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Nicole Gelinas
Is There a Retirement Crisis? « Back to Story

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Those of you who are commenting that Social Security is bankrupt are correct.

Having said that, the government will almost certainly make good on your Social Security benefits. However, they will do this by printing money, which causes inflation -- and this means that the SS benefits you get will enable you to buy less and less over time. (Note that even though SS benefits are indexed to the CPI, the CPI under-estimates actual inflation because it doesn't include food and energy.)

You may think that the above is a distinction without a difference, but it isn't because you can mitigate some of these effects by investing a portion of your portfolio in inflation hedges. (Not ALL, but a PORTION!)

Also, it's essential to understand these concepts. With what's coming in the future, we all need to learn as much about personal finance as we can.
You need to include more of Hershel Chickowitz's writing and ideas. They are right on.
Wow great article and research. The article really hits the nail on the head. It would be great if every American of all ages would read this article and take it to heart. It would help people to understand that they need to save for the future starting at a young age and continueing on into the future. The politians need to read this article to get ideas on how to help this country to age well and to be successful with its economy and retirement.
Best article I have read concerning retirement. I am a 60 yr old and currently unemployed. Still looking but finding it very tough to find employment. I have above the median in retirement funds now but as retirement approaches and I have not found work, needless to say, I am very concerned...I never thought it would be this way, as hard as I have worked all my life but it is what it is.
The Social security "trust fund" is nonexistent, and the federal government is currently BORROWING and spending almost 5 billion every DAY.Massive new infrastructure spending? Social security good til 2037? This article is a vicious fantasy that has little to do with fiscal reality. Rely on it at your peril.
Your definition of a "fulfilled existence", as compared to a "subsistent existence" is much different than mine, and, I'm quite sure, millions of others. I don't need to spend exorbitantly, as I really have nothing to prove to anyone. I can derive my enjoyment in later years from reading books from the library, walking on city sidewalks and through parks, perhaps gardening, and stil save money, believe me. I'm sure an untold number will also do this. Who wants to travel to Paris or Honolulu with the airlines patting down everyone in this day and age?
Nicole neglects to inform us that there is no Social Security Trust fund, rather there is a huge stack of IOUs from Congress, which has spent all the money.
Many older people would work longer - problem is that most companies won't let them. In fact, many businesses in this recession have paid their older workers to leave through separation/severance agreements. It has become too costly for businesses to keep their older workers.
I absolutely agree that the limit on IRA contributions should be eliminated. I've read article after article on saving for retirement and it seems all finanicial advisors say the same thing: make sure you are contributing the max to your 401(k). The problem with that advice is that many workers, like myself, don't have the luxury of working for an employer that offers a 401k or similar retirement plan. It's as if financial advisors don't know such people exist. My options seem to be a money market savings account, CDs, or a taxable brokerage account. I would love to be able to put more away in my Roth IRA.
The problem is that small private employers would stop offering plans because they can just then put the money in a separate account.

Right now the only reason small employers actually sponsor these retirement plans is so they can put in up to $45,000 per year in contributions. In order to put this much money away, the plan sponsors generally contribute at least 3% of an employee's salary into the profit sharing/401k Plan.

Without the incentive for greater tax deferred retirement savings into a 401(k)/Profit Sharing plan, many of those who aren't the business owner are going to lose significant contributions to their retirement that come from their employer.
I stopped reading at the claim that "the trust fund won't run dry until 2037". Using different words, Gelinas had already shown that the "trust fund" is dry right now.

How this is so can be explained by answering two questions: (1) can money that has been spent be spent again? and (2) can IOUs be spent? The answer to both of those questions is No.

(1) The "extra money" for Social Security was, as Gelinas noted, already spent on everything "from food stamps to national defense" (to bring down the annual federal deficit), and that money cannot be spent again.

(2) The "extra money" was replaced, as Gelinas noted, with IOUs (special, non-negotiable Treasury bonds) which are not money and, thus, cannot be spent. The bonds must be redeemed first, which means a payout from the U.S. Treasury of the amount owed plus interest.

Though Gelinas accurately and correctly explained the situation -- that the "trust fund" is a heap of debt that needs to be repaid, not a pile of money available to spend as needed -- she nonetheless proceeds to write as if the "trust fund" is an asset rather than a liability for the U.S. Treasury.

On immigration, there is a BIG difference between the immigrants we *have* (legal and illegal) and the immigrants we *want.* Gelinas is spot-on when she writes that we need immigration reform to attract "the smartest people in the world" to the USA. Right now, the hurdles to skilled immigrants are very high. We should be open to accepting the researchers, innovators, and talents of young bright people, and giving them a path to citizenship. While both the stereotypical unskilled illegal Mexican laborer and the Indian software developer desire to come to the US for economic opportunity, our "don't ask, don't tell" policy of immigration rewards the former, while dissuading the latter. Those are perverse incentives, and we must address this.
The article is mostly fine but it has a few technical flaws. First of all you need to replace is 80% of your consumption, not your income. A person with 100,000 in income may pay 7& in SS tax and save 7% of income. They also pay taxes on the higher income. Retirement income of 60,000 would give the proper standard of living. Yes I agree on the U shaped consumption curve.
As to government bonds . If SS bonds are worthless than all US government bonds are worthless. I'll give you a shiny silver dollar for every $100 in face value of US government bonds. Step right up with your worthless US government paper. I'm just back form Germany and most of Europe is doing just fine. Don't believe me? Ill take your worthless Socialist Euro and give you a shiny silver dollar for every 50 Euros.

As to immigration It keeps food very cheap. And construction very cheap. I do agree that some folks are afraid of losing their jobs to illiterate Central Americans who don't speak English, but on average retirement is the least of those folk's worries.

Of course we can greatly reduce the chance of infirmities in old age by taking better care of ourselves. Over half the population is overweight to some degree and 20% still smoke. Eating better and exercising reduces the odds of heart disease, the prime killer of Americans.
Retired at 50 is right. The big problem is that so many reach retirement age laden with debt. I've been able to retire early even tho there is a recession simply because I own my house outright, my vehicles are paid for, and my credit cards are paid off monthly.

I just need money for food and taxes! ... And I can ... and do ... grow a lot of my food. So it is eath to live off my savings.
Fail.. u dont need 80% of pre retirement income u need 25 * expenses in networth.

Good luck , retired at 50 :)
This article is the most clear--in its description of the problems and possible solutions--I have read in the five years before my retirement and the ten years since.
There is no trust fund.

Put it this way. Supposed they had just spent the money and not pretended it went into the fund. They would now have to sell more debt, raise taxes (SS or other), or cut benefits to cope with the deficit.

Now, how can that trust fund get money to pay things off? Hmm. Why, they will have sell more debt, raise taxes (SS or other) -- or cut benefits and not tap the fictious fund.
It's disappointing that Nicole Gelinas would give any credence to the Social Security Trust Fund, as it's merely a bookkeeping device, not a real economic resource. (e.g. See John Goodman's recent column "Are We Going Bankrupt?" at Townhall that reviewed the basics: [click through to second page]).

On the other hand, people who say Social Security will be broke and worthless are also wrong, as the continuing inflow of FICA taxes is enough to fund a significant fraction of promised benefits to retirees -- something like 75%.
Gilbert W. Chapman November 07, 2011 at 6:20 PM
Best analysis I've yet to read. Clearly written, right to the point(s).

Thank you.
Conditions in Europe demonstrate that socialism and prosperity cannot coexist. The former was created to destroy the latter, and with it Western Civilization. It's working.
what we DON'T need are more IMMIGRANTS!

a large part of the crisis now is caused by jobs being handed to "cheap"labor immigrants and illegals!

Refinance mortgage rates going to go up for sure. Any body still thinking should just make use of the low rates. Do not wait and regret it is not that difficult to make it happen. Online is very easy check out either 123 Refinance before you check with the "major banks"