It's not your imagination: Americans are facing a lot more risk these days. Gone are the sense of national invulnerability and the notion that we are widely beloved because of our prosperity, our movies, our Bill of Rights, even our McDonald's. We find ourselves more alone than we have been, perhaps ever, with an unfamiliar sense of physical fear. We've also been hit over the head with forceful reminders that job markets and stock markets go down as well as up. And as if there weren't enough stress, we are beginning to realize that, when it comes to a secure retirement, most of us have neither earned enough nor saved enough to have the life we imagined for our last act.
Planning for retirement, of course, has always involved multiple uncertainties. For that reason, retirement experts believe that most workers should have a "three-legged stool" to fall back on: personal wealth, a government-backed safety net of social insurance (composed in the United States of Social Security, Medicare and Medicaid), and job-related pensions. But nowadays all three legs seem wobbly. We are told that Social Security cannot--and, some even argue, should not--be saved. And employers, we're finding, are increasingly unwilling to adequately fund pension plans. With the collapse of Enron, US Airways and a host of other corporations, as well as shortfalls and cut-backs in pension contributions from still viable firms such as Charles Schwab and Ford, reliance on an employer for retirement income has become yet another bit of risky business. Today less than half of private-sector workers have any pension coverage.
LIFE IN AN OLDER AMERICA
The next generation approaching retirement, 76 million baby boomers, is so large that these issues cannot be ignored. The segment of Americans over the age of 65, currently 13 percent of the population, will grow to more than 20 percent in 2029, when the youngest boomers reach that age. To understand what life will be like in an older America, we have to ask, "In terms of overall retirement adequacy, how are the boomers doing?"
Some quick facts about each leg of the stool will help answer that question:
Personal Wealth. Overall, net personal savings apart from pensions have been close to zero for a dozen years, with private debt ballooning to $8.5 trillion.
Only 6 percent of workers eligible for tax-subsidized individual retirement accounts take advantage of them.
There has been a steady increase in wealth inequality in the United States for a generation. During the economic boom from 1993 to 1998, the richest 1 percent garnered 53 percent of the total gain in marketable wealth. The "bottom" 80 percent received only 9 percent of the gain. Less than half of households holds stock worth more than $5,000
Inheritance won't help most boomers. William Gale of the Brookings Institution estimates that the "typical boomer will likely gain ... perhaps on the order of $10,000 to $30,000 from inheritance."
Even the potential to realize cash for retirement by selling one's house is fading. Americans are going to do that well before retirement. As Federal Reserve Chairman Alan Greenspan recently pointed out, in the last year alone homeowners took out $200 billion in home-equity loans, cashing out almost 3 percent of the total worth of their houses.
Social Security. While some assert that Social Security is unsound, its reserves are in fact invested in Department of the Treasury obligations, which by normal market measures are the safest sources of retirement income.
Contrary to the scariest claims, Social Security won't run out of money even if nothing whatsoever is done to change it. But without some fixes, the program in 40 years will have only enough money to pay for about 75 percent of currently promised benefits.
The need for this social insurance will remain. Today 64 percent of the elderly depend on Social Security for at least half their income. …