Millions of boomers caught in the broken retirement system
They went to work every day and built a life for themselves, put money away in a savings plan and paid their taxes. And then they got divorced or hurt on the job or sick or widowed or just plain unlucky — and found themselves in the same boat as millions of Americans who are now approaching retirement with most of the financial props knocked out from under them.
As the big bulge of baby boomers head into old age, as many as half are coming face-to-face with a new American economic reality: Retirement means a descent into relative hard times, because the systems put in place when this generation was just entering its peak earning years have failed.
And one way or another the whole country will feel the consequences.
We talked to six Americans who have come to the end of their work lives with no financial cushion, no nest egg. The oldest is 74, the youngest 57: just about the exact span of the baby-boom generation. They are liberal and conservative, rural and urban, blue collar and white.
Lives scrambled
The coronavirus pandemic has scrambled the lives of these six boomers just as it has everyone else’s, though with no savings to worry about at least it hasn’t directly hurt them financially. Some have hunkered down, as best they can in sometimes tight spaces. For others, the pandemic has brought a surprising twist to their lives.
For others of their generation who have lost their jobs in the coronavirus shutdown, the odds against regaining employment, and being able to keep saving, have grown longer and longer.
None of these stories is an outlier. Half of American families in the 56-to61 age bracket had less than $21,000 in retirement savings in 2016, according to a longitudinal study by the Economic Policy Institute that used the most recent available figures. A less formal survey last year found that little had changed. Forty percent of Americans over the age of 60 who are no longer working full-time rely solely on Social Security for their income — the median annual benefit is about $17,000.
It’s a new American economic reality. And one way or another the whole country will feel the consequences.
‘Now it’s all downhill’
Every day, 10,000 Americans reach the age of 65. (In 2024, that number will crest at about 12,000 a day.) And every year, fewer and fewer of them have traditional employer-sponsored pensions to support them. The system that was supposed to provide for them is shot through with holes.
“We’ve probably peaked in terms of retirement security — and it’s not great,” said Monique Morrisey, of the Economic Policy Institute. “And now
it’s all downhill. Unless something changes, we’re going to start seeing much more hardship.”
Thirty million Americans have applied for unemployment benefits since the pandemic struck. But for laid-off workers in their 50s and 60s — and 70s — finding employment again will be tough.
“How many older workers are going to permanently lose their jobs and retire earlier than they planned?” Morrisey asked. The ranks of those drawing down what savings they now have are certain to grow.
Down the family chain
The impact will reach far beyond the more than 70 million living members of the baby-boom generation. It will affect everything from employment patterns to the price of real estate. With life spans lengthening, in concert with medical bills, financially strapped baby boomers entering the years of serious physical decline will put an immense burden down the road on Medicaid and on their families.
“Their children are looking around and wondering what this means for them,” said Jan Mutchler, at University of Massachusetts at Boston.
“It will be felt down the family chain,” said Alicia Munnell, a professor of management sciences at Boston College. “People are going to be anxious. There’s going to be some intergenerational ripple.”
The Kochs: ‘We were completely unprepared’
have contracted even further. Terry has chronic obstructive pulmonary disease, so he has barely left the apartment. They watched incredulously as protesters demonstrated against Wisconsin’s shutdown orders.
Yet they are remarkably good-humored about their predicament. They are, after all, children of the postwar generation, raised in an era of growing prosperity and ever-higher expectations. And some of the irreverence that marked the 1960s refuses to be stamped out.
“You know, frankly, neither of us thought we’d be alive at this age,” said Nancy Koch, her face lighting up in delight.
Actuaries have a term for that: longevity risk. In other words, there’s a risk that you’ll live too long.
Pensions dwindle
At one time, especially in a manufacturing state like Wisconsin, millions of retirees could count on pensions from their employers, to be added to Social Security benefits and personal savings. But pensions have been dwindling for 40 years, long since surpassed by individual retirement accounts. Such accounts are voluntary, which is a problem, and not accessible to everyone, which is a bigger problem.
Just 40% of working Americans aged 55-64 participate in a job-related retirement plan, according to a Stanford University study. Since the pandemic struck, as many as half of those workplaces have at least temporarily stopped making employer contributions — including Amtrak, Marriott and major universities, Ghilarducci said. She expects to see more and more people tapping into their 401(k)s early, putting themselves on the path to downward mobility in retirement.
The National Institute on Retirement Security argues that retirement accounts in the best of times are half as “efficient” as pensions. The strength of a pension system is that pensions stop when the recipient dies. Thus those who die earlier help indirectly subsidize those who live longer.
With 401(k)s and other individual savings accounts, which collectively are more expensive to manage than a pension plan, each worker has to provide for an unknowable number of years in retirement.
“Systems that depend on people making hundreds of decisions and getting them all right — they’re not going to succeed,” said Dan Doonan, head of the institute.
The Longabaughs
David Longabaugh, 62, retired in January from his job as a truck driver for a gravel firm in upstate Brooktondale, N.Y. He has about $10,000 in his 401(k). He has a $12,000 judgment against him for unpaid medical bills.
“I decided to retire now because my body’s been beat up so bad after 40 years of driving,” he said.
“The hardest part,” said his wife Tammy, 57, who is unable to work full-time because of a back injury she sustained while working in a dry cleaner’s, “has been when you’re fighting the big medical bills, even though you have insurance — OK? — and it’s hard to find money for anything else. And now that he’s retired it’s going to be even harder.”
They pay $1,000 a month in rent. David Longabaugh said he plans to go back to driving part-time in the summer, assuming the pandemic has abated, so he can make some money and keep his medical insurance. Tammy cleans house for an elderly man in their neighborhood.
David plans to take Social Security this year, the earliest he can. He’ll receive $1,136 a month. He counts himself as a conservative and thinks Congress should just get out of President Trump’s way. COVID-19 has had a silver lining for him — under a provision of the Cares Act that some Republicans tried unsuccessfully to kill, he will receive an extra $600 a week in unemployment insurance through at least the end of July.