5 retirement security threats to watch in 2011
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The oldest baby boomers start turning 65 on January 1st, and the biggest generation has plenty to worry about as it starts filing Medicare applications. The road to retirement security is filled with potholes; here are the five threats that worry me most looking ahead to 2011:
1. Social Security reform. Members of Congress and President Obama were for deficit cutting before they were against it, passing a massive $858 billion tax cut package this month. But they’ll be for deficit cutting again in 2011, and Social Security will be in the cross-hairs. Most of the deficit reduction plans issued this month by Washington’s serious people would lift the retirement age, and reduce cost-of-living adjustments.
The serious people should be mindful of the following myths and realities when Social Security comes up again for sacrifice in 2011:
Myth: The boomer age wave will push Social Security into insolvency and rob our grandchildren of their future.
Reality: Social Security has a $1.5 trillion surplus that has been built up — intentionally — since the 1980s to fund boomer retirements. They’re already paid for; the program’s solvency problem starts around 2035. And the real losers in Social Security “reform” will be GenXers and the generations that follow.
Myth: We should raise the Social Security retirement age, because we’re all going to work longer, anyway.
Reality: Working longer is a key strategy for improving retirement security ― for knowledge workers and professionals best positioned to pull it off. It doesn’t work well for workers who do physically demanding low-income jobs. Proposals to put these workers on disability benefits could be more expensive than just keeping the current retirement age rules.
Myth: None of the proposal Social Security reforms will impact today’s retirees.
Reality: revision of the cost-of-living adjustment formula would start impacting retirees in 2012.
Myth: Social Security is entitlement that is bringing down the U.S. economy.
Reality: Benefits are equal to 4.9 percent of gross domestic product (GDP) this year, and will rise to just 6.2 percent in 2035, when all baby boomers will be 65 or older, according to last year’s Social Security trustees’ report. After 2035, Social Security expenditures are projected to stay around that percent of GDP through 2085.
Social Security is one of the few retirement programs we have that works well. It keeps millions of seniors out of poverty every year, especially elderly women. Let’s solve the long-range solvency problem with new revenue, not benefit cuts. For example, removing the cap on the maximum amount of earnings taxed for benefits — currently set at $106,800 — could solve the problem almost entirely.
2. No fiduciary standard. The Dodd-Frank Act punted a critical question to regulators for further study: whether brokers at Wall Street and insurance companies should have to put their clients’ interests first, meeting the so-called fiduciary standard. Wall Street fought the idea tooth and nail during the legislative process; now the Securities and Exchange Commission is spending six months studying the question. Registered Investment Advisers (RIAs) already operate with a fiduciary standard; Wall Street firms and insurance companies argue that it would be counter-productive, increase their compliance costs, reduce profits, etc. etc. They prefer a much weaker “suitability” standard.
The suitability standard “has holes big enough to drive a truck through,” says fee-only planning guru Sheryl Garrett. Here’s what Garrett said when I interviewed her last year for my book:
I’ve tried to find a definition, and the best I can find is “reasonable.” But the investment only has to be reasonable at the moment it is made—not next week or next year. And the definition doesn’t cover where the money that’s being invested came from. I’ve seen situations where advisers talked clients into taking money out of a safe, government-insured defined benefit pension and putting it into a risky variable annuity. That can fall within the definition of reasonable.
3. Strangling health reform. Republicans want to kill the new health reform law by de-funding, by challenging its constitutionality or both. They were put in position to do so by seniors worried about Medicare, even though the new law is a net positive for senior health care. Just as important, the Affordable Care Act (ACA) will help millions of older Americans who are too young for Medicare get decent health insurance.
RIAs should be having a PR field day with this one. Suggested attack line: “You have done enough. Have you no sense of decency sir, at long last? Have you left no sense of decency?” ACA needs to be implemented properly over the next few years. Doing so will produce a huge improvement in retirement security; failure will get us more of this.
4. Unemployment. Joblessness as a threat to retirement may sound like oxymoronic. But job loss at midlife wrecks retirement plans. And in November, about 2.2 Americans over age 55 were out of work. As the economy slowly recovers, we’re going to need strategies for re-training and re-employing older workers as part of broader efforts to restore retirement security.
5. Housing mobility. Before the housing bubble burst, retirement real estate was on a roll. Older Americans could leverage high housing prices to buy second homes, move to the Sun Belt, or just tap into equity to generate cash. The real estate crash put a stop to all that. The Joint Center for Housing Studies of Harvard University (JCHS) reports that mobility rates among older U.S. homeowners has seen the sharpest drop of all age group, falling 39 percent since 2005. JCHS study predicts that some homeowners “may never be able to retire elsewhere. Older homeowners need to do a major re-think about retirement living.
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Reuters Money
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As evidenced by the results of the last election, Americans don’t care. No, their only concern is tax cuts, tax cuts, did I mention tax cuts? Nevermind that this will assure national bankruptcy. No, rich people deserve to keep all that money, even when they make decisions that bring world economies to the brink of collapse (bankers anyone?). Let’s just let the folks at the top continue to get more of the income pie, after all the wealthy always have our best intersts at heartm right? Maybe when have have 90% of the wealth, they will throw the rest of us serfs some crumbs.
The “patsy” generation has a lot to worry about.
First, we have the largest landowner in North America, the US Government, which has taxed us away for decades with promises of benefits, which cannot “afford” to keep its promises to us. Now the cannot default on commitments to South Korea, Israel, Afghanistan, Iraq, Saudi Arabia and another third of the countries on this planet. But the can afford to default on promises to us. After they have collected the premium. And accumulated massive amounts of real property.
Second, our retirement savings are about to get confiscated with a new fangled tax that retirement plans are not designed to avoid. A Value Added Tax / VAT, or federal sales tax. This new tax, which our retirement plans cannot avoid, is so large it will replace the income tax. Of course the attraction of the Federally touted retirement plans we have been paying into for the past 50 years is that they reduce Federal Income Tax burdens in later life. Surprise!! They have been watching Argentina.
Third, we are inflating the value of the dollars in our retirement accounts to make up for the cost of providing cheap discount cruises to our predecessors. Say hello to the $10. cup of coffee.
Yes, we have some “concerns”.
I retired at age 52 after having put in 30yrs as a “Union Sheet Metal Worker. I thank my “Lucky Stars” every day for the Union to have put in place a decent retirement package that even the younger/still working guys could appreciate and live with! The notion of being able to survive today financially in retirement with only a 401K is absurd unless you’re disciplined enough and well-off enough to siphon money into a savings account and still be able to provide for your family!!! Social Security for us is just as important in adding to our over-all standard of living each month.
WE’RE VERY FORTUNATE INDEED!!!
PS,
Our health-plan is relatively decent but because of the sky-rocketing cost of our plan and others like it it’s impacting of monthly pension check but it’s better than having NO insurance at all until “Medicare” finally kicks in!!!
$1.5 trillion stashed away. Great! I am glad they finally adopted Al Gore’s lock box. I shall worry no more.
As an retired auditor of retirement plans, I can tell you that many many people now only have a 401(k) plan. Most of the non highly compensated employees can only afford to put in very little towards their retirement.
There is going to be a lot of people retiring with very little in their retirement plan in the near future. When I began as an auditor, many employer had Defind Benefit Plans that promised a percentage of the employees compensation at retirement, or a Profit Sharing Plan or a Money Purchase Plan, in which the employer made contributions. Employers found that it was much cheaper to let the employees fund their retirment, and the employees thought a 401(k) was a good thing. Not if it’s replacing something much better.