When one is writing a post about retirement security in response to someone else's post on the same topic; namely, the fact that public sector employees' benefits and salaries far outpace the private sector, it is probably a bad idea to write an ending like the quote I'm about to share. Megan McArdle's best moment in her post on pension and retirement security is her parting shot:
Jon Cohn's wish to spread the bounty of pubic sector pensions more broadly seems like, well, wishful thinking.
I'm tempted to end this post right now, since the rest of it was typical right wing retirement twaddle made up by employers who decided at some point that their employees' retirement security wasn't as important as the value of their stock options. But I just can't let her get away with the old conservative saw about unsustainable pensions and the like.
It was nice that a combination of rising life expectancy and broader pension coverage allowed a large segment of American workers to take what amounted to a multi-decade vacation. (Though this was never quite as widespread as people now "remember"). But this was never going to be sustainable.
Perhaps I should forgive the young Ms. McArdle for her arrogance (multi-decade vacations? REALLY?), but again, I can't. Since I was three years away from hitting the workforce when she was born, I think I'll educate her instead.
Retiring workers, you see, open up the workforce for those young bucks with their college degrees and eager-beaver shiny faces. If they have to work until they drop, well, it's far less likely that Junior WhizKid and his roommate Megan McPerky will have a chance of putting their foot in the door, much less earning a decent living.
Where McArdle goes off the rails is on her strange and bizarre rant about worker contribution ratios:
Retirement experts typically say that retirees should shoot for 75-90% of their working income in retirement (the theory being that some expenses fall, but other expenses rise, and you don't need to save for retirement when you're already retired).
This is true and not true. It depends on a lot of factors, and isn't limited purely to retirement plans. The calculation of retirement "income" is based upon total assets, not just Social Security and employer pension benefits.
Back in the days when the middle class roamed the earth before the Great Wall Street Scourge, factors for retirement income included home ownership/equity, savings, and other assets. In our case, it's antique guitars, which have held their value a whole lot better than our house has. But McPerky isn't finished:
That's fine when the ratio of workers to retirees is 1:12, as it was within the Social Security system in the early years. But by the time you get to 5:1, it starts to pinch--assuming everyone has the same income, each worker has to toss at least 15% of their own income into the pot to support the retirees. Once you get to 2:1--which is where we're rapidly headed--33% of your income is going to support someone in retirement. Woe betide you if you also have kids.
These numbers are pure baloney. They assume that reserves have not been built and accumulated based upon a decreasing workforce and increasing retirees due to Baby Boomers' retirements. The whole idea of the ratio of workers funding to retiree is one way to look at things, but hardly the only way. Those percentages are way out of line, because the contributions we make today to the Social Security fund are allocated to workers retiring in 20 years, not today. (Don't get me started on the nonsense about Treasury Bonds being 'funny money', either. RJ Eskow put that lie to rest already)
With a pile of meaningless syllables, our conservative ageist solemnly sounds the death knell for all retirement accounts, whether corporate, social security or public pensions:
It's important to note that this is true no matter how retirement is funded. Whether you collect a dividend check, get a corporate pension, or live off your social security, your retirement is funded by real claims on the output of people in the workforce. Private pensions have a couple of advantages: the investments that fund them actually help make the economy more productive, unlike transfer payments; and they aren't necessarily indexed to inflation, so over time, as incomes grow, it becomes easier to support the older retirees. But they don't eliminate the problem; they merely mitigate it.
The wonk in me screams to correct this idiocy. What McArdle is saying here is that we can basically take our retirements and shove them. My suggestion is that she try it first.
This isn't difficult. Pensions are part of the cost of doing business. It's as simple as that. There is no such thing as employee-employer loyalty. No employee goes to work for one employer and actually stays until they retire anymore. At least, that's the rule with a few exceptions, but that doesn't mean employees don't expect employers to honor the social contract for their present and future. Only, in the world conservatives live in, there is no future -- only a here and now, which by some strange and twisted logic means we should accept substandard wages and no security because it fuels the economy. Maybe.
I also love the outright brag over private pensions not being tied to inflation. She's right; they're not in many cases, which all too often leaves employees with inadequate pensions if they even work for an employer who has a pension plan. But a pension is a future obligation, and it should factor inflation into the estimate of funds needed for retirement benefits. Yet once again, that pesky balance sheet just gives employers lots of reasons not to have pension plans. Pension liabilities are hell on the bottom line, particularly when the highest-paid employees also represent the highest liabilities.
To avoid balance sheet tears, most employers have shifted to 401(k) plans, which are fine and quite popular in the fat years. In lean years, the employee bears all of the risk while the employer walks away with none -- not even the obligation to put one penny toward employees' retirement.
As an example, many companies stopped their matching contribution to 401(k) plans in 2008. In 2010, they're reporting record profits again, but employees' matching contributions are still nowhere to be found. That balance sheet looks pretty because employees made it look pretty by sacrificing their golden years while being told they should be grateful.
For all the sound and fury around retirement, Social Security, and conservative "values", they're ignoring some pretty convenient facts. First, those of us in the Baby Boomer generation were the first generation to pay for the Social Security benefits of our parents, ourselves, and a large chunk of our children's benefits. Don't begrudge us our number or our benefits. While we were paying, we were stimulating the economy by buying houses and cars and electronic toys and all the great stuff our kids wanted.
Also, as to the "multi-decade vacation"...I'd like to remind the perky Megan that unemployed workers over age 50 have the dual disadvantage of a tight job market and their age.
The unemployment rate for over-55s is at the highest level since 1948. Since the recession started, both the number of older people seeking work and the rate of unemployment for over-55s have increased more sharply than for all other demographic groups. And older workers comprise a high share of the long-term unemployed. In May, the average duration of unemployment for older job-seekers climbed to 44.2 weeks, 11 more weeks than the national average. Nearly six in ten older job-seekers have been out of work for more than six months.
Want to know why that is? Because older workers are a) more experienced; and b) more expensive. Our medical benefits, retirement benefits, etc all cost employers a lot more, so there's no real reason to hire us when they can hire Ms. McPerky who just graduated from Liberty University with a degree in intellectual dishonesty instead. In that narrow strip of real estate called ConservativeLand, older workers should either starve to death or drop dead looking for a job they're not going to find, but God forbid they should actually see any prospect of retiring.
I am continually blown away by conservative writers' contortions to keep from simply admitting the easiest, best and fairest solution: uncap taxable wages. That's it. Done. No worries, Social Security lives on.
I sure do appreciate Megan McPerky telling all us geezers where we can go, and giving us a road map, too. We'll be sure to meet her there.
(h/t John Cole)