Welcome To The Third World, Part 4: Boomers Reap What They've Sown
It was fun while it lasted. We Baby Boomers got to diss our elders when we were young and borrow without restraint through middle-age. Few generations have traveled such a smooth stretch of financial/psychological highway.
But now that we're...old...the world we created isn't so congenial. Our savings are inadequate, jobs are scarce, and retirement, as a result, is out of reach for many of us. We are, in short, reaping what we've sown these past four decades. From today's Wall Street Journal:
Oldest Baby Boomers Face Jobs Bust
Many older Americans fear they will be working well into their 60s because they didn't save enough to retire. Millions more wish they were that lucky: Without full-time jobs, they are short of money and afraid of what lies ahead.
Deborah Kallick was a professor of biomedical chemistry at the University of Minnesota until she ventured into the private sector in 2000 with a job in genome research. She is now one of more than four million Americans aged 55 to 64 who can't find full-time work. That number has nearly doubled in five years, according to U.S. Department of Labor figures in October.
Ms. Kallick, 60 years old, has been unemployed since 2007 and lives in the Northern California home of an ex-boyfriend. She has run out of unemployment insurance, used up most of her retirement savings and is indebted to relatives and credit-card companies.
A good job could settle her accounts, she said. Until then, Ms. Kallick relies on generosity, occasional consulting work and the sale of sweaters, purses and other possessions on eBay.
"It is very hard to work through this and learn to be calm and happy day to day," said Ms. Kallick, who never married. "It has taken a lot of strength and courage to learn to do that."
Older Baby Boomers are trying to postpone retirement, as many find their spending habits far outpaced their thrift. With U.S. unemployment at 8.6%, and much higher among people in their teens and 20s, younger members of the labor pool accuse Boomers of refusing to gracefully exit the workplace.
But their long-held grip is slipping, as employers look past older Americans to younger, cheaper workers.
The Labor Department counts people as unemployed only if they have looked for a job in the previous month. By that definition, 6.5% of workers aged 55 to 64 were unemployed in October, below the national average but more than twice the jobless rate for the group five years earlier.
Taking into account the number of older people who want full-time work but are unemployed, working part-time or need a job but have quit looking, the percentage jumps to 17.4%, or 4.3 million Americans ages 55 to 64, according to the government data. The number has grown from 2.4 million in October 2006.
This group without full-time work now accounts for more than one in six older Americans seeking positions.
In some ways, older people are doing better than everyone else: Among all U.S. workers, 20% are unemployed, underemployed or have given up looking for jobs. But older people have far less time to rebuild savings.
"This is new. It is different. It is worse than we have experienced before and it is very widespread," said Carl Van Horn, head of the John J. Heldrich Center for Workforce Development at Rutgers University. "It is going to get worse. You are going to have a higher level of poverty among older Americans."
Older people have more trouble finding new jobs. Among unemployed workers older than 55, more than half have been looking for more than two years, compared with 31% of younger workers, according to the Heldrich Center. Among older workers who found a new job, 72% took a pay cut, often a big one, the Rutgers data show.
The problem has been building for decades: Inflation-adjusted, middle-class incomes have stagnated in parallel with a free-spending culture of indebtedness that has left many Americans with too little saved. Over the same time, many U.S. companies cut pensions and shifted to less-generous retirement-savings plans such as 401(k) accounts that have stagnated or diminished in the market tumult of past years.
Older families aren't just failing to save, they are increasingly draining accounts that were supposed to help finance retirement.
The median household headed by someone aged 55 to 64 has $87,200 in retirement accounts and other financial assets, according to Strategic Business Insights' MacroMonitor database. If each of the 4.3 million unemployed or underemployed people in this age group runs through half the family savings, that will, in theory, total $188 billion in lost retirement money.
The typical retirement-age household has too little saved to maintain its standard of living in retirement, according to actuarial and Federal Reserve data.
Financial planners often advise that retirement resources be large enough to provide 85% of a person's working income. Median households headed by a person aged 60 to 62 with a 401(k) account have saved less than one-quarter of what is needed in that account to live as well in retirement, according to Fed data analyzed for The Wall Street Journal by the Center for Retirement Research at Boston College.
The trouble spreads across generations. Older people hang on to jobs or, out of desperation, take lower-level jobs for which they are over-qualified. Either way, they displace younger workers.
In the past, older people who lost jobs often gave up and retired. No longer. In October, two-thirds of people aged 55 to 64 had jobs or wanted them, up from 59% in 1994, according to Labor Department data.
At an age when they should be generating peak incomes and savings, many unemployed and underemployed Americans are applying for early Social Security benefits and spending what's left in their retirement accounts.
Kathi Paladie, 64 years old, lost her job as an executive assistant at a mortgage company in Tacoma, Wash., six years ago. She hasn't found full-time work since but works occasionally as a phone interviewer for a political survey firm.
Her retirement savings is spent, and she said her monthly $800 Social Security checks, $100-a-week unemployment benefits and occasional paychecks barely cover expenses.
"If I don't buy a lot of groceries, then I am OK," said Ms. Paladie, who is divorced. "I do a lot of puzzles sitting here and watching TV. And I play with my bird. And that's about it."
She rarely goes out, she said, "but I've got a clean house." To save money, she sometimes eats Frosted Flakes for dinner. She shares them with her African Grey parrot, Muffin, who also likes the sweetened cereal.
Ms. Paladie hasn't been to the doctor for five years, she said. She frets about paying rent after her unemployment benefits run out next year. Her daughter lives nearby but doesn't have the room for her, Ms. Paladie said. "It is kind of a standing joke," she said, "that if this fails, that I can always move in with them and sleep in the garage."
The problem of older, out-of-work Americans extends beyond individuals to the U.S. economy. Among jobless people aged 55 to 64 who want to work, lost annual wages exceed an estimated $100 billion, based on the median income of this age group.
Retirement savings losses exceed $10 billion a year, assuming contribution rates of 8% for employees and 2% for employers. Even if only half the people were working, the economy would gain $50 billion a year in income and another $5 billion in retirement savings.
That doesn't count the lost wages of people who have taken salary cuts to get new jobs.
Richard Foster, 59 years old, a former computer programmer and software analyst in Arvada, Colo., near Denver, has been unemployed several times over the past decade. The older he gets, the more trouble he has finding jobs in computer mainframes, his specialty, amid changing technologies. And the longer his absence from programming, the harder it is to attract recruiters, who prefer people with experience in the past six months, Mr. Foster said.
These days, he works on the telephone nearly full-time as a customer-service representative. His employer grades him on how fast he finishes each call and how customers rate his service. Mr. Foster recently contracted Bell's palsy, a temporary facial paralysis thought to be stress-related.
The work pays a lot better than a previous job, delivery driver for a dry cleaner. Still, Mr. Foster said, it pays 40% less than what he earned as a programmer at the University of Colorado Hospital, a job he lost in a restructuring that kept more tenured employees.
Mr. Foster's wife, Tina, has complications from a detached retina, which keeps her from working. Her treatment is only partially paid for by his medical plan, which classified Ms. Foster's eye problem as a pre-existing condition.
He has a retirement-savings plan at his new employer, he said, but it's hard to save, given the couple's struggle "to make ends meet day to day." He is putting off dental work, for example, to save money.
While out of work, Mr. Foster said, he sometimes depended on food banks. He filed for personal bankruptcy in 2003. He and his wife got a break recently: his wife's sister and her husband helped them purchase a home. Mortgage payments to his in-laws are less than his rent. Retirement? He said he has no idea when.
Mr. Foster's worries aren't unusual. More than two-thirds of unemployed people older than 50 report extreme stress, trouble sleeping or family strains, according to surveys by the Heldrich Center at Rutgers. More than 60% of respondents said they didn't expect to hold another full-time job in their field and a similar percentage said they were pessimistic about finding any job soon. One-third of those over 55 reported selling possessions to stay afloat.
In another unfortunate consequence, the younger people are when they apply for Social Security retirement benefits, the lower their monthly checks for the rest of their lives. Two-thirds of Americans older than 50 expect to file for the benefits earlier than they would prefer, or already have done so, according to the Rutgers survey.
"People are taking in boarders, they are moving in with their kids, selling their homes for the cash that they can live on," said Abby Snay, executive director in San Francisco for JVS, a community agency that teaches work skills.
Although her agency has long focused on young people, the fastest-growing client group is closer to retirement age. Before the recession, only 11% of her clients were older than 55; now, it is 17%.
"We are seeing people in a panic, in survival mode," she said. "They are about to finish their financial assets and all they have after that is their retirement funds. They are trying to figure out some kind of bridge so they won't have to pay an early withdrawal fee for their retirement incomes."
Ms. Snay has even seen former donors return as clients. "There is a level of shame and humiliation," she said, "and, 'What have I done wrong?' "
She recently offered older clients a workshop on the website LinkedIn. She recalled some people said, "'If I put up a picture, no one will hire me.'"
Her response: "We advise people to put up a photo, put their best foot forward."
Where to start? Maybe with the observation that prolonged good times produce a lack of foresight. If the world is only going to get better, worrying about the downside and planning for it is wasted effort, since there will always be resources and opportunities more than adequate for tomorrow's challenges. In evolutionary biology terms, late-20th century America selected for optimistic, present-tense people.
But that attitude and the behaviors it engendered -- borrowing rather than saving, building excessive entitlement and military structures, breaking the dollar's link to stabilizing forms of money like gold -- inevitably convert good times into hard times, in which an optimistic, present-oriented perspective begins to look like utter cluelessness.
In retrospect it seems so obvious. If Boomers had been paying attention, instead of buying 4,000 square foot houses, new cars and big screen TVs, we'd have reacted to rising indebtedness by living small and saving big from the 1980s onward. Instead of voting for whoever promised the most free stuff, we'd have demanded balanced budgets and hard choices.
But we didn't. We became "consumers" rather than builders. Our savings rate was near-zero for much of this time, and our debt ballooned during what should have been our prime saving years. So what's coming isn't a natural disaster. It's the result of choices made by intelligent, well-educated people who should have known better.
Today, if you're 55, haven't saved a lot of money and can only find part-time work, the math is pretty clear: you'll never retire because you'll never accumulate any more capital.
And the truly sad part of this story is that there's no solution. As the debts we've taken on really bite in coming years, the US (and Europe and Japan) will be presented with the choice of liquidating excessive debt through default (producing massive job losses for marginal workers and eliminating the whole concept of retirement for most people) or inflating it away (evaporating the nest eggs of savers who own bonds, cash, or bank CD, also making retirement a lot harder). Either way, Boomers are the main victims.