Think retirement will be fun?

The economist Arnold Kling on the coming retirement wars:

I don't think of the long-term budget fight as being between Democrats and Republicans or between rich and poor. I look at it as a fight between people with funded retirements and unfunded retirements. 

If I have saved enough to support my lifestyle in retirement, then I have a funded retirement. If my neighbor who teaches in public school wants to support a similar lifestyle based on her pension, then she has a retirement that is somewhat unfunded. That is, as of now, her pension plan has only about fifty cents for every dollar of promised benefits. 

Social Security and Medicare also are unfunded. Their "trust funds" consist of government bonds. If I took care of my own retirement the same way, the drawer where I keep statements from mutual funds that I own would instead be filled with IOU's from myself. 

More important, the actuarial shortfall in Social Security and Medicare, like that in my neighbor's pension plan, is very large. 

Down the road, someone is going to get the shaft. It could be my neighbor, it could be me, or it could be both of us. That is, people who are relying on the unfunded systems--public sector pensions, Social Security, and Medicare--might find their benefits cut. Or people who are relying on personal savings could wind up having those savings taxed away in order to address the shortfalls in the public systems. Or all of us could have our savings eroded by inflation, from which we may not be able to protect ourselves. 

Have a nice day.

Thanks a lot, Arnie.

The new normal for retirement

An "unretirement index" based on surveys by Sun Life Financial indicates:

• More than 8 in 10 American workers believe they will need at least three years to rebuild their retirement savings as a result of the economic crisis — up from 64% a year ago. 
• More than half  the working Americans that responded (52%) expect to work at least three years longer than originally planned — with just as many believing they will retire at 70 as those who believe they will retire at 65.
• 70 is the “new 65” in terms of the expected retirement age in America, with just as many Americans expecting to retire at age 70 as those at age 65.

Unretirement is defined as working at least 20 hours per week after the age when one is eligible to receive Social Security benefits. Here's a picture of the current index.

You can create your own personal index here.

The surveys show us something about our thinking and actions. Today compared to two years ago:

• 14%  very confident in Social Security – down from 22%
• 16% very confident in Medicare – down from 20%
• 11% very confident in government prescription drug plans – down from 14%
• 22% very confident in receiving medical benefits from an employer – down from 25% 

Seventy-one percent of Americans who responded are now reducing their spending and 66% are reducing their debt. Of those trying to reduce spending:

• 88 % are spending less on entertainment
• 84% are eating out less
• 77% are cutting back on holiday shopping
• 72% are putting off a large purchase like a car or home improvement
• 57% are cancelling travel or vacation plans
• 29% delayed a routine or elective medical procedure

However, despite efforts to reduce spending, Sun Life says, almost a quarter of those polled (23%) are not currently saving for retirement at all.