON Social Security income” What is NON Social Security income? Who is earning and paying that? Is 5-8% the amount of income taxed or the amount of the tax?


      • Jill SH says:

        Non-SS income would be pensions, IRA or 401k disbursements, annuities, etc. Tax (premium) would be a percentage of this kind of income.


  5. Tom in MN says:

    Wyoming?


  6. mitakeet says:

    That picture looks almost exactly like I remember biking along a canal in Denver. I don’t remember the name of the canal and scrolling around on Google maps isn’t triggering any recollections, but it was not too far from Highlands Ranch where my parents lived at the time.

    If I am right, I choose Rodrigo y Gabriela, two of the most amazing acoustic guitar players I have ever heard.


  7. You pick says:

    Montana?


  8. Yessir says:

    Idaho? I lived in Idaho for a while.


  9. Bruno Berszoner says:

    Not Colorado, Montana, Idaho or Wyoming by Montana is getting closer? I’ll go east — South Dakota? Kind of greener than I remember it but I never went through the entire state.


  10. Jill SH says:

    Utah or New Mexico. But soon we’ll guess all the states, so have a deadline.


    • Jared Bernstein says:

      Aspen, CO!

      Any contestants are welcome to submit links for Friday musical interlude, with a few sentences on why you like that piece. I’ll collect and post them together.


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