5/23/2012 3:23 PM ET|
Are baby boomers to blame?
Behind a lot of our current economic woes and hanging over the future is a simple problem: A huge generation that has to keep working because it hasn't saved enough for retirement
You don't have to be a hedge fund manager or a Wall Street CEO to know that something's very wrong with the economy and the stock market right now. I'm not talking just about the embarrassingly bad Facebook (FB) initial public offering. Let me count the problems.
Inflation-adjusted wages have been steadily falling over the past few months, the first time that has happened in a nonrecession environment, as people turn to credit cards and tap savings in response to higher food and fuel prices. Last year, we had the weakest nonrecession annual growth of gross domestic product since the 1940s. The credit channel is broken. Home prices are down to 2002 levels. And the stock market has yet to retake its 2000 or 2007 highs.
Beneath all this is a simmering government debt crisis, as long-postponed hard choices on debt and deficits in the rich world come home to roost. Europe is on the front lines of this. Here at home, a combination of higher taxes and spending cuts in early 2013 worth nearly 4% of GDP -- the "fiscal cliff" I recently warned of -- is set to throw America back into recession.
The longer-term picture is even scarier: If nothing is done, by 2024 -- according to a Credit Suisse estimate -- 100% of U.S. tax revenues will go to entitlement spending and interest payments on the federal debt. That's it. Nothing left for tanks, jets, food stamps and SEC regulators. Nada.
While this seems intractable, the root of the problem is really quite simple: too many old people.
Specifically, the nearly 80 million members of the baby boom generation are quickly aging, with most in their mid-50s now. This simple dynamic is the undercurrent beneath many of our problems, from a stagnant stock market to a bleak jobs outlook and the debt/deficit problem. Here's why.
Not to spoil the surprise or anything, but you've probably gathered that I'm not a boomer. And I'm not here to go after boomers on social issues, or on the way they wasted the Greatest Generation's legacy: America as the world's sole superpower, a dynamic economy, a vibrant middle class and state-of-the-art infrastructure. OK, maybe I'm a little miffed.
Although there are grounds for an intergenerational fight, I'm more interested in the tragic nature of all this. Boomers, fully committed to the postwar consumerist culture and suffering from the rise and fall of two epic asset price bubbles, haven't saved enough for retirement. They also didn't have enough kids -- you know, sexual revolution and all. I'll have more on that in a minute.
Rising life expectancies make the problem worse. And long-stagnant wages for the middle class haven't helped.
The 2012 Retirement Confidence Survey (.pdf file) by the Employee Benefit Research Institute paints a grim picture. Only 14% of workers are very confident they will be able to afford a comfortable retirement. Some 60% of workers report that the total value of savings and investments, excluding the value of their primary residence, is less than $25,000. And while 56% expect to receive benefits from a defined-benefit plan in retirement, only 33% report that they or their spouse currently has such a plan.
Clearly, false hope and procrastination are at work.
Thus, instead of enjoying the twilight of life atop a Harley or upon white sandy beaches, a lot of these folks will be staying in the workforce -- often at low-paying, menial positions -- just to survive. The percentage of respondents expecting to retire before the age of 60 has fallen from nearly 20% in 1991 to just 8% now, while the percentage of workers expecting to clock out at 70 or older has jumped from 9% to 26% over the same period.
With the stock market coming off its worst 10-year performance since the Great Depression and with housing still in the tank, that's not surprising. But here's the kicker: By clogging up the job market, this army of gray labor will make it harder for the cohort of would-be workers ages 16 to 34 to get any traction. And that will only get worse, because the oldest boomers are now 66.
Younger workers are the folks who put money into housing and the stock market; they're the buyers who allow older folks entering retirement to cash in those assets. They also pay the taxes that keep entitlements like Social Security going.
It's a vicious cycle. Boomers are working longer because they can't retire, and they can't retire because their homes and nest eggs aren't holding their value, much less gaining. This keeps younger folks from taking over their jobs, which would allow the younger folks to buy those homes and start building their own nest eggs, pouring fresh cash into investments. (Instead, it seems, a lot of those younger folks are moving back in with their boomer parents. The cycle of misery is complete.)
No wonder net household wealth in the U.S. is down 15% from its pre-recession peak.
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And in other news, CEO pay is up an average of 6% this month. Monthly increases to CEO pay throughput these tough economic times, yet we still want to put more of the tax burden on middle and low-income taxpayers?
Taxes are at a 60-year low now for everyone - all taxpayer levels and all businesses. What is out of whack is the amount and tax rates that show the wealthy and corporations getting the best of this deal. This is further confirmed with the reports showing the wealth gap in this country greatly expanding over that same time period. Please also look at the decline in pensions and increase in medical costs over this time period and the resulting increase in dependence on SS and Medicare.
Somehow lost in this is the relationship of taxes to revenue as those most able to pay taxes are paying in at much lower rates now than those least able to pay, leaving the US with much less revenue to pay for our most basic infrastructure needs.
While I am not a supporter of taxes, there are opportunities to reduce or eliminate tax credits and subsidies to for those at the very top who would miss those benefits the least. Same goes for the opportunities to reduce spending - i.e.,close those near-abandoned military bases overseas.
Apply 'means' testing to all revenue increases and spending cuts. Temper austerity measures that will hurt the middle and low-income taxpayers the most with revenue increases the uber wealthy and businesses will fell in the least.
All of you who think Mr. Mirhaydari is BLAMING a group of people for the problem had better go back and read the article again! He isn't blaming anyone! He is blaming an historical fact -
Baby Boomers were subject to two asset bubbles that have worked to reduce the value of their retirement savings. This, and this alone, is the reason Boomers are having to work longer into retirement. This causes jobs not to open up for younger workers. The lack of jobs is why Boomers home valuse are lower than expected, and why they have no market to sell their home into. Its a cycle cause by a stock market bubble and a housing bubble.
Stop trying to blame someone or some group for the problem!!! Take your anger elsewhere!
How about having all the immigrants that are comming into this country have to pay taxes on day one of there new job? but no they don't for like 7 yrs.
We all should have to pay taxes no matter what.
My wife and I were born in 1946. I once was young like you, you will grow old, so be prepared to follow.
Your word “entitlements” is inflammatory. We paid real money into the payroll taxes called Federal Insurance Contributions Act tax (FICA). Tax deposits are formally entrusted to the Federal Old-Age and Survivors Insurance Trust Fund, the Federal Disability Insurance Trust Fund, the Federal Hospital Insurance Trust Fund, or the Federal Supplementary Medical Insurance Trust Fund which comprise the Social Security Trust Fund.
This is how we seniors are treated after working fifty years and paying our taxes, paying into the SS trust fund and Medicare fund since 1964. The real world for my wife and I.
We worked putting extra money away in deferred comp funds, 401K funds, and other investment, doing without, so we would not have to live on SS only in our waning years.
During our working years we did get a little tax break for the deferred comp funds, 401K funds, and the other investment funds, However, we paid all the taxes on the SS and Medicare. But, the federal tax saving was a much less percentage than we are now having to pay when we withdraw any money from those funds. When you withdraw the money from the IRA, 401k funds it goes on top, “AGI” and creates more taxes, including being taxed on you SS income, and increases your Medicare premium
Attached are the real numbers and what is happening to us as seniors, not working, and on retirement.
Over my working years I personally and my employers have paid to the Social Security Trust Fund
My SS and Medicare paid $214,657 life time
Wife SS and Medicare paid $122,488 life time
Last year we paid $38,345 in Federal Taxes and $10,699 in State Tax, TOTAL taxes $49,044 for 2010 with no job.
Then on top of that we paid an average of 8% sales tax on every dollar we spent on everything except non-prepared food (food from groceries stores), if we ate out we paid the sales tax.
Back to where this is going. We just received a letter from SS informing us that our Medicare premiums will be increased to $199.80 per month plus $29.90 per month for prescription drug program coverage D which we did not sign up for or use because we have it through our company retirement plan.
So, that comes to $458.40 per month (my wife and me combined) for our Medicare premium. Here is the kicker our supplement insurance that the company retirement plan pays to Anthem Blue Cross is $984.00 per month. So our total premium for insurance coverage per month is $1442.40. That is $17,308 per year.
So far we have not had any medical problems other than just your normal yearly preventive checkups.
Over the last 40 years we have paid insurance premiums on average of about $600 per month. That comes to $288,000 plus the Medicare portion since 1964 of $66,057. That comes to $354,057 life time.
Now on top of that we have to pay $17,308 per year for current coverage.
Only a very low percentage of people live long enough to collect all the premium paid in to the Social Security Fund and very few people are sick enough to use anywhere near the amount of insurance paid into the Medicare fund, because if they are that considered terminally ill they will deny coverage and let them die. Where’s the money?? Entitlements??
People our age gave our country a great edge over everybody elses, we did the work, we put in the long hours, and we paid the taxes. In return, our 401K's lost their value and our homes values dove into the mud. They threaten us with no social security benefits and with reduced Medicare payments. Now you blame us of living too long, which is the result of an active life with less smoking and perhaps a better medical care sorry we did not comply with your shortened expectations about our life-span. That is a request we are not to comply ever with.
You look like a young fellow, I wish you a long and productive life so that you may pay lots of SS taxes to benefit us the diehards.
republican thinking at it's best.
they just won't admit bush and chaney did this to America the rich are still getting richer and this is what they want to say is the issue what a damn shame. who is this idiot writer.
I'm not a baby boomer but this just stink like MF-er. whats next our pets are to blame for this economy.
Just A Real Shame!!!
And, the boomers come in and whine about how wonderful they are. Boomers have been doing this for ages. I'd love to find someone who can find a single incorrect generalization in this piece--oh, you can offer yourself as a counter-example. That's so 60s. A single example is an anecdote; anecdotal evidence is worthless. By and large, Boomers did not save enough for retirement (check the statistics), they are refusing to give up their jobs (check the statistics) because they don't want their standard of living to lower (check the statistics) and so younger people cannot get jobs (check the statistics). While all generalizations are just generalizations (they aren't truisms), they are useful in understanding why it is that the economy is screwed up.
The issue is that Boomers come in and either get nasty "what some cheese with that whine," anecdotal "bless her sweet little heart," or offer red herrings "corporate greed."
Hey, Boomers--remember that YOU voted in Ronald Reagan. YOU voted in Bush I and Bush II. Clinton actually got a big portion of the Generation X vote (it was their first time voting) just as Obama got a big portion of Generation Y. Corporations were unregulated because of YOU. And, yes, Social Security is an "entitlement"--let's remember that Boomers also support the Republicans (look it up), and the Republicans very clearly lump Social Security and Medicare in as an "entitlement."
But, no, Boomers aren't to blame for anything--they never have been. Look, people--retire already and let the children have your jobs. I fail to see why it is better for you to screw up their lives than for you to suffer from the ramifications of your own bad decisions. If you'd go along with the children and their Occupy Wall Street ideas rather than making fun of them, maybe the children could get something done there. Seriously, retire and go live someplace really cheap on what savings you have. Bye-bye.
Anthony, Good shot, but it was a hip shot and you missed most of the target. There are too many holes outside the target to mention them all. If you really want to get to some “ROOT” causes I suggest at you review your observations with two thoughts in mind. First; ask why at least five times – it is a technique used by Six Sigma practitioners to try to identify a root cause. Also; try applying “Categories of Legitimate Reservation” to your presumptions and see if they are real.
BTW, I am a BB albeit a tail-end BB.
Looks like you got enough OPIONS on political views and we know what opinins are….
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