2011 Retirement En Masse

[DFW5Traveler]

Baby boomers begin retiring en masse in 2 days. Source

1. Beginning January 1st, 2011 every single day more than 10,000 Baby Boomers will reach the age of 65. That is going to keep happening every single day for the next 19 years. How will it affect the burgeoning economy?
2. According to one recent survey, 36 percent of Americans say that they don't contribute anything at all to retirement savings.
3. Most Baby Boomers do not have a traditional pension plan because they have been going out of style over the past 30 years. Just consider the following quote from Time Magazine: The traditional pension plan is disappearing. In 1980, some 39 percent of private-sector workers had a pension that guaranteed a steady payout during retirement. Today that number stands closer to 15 percent, according to the Employee Benefit Research Institute in Washington, D.C.
4. Over 30 percent of U.S. investors currently in their sixties have more than 80 percent of their 401k invested in equities. So what happens if the stock market crashes again?
5. 35% of Americans already over the age of 65 rely almost entirely on Social Security payments alone.
6. According to another recent survey, 24% of U.S. workers admit that they have postponed their planned retirement age at least once during the past year.
7. Approximately 3 out of 4 Americans start claiming Social Security benefits the moment they are eligible at age 62. Most are doing this out of necessity. However, by claiming Social Security early they get locked in at a much lower amount than if they would have waited.
8. Pension consultant Girard Miller recently told California's Little Hoover Commission that state and local government bodies in the state of California have $325 billion in combined unfunded pension liabilities. When you break that down, it comes to $22,000 for every single working adult in California.
9. According to a recent report from Stanford University, California's three biggest pension funds are as much as $500 billion short of meeting future retiree benefit obligations.
10. It has been reported that the $33.7 billion Illinois Teachers Retirement System is 61% underfunded and is on the verge of complete collapse.
11. Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern's Kellogg School of Management recently calculated the combined pension liability for all 50 U.S. states. What they found was that the 50 states are collectively facing $5.17 trillion in pension obligations, but they only have $1.94 trillion set aside in state pension funds. That is a difference of 3.2 trillion dollars. So where in the world is all of that extra money going to come from? Most of the states are already completely broke and on the verge of bankruptcy.
12. According to the Congressional Budget Office, the Social Security system will pay out more in benefits than it receives in payroll taxes in 2010. That was not supposed to happen until at least 2016. Sadly, in the years ahead these "Social Security deficits" are scheduled to become absolutely horrific as hordes of Baby Boomers start to retire.
13. In 1950, each retiree's Social Security benefit was paid for by 16 U.S. workers. In 2010, each retiree's Social Security benefit is paid for by approximately 3.3 U.S. workers. By 2025, it is projected that there will be approximately two U.S. workers for each retiree. How in the world can the system possibly continue to function properly with numbers like that?
14. According to a recent U.S. government report, soaring interest costs on the U.S. national debt plus rapidly escalating spending on entitlement programs such as Social Security and Medicare will absorb approximately 92 cents of every single dollar of federal revenue by the year 2019. That is before a single dollar is spent on anything else.
15. After analyzing Congressional Budget Office data, Boston University economics professor Laurence J. Kotlikoff concluded that the U.S. government is facing a "fiscal gap" of $202 trillion dollars. A big chunk of that is made up of future obligations to Social Security and Medicare recipients.
16. According to a recent AARP survey of Baby Boomers, 40 percent of them plan to work "until they drop".

[Mazomaniac]

Ah, I see that the Ministry of Propaganda has been busy again.

So much to debunk, so little time . . . .

Let's just focus on one glaringly horrible example, shall we?

Originally Posted by DFW5Traveler

Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern's Kellogg School of Management recently calculated the combined pension liability for all 50 U.S. states. What they found was that the 50 states are collectively facing $5.17 trillion in pension obligations, but they only have $1.94 trillion set aside in state pension funds. That is a difference of 3.2 trillion dollars. So where in the world is all of that extra money going to come from? Most of the states are already completely broke and on the verge of bankruptcy.

No, no, no, no, no, no, no, and finally, no.

As is typical with Ministry of Propaganda material, we're stretching things just a bit. If you actually read the Novy-Marx paper (which can be found here) you'll discover that there's a little more to the story than this simple quote would imply.

To sum it up, the Novy-Marx paper is a theorhetical piece that suggests current state accounting practices for pension funds are flawed. In particular, the paper suggests that the current practice for valuing pension assets and liabilities is too simplistic and overly optimistic. The paper argues that the states should value their asset/liability balance based on "risk-free" investments like treasuries at 3% rather than on historical market returns that include equity and real estate investments which yield an average of 8%.

So how do the authors get to this $3.2T shortfall figure? They get there by assuming that states really are going to earn only 3% returns on their pension funds over the next 15 years instead of the 8% they are earning now. In other words, if every single pension plan in every single state underperforms the historical stock market return by 60% in every single year for the next 15 years then the states will have a collective $3.2T shortfall in their pension systems. That's what the authors think is going to happen.

Yeah, and Obama was born in Africa, 9/11 was a CIA inside job, Kennedy was shot from the grassy knoll, and the contrails that form behind high-flying jumbo jets are really mind-control drugs being spread to make the population more docile during the impending communist takeover.

Even the authors admit that their scenario is circling in low earth orbit. Quoteth the paper:

"If state pension funds generally invested in a 60/40 mix of stocks and bonds, and if stocks have an 11.4 percent expected return (again, their 1927–2008 historical average) and the risk-free rate is 3 percent, then the expected return is indeed roughly 8 percent."

In other words, current accounting and investment practice, reflecting more than 80 years of market experience, actually tells us that state pension funds going to do fine. Shocking. At the historical 8% return rate state pension funds are fully funded for several decades into the future. There's no crisis. There's no panic. The sky isn't falling. Move along, there's nothing to see.

But don't believe me, here's the GAO report that came out at the same time. They conclude that, like everybody else, states took a hit in the recession but that, like everybody else, they'll recover just fine. Reports from the Government Accounting Standards Board and the Pew trust agree with the GAO (although Pew does paint a slightly less rosy picture).

But hey, why rely on government studies and reports from major think tanks as a basis for running a country? That's not gonna get you anywhere.

Nooooo.

If you're gonna scare people enough to get them to vote for a Tea Party candidate you need to pull out the good stuff. You need to dig up an obscure paper from a second-rate economics journal, yank a quote from it that's completely out of context, blow up the conclusions based on the most extreme assumptions you can, and then completely ignore the fact that the authors themselves admit that their theory is wholly contradicted by historical data.

That's how the Ministry of Propaganda works . . . . and they're getting better at it every day.

I could go on and on about pretty much every other "fact" cited in the original post, but I think everybody gets the point. This piece came from the same people who think the US is way behind the Russians and Chinese in the construction of nuclear bomb shelters. Americans, they say, are "sitting ducks" in the event of nuclear holocaust. The fact that America isn't building shelters and "has only 5,113 nuclear warheads in its stockpile" is a major concern to them. Good thing we can buy things like gold coins, emergency food rations, and survivalist water filters directly from their website. We wouldn't want to scare the bejezus out of the population without making a profit on it, now would we?

It really is getting to be 1984 around here. Being fat, drunk, and terrified is no way to go though life . . . but that's exactly how the Ministry of Propaganda likes you.

Cheers,
Mazo.

[rednecksatyr]

Perhaps I am too conservative for todays ideas of fiscal odjectives. But I cant get away from the fact that if I ran my personal budget in the manner our elected officials seem to embrace for our nation I would be destitute in six months.

The GAO, in my opinion, is likely to report on the economy in a manner that pleases their bosses (politicians for the most part).

Unfortunately the Executive and Legislative branches of our government seem to be more interested in sustaining their political position than balancing the budget.

The political parties seem to have the abilty to make any elected official in congress a puppet for the large $$$ contributors to the system.

To paraphase a song of yesteryear , "Toe the line and vote our trash or you dont get no spending cash. Yakkety yak - Dont talk back."

[DFW5Traveler]

Originally Posted by Mazomaniac

...It really is getting to be 1984 around here. Being fat, drunk, and terrified is no way to go though life . . . but that's exactly how the Ministry of Propaganda likes you.

Cheers,
Mazo.

I would agree about 1984 coming to a theater near you and it is not limited to either party.

"Big Brother is Watching You" Walmart and DHS

"War is Peace" in a continued war campaign in multiple theaters.

"Freedom is Slavery" is a continuation of reduced individual rights. e.g. Patriot Act

Whistle-blower pilot targeted by govt.

Just a few examples of a continued march against the rights of We the People.

Cheers

[I B Hankering]

Originally Posted by Mazomaniac

Yeah, and Obama was born in Africa, 9/11 was a CIA inside job, Kennedy was shot from the grassy knoll, and the contrails that form behind high-flying jumbo jets are really mind-control drugs being spread to make the population more docile during the impending communist takeover.

No, the government (beginning with California, et al) is going to do that by regulating the THC value in "legal" marijuana sales. j/p

[Can I Play Too???]

Big Brother is watching. No need to burn all of the books because no one reads them anymore. Conspiracy theories are so mainstream now. What do we really know as fact?

[ClairJordan]

Originally Posted by Can I Play Too???

Big Brother is watching. No need to burn all of the books because no one reads them anymore. Conspiracy theories are so mainstream now. What do we really know as fact?

We know we need to plan to work until age 70! We need to keep our bodies strong and our minds active, be proactive in our health care (Canadians get one massage a month built in to their health care system, if they know how to ask for it; preventive maintanence) and diversify our long term investments.

Or, let your kids take care of you, as they do in Asian societies.
Shoot! I forgot to have some!

Prehaps there is no finish line...

[I B Hankering]

Originally Posted by Mazomaniac

Ah, I see that the Ministry of Propaganda has been busy again.

It really is getting to be 1984 around here. Being fat, drunk, and terrified is no way to go though life . . . but that's exactly how the Ministry of Propaganda likes you.

Cheers,
Mazo.

IKR I watched Polanski’s latest film “The Ghost Writer.” I was blown away to find out that the CIA could outsmart England’s SIS and secure the election of a U.S. puppet as Prime Minister of England just to support the U.S. in an eventual war against an Iraqi dictator. Really amazing stuff!

[Fastcars1966]

No, no, no, no, no, no, no, and finally, no.
All though you make very strong arguments, the facts are that the funds have been mismanaged, and if you take all the money that I have paid to SS and apply a 3% gain and the laws of 72 I would retire a millionaire. Instead I will have had to invest in my own private fund to reap such rewards. I have looked at the statements from SS and it is peanuts compared to what it should be. Tax me and put me in charge of my own retirement.

[discreetgent]

Originally Posted by Fastcars1966

No, no, no, no, no, no, no, and finally, no.
All though you make very strong arguments, the facts are that the funds have been mismanaged, and if you take all the money that I have paid to SS and apply a 3% gain and the laws of 72 I would retire a millionaire. Instead I will have had to invest in my own private fund to reap such rewards. I have looked at the statements from SS and it is peanuts compared to what it should be. Tax me and put me in charge of my own retirement.

First, many people won't pull that off on their own. Second, lets say Congress had passed the private saving account bill for SS in 2005 or 2006. And then there is a market debacle in say 2015 (2008 there wouldn't have been that much in them yet) and there are millions of people screaming that the government should bail them out, what do you think will happen?

[nevergaveitathought]

Originally Posted by ClairJordan

(Canadians get one massage a month built in to their health care system, if they know how to ask for it; preventive maintanence)

how many pluses is it?

[pjorourke]

Originally Posted by discreetgent

First, many people won't pull that off on their own. Second, lets say Congress had passed the private saving account bill for SS in 2005 or 2006. And then there is a market debacle in say 2015 (2008 there wouldn't have been that much in them yet) and there are millions of people screaming that the government should bail them out, what do you think will happen?

We 9the population) figured out "smart phones", investments aren't that much more complicated. Generational investment trusts would work fine.

There are mechanisms that could be constructed that would provide retirement cash flow liquidity to those eligible for retirement that would protect against short-term market swings without costing the taxpayers any money. It could be paid for my a modest charge/tax/load on such retirement funds -- not at all dissimilar to what Wall Street does with synthetic stock products. The same approach could be used to provide retirement annuities once eligible or survivor benefits. The key is that if the market drops 20% and you don't have to touch the money for 30 years (because you are in your 30's) you really don't have a loss. Those ups and downs are part of the expected long-term return expectations of CPI+7% for equities.

The bigger picture view of private accounts is that Defined Contribution plans are the only "honest" for of retirement account. Any Defined Benefit plan is subject to moral risk that the sponsor will fuck with the benefit formula or the funds. The examples of such are legion among both public and private retirement arrangements. The best single example is the mess in public employee pensions that is going to make the recent mortgage debacle look like a walk in the park.

The other big advantage of private accounts is that they put real money into "productive" investments -- not just more government spending. Long-term productivity gains are what actually provide the equity returns.

Of course the downside of private accounts is that there is a ton of money invested in private businesses that some political hack (cough Obama) might be tempted to try to bend to their own purposes. That is why a key component of these plans HAS to provide for pass-through voting. You can't leave that in the hands of the government.

[discreetgent]

re: expected ups and downs. Yes, agreed, but I am worried about how the politics of it plays out if the masses start screaming; you assume that it would all be properly explained and understood and I am skeptical on both counts.

re hacks: I can't imagine that ANY administration wouldn't have political hacks that might be tempted to bend to their own purposes those sums of money be they liberal, conservative, libertarian, etc.

[charlestudor2005]

Originally Posted by pjorourke

We 9the population) figured out "smart phones", investments aren't that much more complicated. Generational investment trusts would work fine.

There are mechanisms that could be constructed that would provide retirement cash flow liquidity to those eligible for retirement that would protect against short-term market swings without costing the taxpayers any money. It could be paid for my a modest charge/tax/load on such retirement funds -- not at all dissimilar to what Wall Street does with synthetic stock products. The same approach could be used to provide retirement annuities once eligible or survivor benefits. The key is that if the market drops 20% and you don't have to touch the money for 30 years (because you are in your 30's) you really don't have a loss. Those ups and downs are part of the expected long-term return expectations of CPI+7% for equities.

The bigger picture view of private accounts is that Defined Contribution plans are the only "honest" for of retirement account. Any Defined Benefit plan is subject to moral risk that the sponsor will fuck with the benefit formula or the funds. The examples of such are legion among both public and private retirement arrangements. The best single example is the mess in public employee pensions that is going to make the recent mortgage debacle look like a walk in the park.

The other big advantage of private accounts is that they put real money into "productive" investments -- not just more government spending. Long-term productivity gains are what actually provide the equity returns.

Of course the downside of private accounts is that there is a ton of money invested in private businesses that some political hack (cough Obama) might be tempted to try to bend to their own purposes. That is why a key component of these plans HAS to provide for pass-through voting. You can't leave that in the hands of the government.

1. Figured out smart phones. Speak for yourself. The whole concept turns me off, especially the easy access to social networking. Does that mean the whole idea is beyond me, and if so, doesn't this make dg's argument?
2. What about those of us who aren't in our 30s? Are we locked out?
3. Let's remember that TARP began with Bush. Oh, but I guess we turn a blind eye when it's a Republican. And I guess Tea Partier is yet to be determined?

[pjorourke]

Originally Posted by charlestudor2005

1. Figured out smart phones. Speak for yourself. The whole concept turns me off, especially the easy access to social networking. Does that mean the whole idea is beyond me, and if so, doesn't this make dg's argument?
2. What about those of us who aren't in our 30s? Are we locked out?
3. Let's remember that TARP began with Bush.

1. A generational fund uses professionals to put together a proper mix for people say born in 1950-1955. Just look up your birth date and send the money. I think even you can handle that.

2. No, the guy that is 30 is the one not getting anything when the market dips. Old farts that were drawing their retirement benefits would be protected.

3. Yes, Bush did the smart TARP -- the part that stopped the bank run. In the aggregate, that money was all paid back with interest. The rest of TARP -- not so much.