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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

March 19, 2013 at 10:44 AM

The Alpo Generation

The Wall Street Journal reports today, “Workers and employers in the U.S. are bracing for a retirement crisis, even as the stock market sits near highs and the economy shows signs of improvement.” According to a report by the Employee Benefit Research Institute, 57 percent of workers surveyed had less than $25,000 in total household savings and investments (excluding their homes), up from 49 percent with so little in 2008. According to the report, “Retirement savings may be taking a back seat to more immediate financial concerns: Just 2 percent of workers and 4 percent of retirees identify saving or planning for retirement as the most pressing financial issue facing most Americans today. Both workers and retirees are most likely to identify job uncertainty (30 percent of workers and 27 percent of retirees) and making ends meet (12 percent each).” Only 18 percent were very confident they would have a financially secure retirement.

This is only the latest evidence of the challenges facing large numbers of aging Americans. This is the first generation that will retire heavily dependent on the social experiment called 401(k)s — and they’re proving to be a disaster. In 2010, the median household retirement account balance for those between 55 and 64 was only $120,000. And that’s if they have a 401(k) or set up an IRA in an era of diminishing wages and benefits: One third of households don’t have a retirement account of any kind. The average monthly Social Security benefit of $1,230 won’t go far.

The Great Recession destroyed 40 percent of Americans’ personal wealth — unless you’re in the 1 percent — and, as the Washington Post reported:

For the first time since the New Deal, a majority of Americans are headed toward a retirement in which they will be financially worse off than their parents, jeopardizing a long era of improved living standards for the nation’s elderly, according to a growing consensus of new research.

People across the ideological spectrum can find fodder in this. Conservatives can rightly say that many people didn’t take enough personal responsibility and save more. What passes for liberals now can correctly point to the elimination of guaranteed pensions (corporations are amassing record cash), stagnant and falling wages, job insecurity, and the weakening of the social safety net and sense of common purpose. When 401(k)s were rolled out widely in the 1980s, few employees were well educated about the stakes involved. Instead, they were often a selling platform for stocks during the long bull market. Often, 401(k) choices were limited.

Many who dutifully put money into these accounts were repeatedly set back by bubbles and busts. Millions of good jobs went away and were replaced, if at all, by positions paying less, offering fewer benefits and often part-time. Companies gamed the system to get out of pension “burdens” (aka the solemn promises made to the workers who created those corporations’ value and profits).  And our business culture relentlessly pushed consumerism, not savings. Remember after 9/11, when President George W. Bush said it was our patriotic duty to go shopping? Americans who saw their incomes stall and, unlike previous decades, failed to benefit from their rising productivity went into debt to keep up with “the American dream.”

Some will no doubt comment, perhaps even honestly, that they are fine thanks to their careful money management. And make no mistake, this will be part of the great divergence: A friend just retired from a major corporation where he dodged repeated layoffs to stay for 30 years and leave with a secure pension. He’s now traveling the world. Many more won’t be so fortunate. For all of President Obama’s rhetoric castigating the Republicans for being the party of “you’re on your own,” he is presiding over just such a looming disaster. It is already hurting individuals and families, largely in silence. But ahead is a gathering storm. It’s causes and consequences will do great damage to America, however much we spend on arms.

And Don’t Miss: The economic case for rail subsidies | The Atlantic

Today’s Econ Haiku:

Happy nerds, good birds

SPEEA techs OK contract

Next, the Dreamliner

0 Comments | More in Poverty, Retirement, Stock market, Working America

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