Another Look at Retirement

Last time I wrote about the inability of most Americans to cover a $1,000 emergency from their savings. What will they do when they decide to stop working?

This article from CBS puts it bluntly. “The vast majority of older working Americans don't have sufficient savings to retire full-time at age 65 with their pre-retirement standard of living.” Most haven't even been saving at the rate they should have been from the start and sixty percent of those between 55 and 64 are not participating in company retirement plans like a 401(k). The facts that people are living longer and social security is on shaky financial ground only compound the problem. The obvious solution is to dramatically reduce their standard of living, continue working or both.

Similarly this promotional piece from Merrill Lynch reports “most American Baby Boomers under-save [for retirement] by about 20%, but almost two-thirds believe they can retire with a comfortable lifestyle.” They over-estimate how much their contributions will increase in the future and under-estimate how long they will be living in retirement. Most don’t even consider the additional heath care costs that may not be covered by Medicare.

This warning is backed up by an opinion piece on the Bloomberg site. “Too Many Americans Will Never Be Able to Retire." The solution suggested by this author is to increase the number of babies and immigrants, hoping to develop enough workers to support the aging population.

The article argues that this situation where many Americans can no longer look forward to a comfortable retirement and must continue to work is blamed in part on the financial crisis, but the above survey report belies that idea.

On the plus side, some see as a positive trend that more and more older people are still working, “because it adds to the economy.” But others see it as a sign that many will never be able to retire at all.

So his main argument comes down to the problem that the fertility rate in the US “has fallen to 1.8 in 2016, implying long-term population shrinkage.” This will lead to “fewer young workers to support an increasing population of retirees” through Social Security and Medicare contributions. That's why we need cheaper housing, generous child-tax credits and universal pre-K education, in order to bring down the costs of having children. 

Unfortunately, there are a couple of serious flaws in this approach. First, a lower birth rate is characteristic of advanced economies. As the BBC reports: “There has been a remarkable global decline in the number of children women are having.” The global fertility rate has dropped from 4.7 in 1950 to 2.4 children per woman by 2017. Three factors contribute to this drop: fewer deaths in childhood, greater access to contraception, more women in school and working. It’s not just the US, and it’s unlikely that encouraging more children or more immigration will have any effect on a worldwide trend.

Second, the idea of having more children to help support the older generation seems strange. Why should we reward the negligent behavior of parents by placing extra burdens on their children – more Social Security contributions and more taxes to support those "needed" government programs? Within families, grandparents only want the best for their grandchildren, but inter-generationally, they seem to have no problem dumping the cost of their extravagance and their inability to plan onto everyone else's grandchildren.