Grasshoppers and Ants

(RedSkirt here, BlueSkirt response here.)

Have you been shocked to learn that a friend has saved nothing for retirement, thinking she will be able to live on Social Security? Have you been amazed that someone you know has set aside nothing in savings for college for their only child?

Put these two together and you see the problem. The Boomer generation will bankrupt the Social Security system unless something is done soon. And your kids or grandkids who may still be paying off school debt or trying to save for a house, their kids' college, or their own retirement may be saddled with crushing taxes. Or they may be saddled with you.

Several months ago I read a column by Ben Stein. It's called, "How Not to Ruin Your Life". (I see it was over a year ago.) Some of the information may be out of date, but the message isn't--SAVE NOW, Don't Delay. He recounted this about a friend of his, age 45, no savings:

She stared at me incredulously. "Do you think I'm going to work another 20 years?" she asked. "No way."

"Well, then what are you going to live on when you stop work?"

"Social Security," she answered.

"That won't kick in until you're 66 or 67," I said, "and it won't be more than a pittance by then."

And there's this sobering thought:

And the part that makes it especially relevant is this: The Baby Boomers are the single largest part of the population by generations. They're about 78 million men and women. They will need a staggering sum to maintain their lifestyles after retirement, especially with pension systems that promise defined benefits collapsing.

But the Baby Boom generation is pitifully unprepared for the future. The average savings for Baby Boom households is less than $50,000, not including their homes. Even including the equity in their homes, it's not much over $100,000. And roughly half of all boomer households have either little retirement savings or none.

So not only are your kids maybe going to have to bail you out, they may have to bail out your neighbor.

Of course, it should not be news to anyone that we need to do something about Social Security. If the extent of the problem is a shock, start saving at least for yourself and your family. And look for leaders who have the courage to take on the issue.

President Clinton sought bi-partisan support, so did President Bush. Both failed. You will not be surprised that I believe the Democrats bear most of the blame. Two years ago, President Bush proposed a phase-in for younger Americans to be able to invest for their own retirement. But Democrats would rather keep a campaign issue festering and scare seniors, rather than solve a problem. After the 2006 election, President Bush tried again. Democrats set the condition they wouldn't allow any partial privatization. Then they said they wouldn't agree not to raise payroll taxes.

So now they have two no-nos. Republicans are not allowed to have even one. Democrats have walked away.

And who would be hurt most by payroll tax increases? Not the current Republican base. Star Parker points out the Social Security reform proposed by Republicans would most benefit low income voters who usually vote Democrat. This political disconnect has led to a stalemate. Higher wage earners have extra disposable income to put into investments:

For low-income earners, however, this is not the case. All or most of the income they might have had to invest is locked into paying the payroll tax that yields payments at retirement that equate to returns hovering around zero percent.

And the current system is unfair to working single moms, and stay-at-home moms.

In ten short years, according to Social Security's own estimate, obligations will exceed revenues. We need to let younger workers start a retirement account now that has their name on it, so their payroll taxes don't get swallowed up by the gaping maw of everyday big government. We need to phase in personal savings retirement accounts, so that Social Security can eventually be put on a sound footing. Any reform should allow the elderly to retire with dignity. Under reform, no one should be required to leave Social Security, but everyone should be allowed to, at least partially, to phase in their very own account. (Here are answers to FAQ.)

The current Social Security system is a tax-and-spend approach, with no thought for the future. This may have worked when each generation was larger than the previous one, but that is not the case anymore. Other countries, such as Chile and England, have successfully made the transition. Why can't we?

Remember the story of the grasshopper and the ant? We Boomers in good conscience can no longer take the grasshopper approach and make our children and grandchildren into enslaved worker ants.