The End of Retirement

http://harpers.org/archive/2014/08/the-end-of-retirement/

by jimsojim • 11 years ago

62 121 11 years ago

newmotors• 11 years ago

How much does SS pay these days? Any other help programs for the elderly (65+ - assuming they never had a real job)?

woofyman5• 11 years ago

Social Security is based on your highest 20 years of salary and what age you start collecting benefits. My projected monthly payment, if I start collecting at 70 is $3,600.00 a month. I'm 56.

skimpycompiler• 11 years ago

Are there parts of the US where $3600 is enough?

mbrutsch6• 11 years ago

How'd you get them figures? I'm 53, I'm curious how mine looks.

jsalit• 11 years ago

Small correction, it's based on your highest 35 years of salary[1]

[1] http://www.ssa.gov/pubs/EN-05-10070.pdf

mshron• 11 years ago

The two people mentioned in the article both say they make about $500 a month from social security.

reasonattlm• 11 years ago

While it's blindingly obvious that the current monolithic pyramid schemes used to move money from the young to the old will have to disappear, this is a big stumbling block for politicians. People already in the payout stages of the pyramid scheme will not take kindly to changes. The difficulty of changing these systems has even been touted as a reason to opposing healthy life extension technologies - so much for rules to benefit the people! It's quite astounding that anyone would rather suffer and die (and force suffering and death on billions) than face the reality that change happens and we must adapt.

In the world just a few decades from now in which the old are becoming just as healthy, active, and capable as the young, social security programs are just not needed. Not that I think they are a good plan in the first place - enforced wealth transfers from the young to the old are generally enforced wealth transfers from the poor to the rich. Not to mention the fact that it encourages people to rely on the (inherently inefficient, unreliable) government for services that are quite capably handled by planning ahead (very underrated in the present time!), insurance, family, investment, and standard banking.

Retirement in the future will become something quite different from what it is today. I think we will see two forms of retirement in this future without aging. Firstly, there will be the extended vacation. A worker will finish a career with enough money saved to go on vacation for a few decades. That should be more than enough time to decide on a new direction in life. Secondly, an ambitious worker could save enough wealth to remove the need for income - they could live on capital gains, the return on investments, and all the normal methodologies of the well to do in the present day. Given enough time, even the most lowly of jobs could produce this sort of wealth, necessary for a permanent vacation.

Of course, this won't result in a world of perpetually vacationing people. If everyone is resting on their laurels, there would be no one to produce goods and provide services. So a dynamic equilibrium would arise between the vacationers and the working - too few workers and prices rise, so more vacationers return to work (out of necessity, or looking to make a killing in a hot market). If many people are working, prices fall, so more can afford to become long term vacationers.

A future in which we have decided to treat aging as the medical condition that it is, and implemented SENS or similar approaches of periodic repair of cell and tissue damage that causes aging, will be one in which everyone who is prepared to work can be wealthy. This wealth will bring vastly greater choice and freedom. It would be a terrible shame if political concerns and simple human selfishness mess up, prolong, and cause unnecessary pain in the transition from the current state of affairs to a better tomorrow.

mbrutsch6• 11 years ago

While it's blindingly obvious that the current monolithic pyramid schemes used to move money from the young to the old will have to disappear,

A sentiment shared by the young. Until they get old.

skylan_q• 11 years ago

Doing the right thing only when it benefits me: isn't democracy great?

_benedict2• 11 years ago

Not only is this particular pyramid scheme a relatively recent phenomenon in history, it's also only just now that the pyramid has burst, and we're now seeing the input to the scheme shrink - so it's now more of a diamond scheme, which isn't really tenable.

So I don't think this is something historically people have believed in youth and rejected in adulthood. It's only coming to a head now. Of course, it's reasonable to expect that the current entrants to the scheme will continue to try to perpetuate it once they've committed significant resources to it, despite complaining loudly about the scheme now, not least because many will have little choice (they will be in a worse place than prior entrants, having had to commit proportionally more resources prior to drawing their benefits, and generally be expected to receive fewer benefits when they do, as the schemes adapt to the situation).

What this rhetoric really boils down to, AFAICT, is trying to push some of that burden back up the pyramid earlier, so that the bust is perhaps shared a little more evenly. i.e. by reducing the benefits of current recipients so that they are more inline with what future recipients can be expected to receive. I suspect it is a fools errand, though, since these are typically legal obligations, so would need very controversial legislation to enact. I can't see "stealing from grannies" ever passing a democratic legislature.

bsenftner• 11 years ago

A future without aging smells too much like the 4 day work week. If it occurs, it will be for the wealthy only.

noblethrasher• 11 years ago

Modulo singularity fantasies, we have no hope of ever living in a world in which the old are just as healthy, active, and capable as the young because senescence is a function of entropy, which will always be a thing. The best we can hope for is to make senescence as brief possible, which probably leads to some dark places.

No, we just need to just accept and heroically deal with the fact that the poor will be with us always.

barrkel• 11 years ago

While it's blindingly obvious that the current monolithic pyramid schemes used to move money from the young to the old will have to disappear

I have some news for you - saving up now to pay for your retirement is also a transfer from young people to old people. The primary difference vs a tax and spend mechanism is that poor people suffer far more under a savings-based scheme, because they typically live hand to mouth and savings, if any, are for emergencies, not retirement.

Look at this way: if we're not going to euthanize old people, then they need to be supported somehow. In practical terms, that means a certain proportion of current production needs to be diverted to sustaining these old people. Whether this production is triggered by taxing or savings doesn't really make a difference to the physical distribution of stuff; a certain proportion of production will need to be diverted away from younger people and towards older people. It's either that or kill all the old people. And yes, this reduction in supply of stuff for younger people will also push up prices for younger people. In fact, the more savings older people have, the more expensive stuff is going to be for younger people in the future.

The primary benefit of the savings approach vs the taxing approach is that high-income people are much better off, and low-income people suffer far more. If that is indeed a benefit.

tetraodonpuffer• 11 years ago

in which the old are becoming just as healthy, active, and capable as the young,

a 75 year old capable of sitting at a desk and cranking out code as well as a 25 year old, sure, a 75 year old capable of working as a roofer or construction worker all day as a 25 year old I am not so sure...

gambiting• 11 years ago

I don't understand something - if she worked her entire life, how can she not have a pension? Does US not have a state pension?

woofyman5• 11 years ago

pmorici2• 11 years ago

What is Social Security if not a 'state pension' by another name? The article says she gets $499 a month from Social Security.

pkaye• 11 years ago

Unless you work for the government or a legacy union, the concept of a pension (one with defined benefits) no longer exists. Most people who worked can rely on Social Security or Medicare but it doesn't fully cover your costs. The more common option is 401K where you basically have to save up and invest your own money tax deferred because employers hardly contribute much. In these cases, those make little income or are not well organized don't put anything much into their 401K. Then they reach their retirement age and find out they don't have enough to survive. Lastly there are those who did save into their 401K but lost a lot due to ill timing and the whims of the stock market.

alyandon2• 11 years ago

I really love how my employer gets to define the options I have for investing the money in my 401k. I'm basically forced into investing my money in the volatile equities market if I want to have any hope of living comfortably in retirement. :-/

MrRadar• 11 years ago

This is correct. To add to this, like most things in the US 401k plans are not equally accessible to all workers. A 401k must be run through your employer so if your employer does not offer one your retirement savings plans will be much more difficult. There are also IRAs (Individual Retirement Accounts) which do not require an employer and work like 401ks for the most part but the contribution limit is much lower than a 401k plan ($5500 vs $18000 + employer match). If you don't have access to a 401k you'll almost certainly have to use a regular taxable brokerage account to supplement your IRA at much greater cost.

Additionally, the quality of 401k plans varies from employer to employer. Some employers provide generous matches (I've heard of one that matched dollar for dollar up to the limit), most offer modest matches (up to 3% to 6% of your pre-tax pay) and some do not match at all. Some plans have very low fees (under 0.1% of assets annually) while others can have huge fees (over 1.5% of assets annually). To complicate this many HR departments (who contract for the 401k plans) do not understand how damaging high fees can be[0] and so choose 401k providers who shift the cost burden from the employer to employees (via high fees). Recent court cases have ruled that excessively high fee plans are actually illegal but it will likely take decades and many more court cases before they go away entirely.

[0] https://personal.vanguard.com/us/insights/investingtruths/in...

rhino369• 11 years ago

We have something called Social Security that functions like a state pension. You get anywhere from 350-2700 dollar a month based on how much you paid in.

mdorazio2• 11 years ago

This editorial is unfortunately about 95% dramatic story and 5% meaningful numbers. What it doesn't talk about in detail is the savings rate for the baby boomers pre-retirement age, which is the largest factor in the current "we can't retire" saga. Pre-2008, most boomers were basically saving nothing [1] and somehow expecting things to just work out when they got older. As a result, I'm not nearly as sympathetic as this article wants me to be.

Another issue it leaves unaddressed is what the proliferation of older Americans remaining in the job market is doing to job availability for younger Americans. Tech is obviously insulated, but in many other industries it is becoming very difficult to advance into the executive ranks because the current executives are staying in well past their retirement age.

[1] http://www.bloomberg.com/bw/articles/2014-11-20/millennials-...

ThomPete8• 11 years ago

Thats true in a strictly logical sense of course. But perhaps we need to dig one step deeper and ask why they didn't do that. My guess is that it's not entirely as simple as it might sound.

mdorazio2• 11 years ago

I'm all for digging deeper, but I'm not convinced you're going to find a satisfying answer. I try not to hop on the boomer hate train too much, but it's hard to look at what they were handed and not be angry. In the 60s and 70s, a college degree in anything from a decent school was enough to land you meaningful employment. That degree cost less than a third of what it does today. A decent size house in a metropolitan area could be had in your late 20s with a single income. Upward mobility in the workforce was basically unlimited, and thanks to the population bulge, boomers also were able to enact pretty much whatever political policies they wanted as an aggregate group.

Yes, Vietnam really sucked, and the S&L crash wasn't fun, either, but how hard would it really have been to set aside 5% of income every year instead of plowing it into ever bigger houses, more cars, vacations, etc.? I'll give you one thing - financial planning education in the US is absolutely awful and continues to fail millions of people every year. Without that, all you see is mass commercialization encouraging people to spend more money, and an ever increasing need to keep up with the Joneses.

yummyfajitas7• 11 years ago

Indians and Chinese save 20-30% of income. They do it by consuming vastly less than Americans. Americans simply view cutting consumption as unthinkable.

tomohawk2• 11 years ago

One reason could be that social security takes 14% off the top. If the person invested the 14% instead of having it taken, they would have a much better retirement.

a3n2• 11 years ago

Rather than just digging a deeper hole, we should maybe also figure out how to deal with the people who are where they are now, regardless of how they got there.

GabrielF00• 11 years ago

I think a big chunk of the low savings rate comes from skyrocketing college and healthcare costs combined with stagnant salaries for a long time.

bryan11• 11 years ago

A comment heard from several friends: "Why save for retirement? One large medical expense can wipe out years of savings. You're better off enjoying life and spending what you earn while you can."

masterleep• 11 years ago

Wouldn't insurance be a better response?

tzakrajs• 11 years ago

I think the argument is that not even insurance can properly insulate you from this risk.

EliRivers3• 11 years ago

I'm not familiar with your system, so excuse my ignorance; can they do that? Take money from your pension scheme?

cookiecaper5• 11 years ago

No, they can't take money directly from the "pension scheme". Social Security cannot be garnished to satisfy judgments from private creditors, and in most cases, retirement accounts are privileged and will not be forcibly garnished or confiscated by the authorities to pay an outstanding judgment. Also in most cases, you can retain retirement accounts through a bankruptcy. This is a good reason to make sure a lot of your savings is allocated into designated retirement accounts and not just a standard savings account.

Parent poster is commenting on the general expense of medicine, but for your typical retiree, it shouldn't be too out of control with Medicare.

allannienhuis• 11 years ago

I'm not an American so I could be wrong, but I don't believe they can take money from their Old Age Security (government pension?), but that is not enough money to live off of anyway. If you have personal savings, you must use that to pay your medical bills, even if you are living off of that savings. This system seems so inhumane to me as a Canadian. You wouldn't treat your own children or family that way (if they're hungry you would feed them wouldn't you?), why accept it as 'normal' for your society as a whole. Figure out a way to use your absolutely immense resources to take care your own. We don't have it perfect in Canada either, but at least I know I won't be eating cat food in my retirement even if my own plans for my future haven't worked out.

Edit - sibling poster pointed out that personal savings in approved retirement savings plans/schemes would not be put at risk for medical debts, which makes sense. The problem however with the folks described in this story is that a substantial amount of people _don't_ actually do this - they either have not saved anything, or their savings were in other forms (real estate, etc) which have been eroded/lost.

skizm• 11 years ago

Except they can't take money from your 401k if it is employer sponsored. Just Google "401k bankruptcy protection"

a3n2• 11 years ago

But a person who's had such an event can empty their own accounts to survive.

toomuchtodo10• 11 years ago

IRAs are protected in most states as well.

kamaal2• 11 years ago

>One large medical expense can wipe out years of savings.

Your medical expenses should be a part of your retirement savings.

EliRivers3• 11 years ago

As an aside, it's sometimes really hard to get people to save for their retirement.

My employer recently had another round of meetings, trying to encourage people not to opt-out and extolling the benefits. At the moment, to put 1000 GBP into a pension pot will lower an employee's take-home here about 350 GBP - the company is doubling it (up to 5% of the salary), the government is giving the tax back, and the company is doing it by salary sacrifice so your take-home isn't so badly affected (tax etc. goes down a bit, offsetting a little the money the employee puts into the pension). They can choose what to put it in; stocks, funds, cash, treasuries. They can move it between providers, it's theirs. The only restriction is they can't have it back until they're at retirement age (not even retired; just at the right age, I think).

Even so, many people say they'll not bother, thanks. Some say they rather just save the money up themselves (costing them an incredible 1000 GBP for every 1000 GBP they save - three times the cost!). I know that putting it into a pension has risks and downsides, but given that the pension is basically tripling their money on day one, it seems incredible how many people aren't interested. Makes me fear that if people aren't interested even with (what seems to me) such a good deal, what are people without such sweeteners doing.

jacquesm• 11 years ago

The pension funds have lost a lot of trust, and that's not the fault of the employees.

georgeott• 11 years ago

This. Even just 5%, compounded over decades, can turn into A LOT of savings.

icefox• 11 years ago

At least in the states with the 401k, everywhere i have worked it has been an opt-in system so you had to convince people to do the minimum paperwork to get get "Free money" and think of the future. Only recently have a I started hearing that there can be the opposite and 401k can be opt-out (some law change perhaps?). This was also shown with Organ donation http://www.medicalnewstoday.com/articles/282905.php how much better opt-out could be. I am only guessing, but the percentage of people that are in the system even after those that opt-out is probably way higher than here where most has to opt-in.

My sad example would be my 24 year old self didn't bother to bring the fully filled out 401k form upstairs to get the free money even though he vaguely understood it was the right thing to do. It was all set to go, I just had to carry the paperwork, but I didn't. Took a job change and another opportunity before I figured it out.

In startup land this is the difference between a 1 step funnel and a zero step funnel. Which would your company like to have?

EliRivers3• 11 years ago

The UK is in the middle of switching to opt-out. I am pretty sure that some people at my current employer are as apathetic about opting-out as they were about opting-in, so they will drift into having a pension (in which, as I mentioned, their money is going to be somewhere between doubled and tripled on day one). To some, this is the nanny state going too far.

dovereconomics2• 11 years ago

To be honest, I believe the trend is to only become worse.

Every generation appears to become more hedonist and think less about retirement. Many of my friends(millennials) make six figures and barely save any money for retirement.

Carpe diem is failing on people.

dudul• 11 years ago

"Carpe diem is failing on people."

This is quite funny when you think that "Carpe Diem" originally means literally the opposite of what people use it for nowadays.

The original quote is "carpe diem, quam minimum credula postero" i.e. "Seize the day, put very little trust in tomorrow (the future)". Meaning that one should do everything today to ensure a good future and be prepared.

shubhamjain• 11 years ago

Every generation appears to become more hedonist and think less about retirement. Many of my friends(millennials) make six figures and barely save any money for retirement.

Well, maybe I am too unimaginative but not being an American, I am curious where does all the money go. Reading Paul Graham's article about Ramen Profitability, I get the idea that a bare minimum lifestyle can burn as low as ~$1000 - 1500 / month [1]. Now a person is earning 6x this figure, how you don't end up saving something. Bars, clubs would only be fun to a certain extent. The only reasonable explanation I can think is, people buy everything that they don't need.

[1] http://www.paulgraham.com/ramenprofitable.html

dovereconomics2• 11 years ago

Unfortunately, most people don't have minimalist lives.

With a 'humble' example:

$3000/month SF/NYC apartment,$1000/month on clothing(specially bankers), $1500/month on food(no time to cook, so $50/day), $2000/month on entertainment($500/week), $1500/ month on a decent car +gas. That's already ~110k a year. It's really easy to go beyond that.

maehwasu• 11 years ago

I save most of my income, and try to have a clear plan to spread spending evenly over my future, rather than just blowing money today (I'm 31).

At the same time, given the drastically worse quality of life from age 65+ relative to ages 30-60, I'm not particularly interested in plans that enable/force me to save a lot of money for that stage.

This isn't a simple case of hyberbolic discounting (overvaluing the present relative to the future)--I value those age 35-60 years quite highly and have been willing to sacrifice some immediate benefits to optimize them. I just think it's important to be realistic about the fact that certain periods of life are superior to others, and I'd rather stack my enjoyment in those periods.

jqm2• 11 years ago

I've seen retirement make people unhappy. They become isolated and have to find ways to make connections with others. They are bored and start doing things like canvassing the neighborhood looking for minor HMA violations. Sometimes the lack of schedule and structure isn't the best for the health. Sometimes they feel useless.

Of course this isn't all cases but I've seen it. People generally want to feel important and connected and a job often provides that.

The problem is, as a persons mind and body starts to wear down there is less they can actually contribute. People talk about wisdom and experience and there is something to be said for that, but the world is changing so much faster than conceptual models which makes "wisdom" worth less than traditionally it has been. Besides, people start forgetting. So who actually hires old people? Who can afford too? It's hard enough to find good work when you are young and able.

I don't know what the point is. I guess I hope to actually never retire but to be able to do what I like at a pace I'm able until death. (With all the vacations I want of course). Even were I unfathomably wealthy I would want to live like this. Because sitting around doing nothing sucks. So does playing golf every day.

jbuzbee2• 11 years ago

The author of this article has an obvious bias or slant she's pushing and tries hard to paint a picture of doom and gloom and of evil corporations out to take advantage of employees, e.g. when talking of self-directed 401K retirement funds with company contributions: Workers got shafted

But you know what? In many ways the opportunities that these retirement-age workers have sounds like an adventure. What's the alternative? Sitting at home watching soap-operas on TV or feeding pigeons at the park? No matter what, getting old sucks and you'll be popping Advil and aspirin for aches and pains. But companies like Amazon and the Park Service give these folks something to do and a way to keep contributing to society.

At the start of the article May was out of money, living in a trailer with no electricity or water, contemplating suicide. But by the end, thanks to Amazon and other companies she had turned it around and she was having a ball. Obviously work at these companies can be hard or boring, but we get quotes like the following:

Despite the boredom, May was grateful for one part of her job. “The best thing was the camaraderie,” she said. “I made friends there.”

“Oh my God,” she said, explaining that it was a relief to be around people who she felt understood her. “The other day, for the first time in years and years, I felt joy. Joy! That’s better than being happy.” Before long, May was helping two of her neighbors...

May told me she was doing fabulously. “My whole life has been ups and downs,” she said. “The happiest I’ve been is when I have very little.”

Sounds to me like Amazon and the others were a god-send for May and her friends.

littletimmy• 11 years ago

What's wrong with watching soap-operas on TV?

We have to do away with this moronic idea that people must be productive. A man's life is more than what he produces.

zzalpha• 11 years ago

Yeah! It's like homelessness! That's, like, free camping! Who would complain about free camping???

jbuzbee2• 11 years ago

To repeat, from an active participant in this economy:

for the first time in years and years, I felt joy. Joy!

roymurdock• 11 years ago

An economic perspective because the article didn't really touch on it:

There are two main schemes for creating a pension system like social security: Pay-as-you-go (PAYGO) and Fully-funded.

Under the PAYGO system, contributions from the current labor force are shared among retirees.

Under the Fully-funded system, current earnings are collected as taxes from workers when they are young and invested by the government on their behalf, then paid out at retirement age.

Social Security in the US is a PAYGO pension system. PAYGO works great when 1) the working-age population is increasing relative to the retiree-population (tax-base is increasing relative to tax-drain) and 2) worker productivity is increasing (more taxes extracted from tax-base).

Fully-funded doesn't depend on population growth as the rate of return is generally determined by return on private investments, such as bonds and equities.

There are benefits and drawbacks to both systems, but with the shift in employment dynamics (less young, more old), the slowdown in the growth rate of the US population, and observed 6-7% market returns over the long-run [1] it seems like it would be worth considering phasing out PAYGO and switching to a Fully-funded system, or a hybrid of the two.

Here's more info for those who are interested (article is from 1998 but seems even more prescient now): http://www.frbsf.org/economic-research/publications/economic...

[1] http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a1.ne...

wazoox• 11 years ago

There is a common misconception in your description or the return rate on bonds and equity. At some point, you need to sell your bonds to get actual money to buy things. When many older people sell their bonds to earn a living, they flood the market and bond price crashes, and they're actually no better than using the pay-go system. in the end, retired people must live on the surplus created by those still working; the way you redistribute that surplus doesn't really change the equilibrium.

yummyfajitas7• 11 years ago

This ignores the effect of buying bonds earlier in life.

While people are working, they are reducing consumption and directing some of their productive capacity into investment. This raises future production, resulting in more future surplus to go around.

tomohawk2• 11 years ago

When we bought our first house in the early 90s, we were the only people in the neighborhood who were not retired. In fact, everyone in the neighborhood had been retired longer than we had been alive (26+ years).

They were living off of social security and savings, which was possible because their houses were paid off and because the social security taxes while they were working were much less (2%) than they are now (14%).

So, they were getting a fantastic payoff from their social security 'investment' that no future generation can hope to get, while at the same time able to save more since much less was being skimmed off the top.

It's too bad that our generation and later generations have not been given the same opportunity that they were, and instead face the ruinous 14% social security tax with the disincentive that it is likely that getting any benefits will probably be 'means tested' by the time we retire. Most of my peers that I've talked to don't expect to get any social security when they become of age.

Socking 15% - 20% away after 14% is taken off the top is difficult, but the benefit from it will far surpass anything I'll ever receive from social security.

ac29• 11 years ago

I'm curious where you got that 14% number. The source I found says 6.2% [1], and 0% after 118.5k/year in wages.

[1] http://www.irs.gov/taxtopics/tc751.html

lotsofpulp• 11 years ago

From an employer's perspective, what an employee is paid depends on the total cost of employing that person, which includes the employer's half of the social security and Medicare tax. It's reasonable to state that also as a tax that the employee pays.

From your link:

The current tax rate for Social Security is 6.2% for the employer and 6.2% for the employee, or 12.4% total. The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total.

geggam• 11 years ago

Social Security is funded. politicians keep stealing the funds and putting IOU's in it.

Not to mention if we quit capping the income paying into social security it would be in the black regardless of the theft.

The thing that is evident here is the stock market is a method for the fleecing of the people by forcing them to invest or lose money saving.

cookiecaper5• 11 years ago

Retirement is a very new system. The concept that people just quit working and let other people pay for their existence over the last 30 years of their life is an artifact of the industrial revolution, since by about 70 people couldn't reasonably tolerate factory work anymore.

The End of Retirement

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