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Yoda has posted many times in the past that “rich retirees” are likely to subsidize “the less fortunate” when they retire. We do NOT know the exact form this will take, but to paraphrase Willie Sutton, you take money from the rich because they have it. Poor retirees have no money to give. We also know that there will be a lot more poor retirees than rich retirees. And they WILL VOTE.

The long term solvency issues facing the US are Social Security and Medicare. Nothing else comes close over a 50 to 100 year horizon. Boston University economics professor Laurence Kotlikoff estimates the unfunded liability at about $200 TRILLION in today’s dollars. This totally swamps out the piddling Federal Budge Debt of ~ $16 trillion that Washington is talking about. The annual budget deficit in the last few years has been running about $1 Trillion. What is NOT discussed is the $3 to $5 trillion that we should be accruing for future Social Security and Medicare payouts. It swamps out the budget deficit that is widely discussed in the media.

Focusing on Social Security, there have been some discussions on improving its long term solvency. The three common recommendations are:

1) Use “chained CPI” which will lower the annual cost of living increases that are paid out
2) Increase the retirement age to receive full benefits. The current “full retirement” age is 66, although you can start receiving benefits as early as age 62 and a half.
3) Eliminate the cap for paying into SS. It is currently set at 6.2% up to $113,700.

If one economist has anything to do with it, the debate is going to be intensified. Duncan Black is a fellow at “Media Matters for America.” I do not recall reading any of his work previously. Duncan wrote an editorial for the noted economic journal USA Today. [1]

A few excerpts:

We need an across the board increase in Social Security retirement benefits of 20% or more. We need it to happen right now, even if that means raising taxes on high incomes or removing the salary cap in Social Security taxes.

The 401(k) experiment has been a disaster, a disaster which threatens to doom millions to economic misery during the later years of their lives. Proposals to improve our system of private retirement savings -- even good ones -- will offer little to no help for the baby boomers who are currently nearing retirement, and are also unlikely to be of sufficient help for current younger workers. We need to increase Social Security benefits, now and in the future. It's the only realistic way to provide people with guaranteed economic security and comfort post-retirement.

The major point IMO is NOT whether you agree with Duncan’s point of view or not. I think the point is that we will see similar viewpoints expressed more often in the future. A clear majority of Americans will NOT have sufficient funds to maintain their current lifestyle in retirement. Duncan states that one third of households have NO RETIREMENT account of any kind. No defined benefit. No 401K/403B. No IRA’s. These households will be living on Social Security only. Duncan says the median retirement account for the other two thirds is $120k. At a 4% withdrawal, that is $4,800 per year. That is not much additional buying power when added to social security. Particularly now that many people are carrying mortgages into retirement.

BOTTOM LINE is that instead of spending time improving investment returns, we might be better off spending time guessing/implementing legal ways to not be part of the “rich folks” group in retirement.

The editorial is very short and I recommend everyone read it, just to understand the sentiment expressed.



[1] Duncan Black editorial 401Ks are a disaster (Yoda did NOT make up the title. It is verbatim.)
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