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April 12, 2013 at 6:09 AM

An answer to Jonathan Martin on Boomers, Gen X and retirement


I am 20 years older than you, and I read your column with interest. I agree with much of it. My generation did benefit from rising real estate, at least, the ones of us who bought real estate. We did benefit from low-cost public colleges, at least, those of us who went to class. Our arrival at the gates of Social Security does strain that system, and the trust fund’s projected exhaustion in 2033 bodes ill for you. But there are other considerations.

Social Security’s problems start now. It went cash-negative in 2010, as this NPR report says. The “trust fund” is a list of political promises, not a pile of assets the government can cash in. Anyway, the politicians will fix Social Security. Probably they will adopt the chained CPI (which Obama is in favor of), raise the cap on taxable pay and maybe raise the tax rate. They will do this because they will lose their jobs if they don’t. Don’t worry about it too much.

There is a lot of professional hand-waving about retirement, much of it by people who are trying to get something out of the government. You have to discount it. It is true that the defined-benefit pension plan is slowly dying out in the private sector. It’s a shame; such plans are wonderful. But they turn out to cost a lot more money than was advertised, and employers are shedding them. According to the Employee Benefit Research Institute, only 14 percent of private employees have such a plan.

The employees who have lost defined-benefit coverage have typically augmented or replaced it with defined-contribution coverage, generally a 401(k).  It’s not as reliable as a pension; the investment risk is on you, not your employer or the government. But if you participate—enough—and you avoid too many bad investment decisions, your risk of old-age poverty goes down.

EBRI has some interesting pie charts on the source of income for Americans over 65. Between 1974 and 2010, Social Security’s share (OASDI) fell from 42 percent to 39 percent, but was still the largest. The other fat slices of the pie are pensions and annuities, asset income (dividends, interest, rent); and earnings (work). Over the 36 years, work became more important and asset income less, but the remarkable thing is how similar those pie charts are a generation apart.

Those are statistics. We’re individuals, and in my Boomer generation, we’re all over the lot. I know Boomers who are loaded and Boomers who are broke. Throughout our working life there have always been differences in how much we earned, how much we saved, how much we borrowed, how smartly we invested, the kind of person we married, how many kids we had, and in what manner we were visited by Lady Luck. All that now means that in our 60s, we’re in really, really different positions.

You write, “The American compact used to be one of shared gain and shared sacrifice.” That was rhetoric. Don’t take it too seriously. It never was wholly true; most Americans are not egalitarians. It is still partly true, but less so. Maybe by the time you’re where I am, American culture could shift back toward egalitarian values, but I wouldn’t bet on it.

The real rule has always been to look out for yourself and your family because nobody else will. You can complain about the world around you—and if I were in your shoes, I’d be saying some of the same things as you. What good they will do, I don’t know. Good luck.

Comments | Topics: baby boomers, generation x, pension


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