In A Lost Generation? I described how our deteriorating economy screws young Americans, whose job and life prospects are dismal. Today I turn to the opposite end of the age spectrum, those who are nearing or in retirement. The "Great" recession has been a disaster for them too. For the sake of completeness, I should add that many in Middle Age are also high & dry, so the damage runs across-the-board. I don't want to leave anybody out.
The problems of the elderly were described in the Wall Street Journal's Another Threat to Economy: Boomers Cutting Back—
America's baby boomers—those born between 1946 and 1964—face a problem that could weigh on the economy for years to come: The longer it takes for the economy to recover, the less money they'll have to spend in retirement.
Policy makers have long worried that Americans aren't saving enough for old age. And lately, current and prospective retirees have been hit on many fronts at once: They have less money, they earn less on what they have, their houses aren't rising in value and the prospect of working longer to make up the shortfall has dimmed significantly in a lousy job market.
"We will have to learn to make do with a lot less in material things," says Gary Snodgrass, a 63-year-old health-care consultant in Placerville, Calif. The financial crisis, he says, slashed his retirement savings 40% and the value of his house by about half.
Despite the market's rebound from the lows of 2009, nest eggs remain severely impaired. As of the first quarter of 2010, net household assets—homes, 401(k) plans, pension assets and other investments minus debts—stood at $54.6 trillion, down 18% from the end of 2007. That's an average of about $171,000 per person, much of which is concentrated in the hands of the wealthiest.
Spending on health care & insurance has increased. Everything else decreased. But when health care spending goes up, so does GDP, and we all know how important that is.
Good Job, America!
Not only have retirement savings, assuming there were any, taken a big hit, but now there are signs that the elderly are withdrawing money from those savings, or taking out loans against their nest egg, to make ends meet—
Fidelity also found that the percentage of 401(k) participants either initiating a loan or a hardship withdrawal also increased. Loans initiated over the past 12 months grew to 11% of total active participants from 9% a year ago. The number of participants with loans outstanding also increased two percentage points to 22% in the second quarter. The average loan amount at the end of the second quarter was $8,650 with an average loan duration of three and a half years.
The New York Times reports that "investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds." The Times portrays the equity withdrawals as a flight to safety, but as Tech Ticker notes, older Americans are taking money out to pay their bills—
Perhaps the biggest reason of all [for equity withdrawals] hasn't gotten enough attention: Americans are making due with less and don't have the money to put into stock funds, and many are taking money out of their investments to pay for basic necessities like food, clothing and shelter.
With wages stagnant for those who still have a job "a lot of people are having to tap into their nest egg to keep their living standards going," says Damien Hoffman, co-founder of WallStCheatSheet. "A lot of people are living out of principal. There's no other way to get around that."
Would-be retirees trying to rebuild their retirement accounts have nowhere to turn. Their houses are obviously not appreciating in value, and Fed policy designed to help the banks also screws the elderly. From the WSJ article—
Banks, home buyers and bond issuers are all benefiting as the U.S. Federal Reserve holds short-term interest rates near zero to support a recovery. But for many of the 36 million Americans who will turn 65 over the next decade—and even for the 45 million who have another decade to go— the resulting low bond yields, combined with a volatile stock market, are making a dire retirement picture look even worse.
Low yields present retirees with a difficult choice: Accept the lower income offered by safer bonds, or take the risk of staying in the stock market. Either way, their predicament could put a long-term damper on the consumer spending that typically drives U.S. growth.
"If these rates stay as low as they are, then a lot more people are going to be hurting," says Jack Van Derhei, research director at the Employee Benefit Research Institute...
Damned if you do, damned if you don't. Either take it in the shorts by accepting low bond yields or risk everything by gambling with the sharks in the stocks casino. Some choice. The Wall Street Journal also notes that "many economists assumed people would solve their retirement problems simply by staying in the work force longer"—
"The recession has blown that idea out of the water," says Alicia Munnell, director of the Center for Retirement Research at Boston College and co-author of a 2008 book that advocated working longer...
With the overall unemployment rate hovering at 9.5%, many older workers have now found themselves at the back of the line to return to the work force. "Many employers seem to think it is not worth their time or effort to train me in a position," says Kathleen McCabe, 59, a former apartment manager in Tulsa, Okla., who has been out of work since April 2009. "They assume I will leave for retirement soon."
Ha! I wish I had a buck for every time many economists assumed something that turned out to be complete bullshit.
Investors generally can not get decent returns on their money. The elderly are a special case because they must live off what they managed to accumulate over their working lives. Now a large proportion of that nest egg is gone, and there is no way to get it back—it's gone for good. Since our economy will be depressed for a long time to come, we are only at the beginning of the problems the elderly will face in coming years. For all but the wealthy, the world is a more impoverished place.
Here's a video from Tech Ticker discussing some of these issues. The story is called For America's Middle Class, the Hits Just Keep on Coming. Good Title.
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