Retirement: The Impending Doom

Monday, October 31, 2005
In the spirit of Halloween I thought I would write about something truly scary, the impending retirement crunch.

The first of the Baby Boomers turned 59 1/2 this year. This is a significant age because they are now able to withdraw from their 401K and IRA's without penalty. With the impending retirement of millions of America, do people realize the serious problems our country faces in the next decade or two?

It use to be that Social Security would be enough. We all know that isn't going to be the case. Then there were those who could depend on their employer's Pension plan. But even those promised benefits are now being attacked, thanks in large part to our own government who are not only allowing employers to reneg on their promises, but are in many ways actually encouraging it. Airlines like Delta and Northwest found it easier and advantageous to pass on their plans to the PBCG. Auto parts maker Delphi (and maybe even GM eventually) will likely follow suit. And these are the lucky people. There are those like Joy Whitehouse whose husband died on the job for Pacific Intermountain Express who gets absolutely nothing.

But of course now most American's have 401K plans. After all, your employer can't cut that right? Well, lets forget the fact that the average amount in a 401K plan is only $61,000. It gets even worse if you look at the median which is only $18,000 (meaning there are some with very large accounts. These are the same people who probably don't need the 401K). The problem is that most Americans have no idea how to actually manage their investment portfolio. People are told to diversify and forget it but most don't really even know what this means. Most people don't even know what Asset Allocation is and are thus in for a nasty surprise.

I'm not sure what is going to happen when all these people start retiring, and there just isn't enough to support them. Is the government going to step in and make sure these people are taken care of? This poses a very difficult problem because there will be a lot less workers for a lot more retires. The only thing government can do is start more programs and thus raise more taxes, but that has the effect of driving out business and making the working even poorer. This would feed on itself, causing more to lose their jobs, meaning less workers and tax revenues, and thus a need to raise taxes again.

Sometime soon, we as a country need to stare this problem right in the face and figure out how we are going to solve it. Otherwise, there are going to be a lot more stories like Joy Whitehouse.


Jenny said...

I think I saw a TV show (NOVA) on PBS that looked at population dynamics and the current problem that Japan faces is that there are too many people who are retired without enough people producing babies to sustain the older people.

Jen said...

Here's the solution: Feed the old Japanese people to the younger generation: it's less taxing on the environment, makes Japan less dependent on foodstuff imports, and it provides an almost limitless food source. Plus, since it's Japan, you could market the fogey-steaks as "Grain-Fed."

Oh, the marketing possibilities are endless.