Tom Murphy
RedwoodAge.com
Barring a long absence from these shores, you’re probably already aware it’s getting harder to retire in the United States.
Americans have been told so many times that Social Security will go bankrupt that two out of three Gen Xers say they’ll never retire. Only one in three baby boomers are in line to receive pensions. And government retirement benefits face continual attacks as conservative politicians seek ways to pay for the mounting debt from the wars in Iraq and Afghanistan.
With this already gloomy backdrop, one of the nation’s best-known financial authors, Roger Lowenstein, is touring the country to promote his latest book: While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis.
As in his past books about the dot-com bust or the rise of billionaire Warren Buffet, Lowenstein treks down well-trodden paths, leveraging his background as a journalist to reinforce what many already believe. Unfortunately, Lowenstein does little to dispel the myths surrounding what is unarguably a serious problem.
In a recent stop at a bookstore in Corte Madera, Calif., for example, Lowenstein regaled a mostly gray audience with the story of how a young Walter Reuther helped the United Auto Workers wrest pension guarantees away from the Big 3 automakers during the 1950s, and how the inability to pay for those benefits was openly discussed as early as the 1970s.
He revisited the Bush administration's failed efforts to privatize Social Security, and corporate America's more successful efforts to shift the burden of retirement onto workers through the replacement of defined benefit plans, like pensions, with self-directed savings plans, like 401(k)s.
Regarding the latter, he noted the percentage of workers expecting pensions has dropped to 18 from 60, but notes the average 401(k) in the US is only $31,000. According to recent studies, that's barely enough to pay for nine months in a typical assisted living center.
He warned that public pensions are in particularly bad shape. Illinois is "hopelessly in hock," and "New Jersey is trying to sell the Jersey Turnpike" in the hope of saving its "seriously, seriously underfunded" public employees pension system.
Pay to Play
"We want the benefits, but we don't want to pay for them," he said.
Again stating the obvious, he suggested companies and states should be required
to set aside funds to adequately fund retirement debt.
While few can argue with such sweeping statements, it's disappointing to see a nationally prominent writer - Lowenstein may be best known as a long-term Wall Street Journal reporter who penned the popular Heard on the Street column - pour $4 gasoline on the already roaring pension bonfire.
For example, he pointed to the worker-to-retiree ratio, noting that soon there will be only two workers paying into Social Security for each person receiving benefits. That is down from a peak of 8:1, leaving Lowenstein, and many conservative politicians, to argue the system cannot long survive.
This argument misses, however, that all the money paid into the system by baby boomers over the past four decades is what should be paying the benefits for that large generation, along with the interest paid on that cash as Uncle Sam sat on it. Money paid into the system today will help fund benefits for the much smaller generation that follows. And never did Lowenstein mention how run-away medical costs are the biggest bugaboo for holding retirement costs in check. Perhaps that's the subject of the next "crisis" book.
Corruption,
Mismanagement & Greed
The three examples he cited certainly fall into the category of crises, but not
because they involve pensions. The problems stem from corruption, mismanagement and
greed.
First of all, San Diego did not declare bankruptcy. It came close, but only because of a scandal in which corrupt politicians deliberately underfunded the pension fund.
Similarly, General Motors executives used profits from boom times to pad corporate profits instead of setting aside cash for promised retirement benefits. Meanwhile, the company continued to turn out gas-guzzlers, losing its competitive advantage - and hundreds of billions in profits - to Toyota, Honda and other Japanese companies that recognized growing consumer demand for fuel-efficient cars.
And, last we heard, the New York City subway system is still running, despite a 2005 strike in which the union gave up concessions on pensions. If the Big Apple promised unions more in pension benefits than it can afford, whose fault is that?
To be sure, there are numerous examples of how the Social Security system and the broader world of pensions need help. But there is far less discussion about the critical roles pensions play in the modern economy or what would happen if they vanished.
The hundreds of billions of dollars in public and private pension funds are one of the biggest sources of investment capital for American business and public bonds, fueling the creation of millions of good-paying jobs in both the public and private sector. Without that capital, it's doubtful the US would have grown so dramatically over the past 40 years.
Social Security may need additional funding in the future, but it currently supports tens of millions of senior citizens, widows and children, who otherwise would face poverty and place a strain on other portions of society. Its funding shortages could be easily addressed by extending Social Security withholding taxes to incomes above $102,000.
It seems apparent that more cities will go bankrupt and more corporations may be brought to their knees for failing to keep the promises they've made to workers. Even as that happens, tens of millions of Americans will retire peacefully, living on Social Security benefits and pension checks from well-managed funds, but we're less likely to see books written about that.
