Pension Funds Hold Dire Warning for Future Retirees
Marshall, Jonathan, THE JOURNAL RECORD
SAN FRANCISCO _ If members of Generation X think they have it bad now, wait until they try to retire, say in the year 2035.
Five years earlier, the Social Security Trust Fund will have gone broke, according to the latest estimates of the Social Security Administration. The economy will be groaning under the burden of sky-high payroll taxes needed to pay dwindling benefits to all the baby boomers who reached retirement ahead of them.
Well at least they have their pensions to fall back on, right? Not necessarily so. The bulging number of retirees will have drawn down many pensions. To avoid the bankruptcy of traditional defined benefit plans, many companies will have long since slashed promised payouts, leaving workers to rely on their own resources.
To make matters worse, the mass sale of pension assets to pay for ballooning benefits will knock down stock and bond values, leaving private savers with less wealth than they counted on. And the steady depletion of pension savings will rob the U.S. economy of a crucial source of investment funds needed to finance continued growth.
But don't say you weren't warned. This scary scenario comes to you in 1994, courtesy of Stanford University economist John Shoven and Wyatt Co. Vice President Sylvester Schieber. In a new paper, they trace the implications of demographic trends into the next century and find them potentially dire indeed.
If the economy were growing fast, the future retirement of millions of baby boomers wouldn't cause any problem. But ever since 1973, the economy has slowed to a crawl. Many workers today have lower real incomes than they did in 1972.
One reason is a slowdown in the rate of saving. Americans save only about 4 percent of national income, an extremely low figure by historical and international standards. …