Retirement Fantasies and Hard Reality

Definitely palm trees, two in fact. With my Oaxacan hammock suspended between them, and me cooled by gentle ocean breezes while being kept company by a thick stack of great books.

hammock-blogThat’s my personal retirement fantasy. Everyone should have one. We all know that a rich fantasy life will get us through the worst times. Because my friend, when it comes to retirement, this is that time.

The numbers don’t lie. Social Security is all there is, income wise, for 35% of current retirees, but they do have Medicare, the great social safety net for medical care. Both Social Security and Medicare are far from perfect, but together they provide an important measure of safety and dignity for the elderly and most vulnerable among us.

Recently I sat in a retirement seminar where the financial experts polled those who thought Social Security would be there for them at retirement. Being an unapologetic optimist, I was surprised to see that not one of the people under 40 believed the most important social program of the 20th century would survive long enough to help them retire.

While my faith in these institutions is unshakable, I also know that when it’s my turn to quit the daily grind, I dream of something more than the basics. But the same bleak stat holds true for current workers like me as well: 1 in 3 don’t have retirement savings and will likely be living solely on SSI, according to the nonprofit Employee Benefit Research Insititute. At roughly $1,000 a month, SSI won’t pay my mortgage, let alone fund my Fantasy Island.

So what are we supposed to do? Young, middling and older workers? The endless stream of retirement advice stories always urge us all to save more toward our retirement – hardly a news flash. That’s the trick isn’t it. I know that eating less junk and exercising more will improve my health and waistline, but knowing it is one thing, and actually doing it is a whole other mountain to climb.

The majority of working Americans are trying to do the right thing, according to the nonprofit Employee Benefit Research Institute. According to EBRI’s Dallas Salisbury, about 2/3 of working Americans do have some retirement savings. Here’s the breakdown:

  • 27 percent report less than $1,000
  • 16 percent between $1,000 and $9,999
  • 11 percent between $10,000 and $24,999
  • 12 percent between $25,000-$49,999
  • 36 percent $50,000 or more

The reality is, however, that he largest portion, about half of Americans, have $2,000 or less saved for retirement.

What about pensions?
It’s doubtful that pensions will save us all. There are more than 16 million public employees nationwide, and most of them of them are unionized or get richer benefits including pensions because they work in government sectors that provide similar benefits to their unionized colleagues. So most of those millions are lucky enough to have traditional pensions.

But while they get pensions, many of them don’t get Social Security on top of that. For instance, California’s cops and teachers average $22,000 per year in pension benefits, but without Social Security, that’s still pretty far from retirement Shangri La.

And of those public pensions, there is danger of them being underfunded: that is, not enough in the bank to cover expected retirement costs for future workers.

Public pension liability nationally is a perilously deep hole, according to Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern University. The researchers calculated the combined pension liability for all 50 U.S. states and found they collectively face $5.17 trillion in pension obligations, but they only have $1.94 trillion set aside in state pension funds. That is a difference of 3.2 trillion dollars.

Why isn’t capitalism working for working Americans?

Making ends meet is getting harder, even for those earning over six figures a year, according to a survey that found 30 percent of Americans with salaries over $100,000 per year — $100k plus per year! – are living paycheck to paycheck.

The 2009 survey by the employment website CareerBuilder.com found the strapped high-wage earners increased by nearly 10 percent from the previous year.

Among total workers surveyed at all salary levels, a full 61 percent said they always or usually live paycheck to paycheck, up from 49 percent in 2008 and 43 percent in 2007.

“Companies have reduced salaries, and people are used to creating a lifestyle with what they were making a year ago or so,” says Career Builder’s Richard Castellini. Thirty-six percent said they don’t contribute anything to retirement savings like a 401(k) or a individual retirement account.

Sadly, corporations don’t like sharing their wealth with the people who actually do the work to create that wealth. As the income gap between worker and executive widens, the traditional pension plan that came with corporate jobs has withered away. The majority of corporations that still offer retirement plans offer the less lucrative self-funded plans like 401ks that financial experts say generally don’t provide the value and put more of the risk on the workers.

And of the corporate pension plans that remain, by 2008, America’s 100 largest corporate pension plans were short $217 billion.

The federal agency overseeing pensions, the Pension Benefit Guaranty Corporation, estimates the number of pensions at risk inside failing companies more than tripled more than tripled during the historic recession that hit during George W. Bush’s troubled presidency.

According to another recent survey, 24% of U.S. workers admit that they have postponed their planned retirement age at least once during the past year.

A pension expert told California’s Little Hoover Commission in 2011 that state and local government bodies in the state of California have $325 billion in combined unfunded pension liabilities, the bill the state owes its public workers. That breaks down to $22,000 for every working adult in the Golden State.

So what’s the answer? To not get really sick, to land a job with a pension, to find a company to work for that believes in not siphoning the lion’s share of profits to the inner circle of executives. In other words, fantasy.

While this wall of facts are indeed bleak, I refuse to curl up into a ball and curse the greedheads who rigged the system against us honest workers. I also refuse to just ignore the numbers and run off to the movies. It’s always important to know the score. And so, armed with the hard numbers, I do what I can to cut my own costs and put aside something for the future. Because I refuse to give up on my hammock and my dreams. I earned them.

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