2014 January 01 Wednesday
Rising Retirement Ages, Reductions In Retiree Benefits Coming

Someone in their 70s today grew up and lived for decades in a rising American and global economy. In the US they would have experienced booming domestic industries producing for World War II and then good times for decades after. Rising living standards were the yearly experience for the vast majority in America and Europe. It seemed inevitable that this would continue. Most of that generation retired with excellent retirement benefits. Financially their lives were, by chance, perfectly timed.

Today the party is over.

Many people will be forced to work well past the traditional retirement age of 65 - to 70 or even longer. Living standards will fall, and poverty rates will rise for the elderly in wealthy countries that built safety nets for seniors after World War II.

Why? So many big causes are coming together that the outcome is over determined. Governments are running large deficits. Their promised old age entitlements far exceed their ability to pay. Defined benefit pension plans have become rare. The average age of the population is rising and too few work for the number who are retired. The cost of health care continues to outpace inflation. Plus, high unemployment rates, slow economic growth, and stagnant (or worse) living standards make people less able to save.

The party is still on for some retirees. But for the next generation and generations after it the deal will be much worse.

"France is a retirees' paradise now," says Richard Jackson, senior fellow at the Center for Strategic and International Studies. "You're not going to want to retire there in 20 to 25 years."

The European periphery is in worse shape than America because the sovereign debts are so high and some countries are in outright economic depressions with unemployment rates well over 20%. With sovereign debt interest rates declining in Europe one might be tempted to conclude (mistakenly) that the crisis there has passed and Europe has avoided a financial disaster. Nope. Government debt as a percentage of GDP has continued to rise for Greece, Portugal, Ireland, Spain, and Italy. Of those 5 only Spain has debt of less than 100% GDP. The European Central Bank is loaning to banks in each country and those banks are lending to their governments. So many of the banks in Europe are either going to get bailed out at some point or collapse.

The French government just increased by 1.5 years how long one has to work to get full pension. But slow economic growth or another financial crisis could easily make it necessary to add 5 or more years to the total number of years worked.

Many blue collar workers can not afford to retire. People over 55 are a rising fraction of the total American work force.

The group comprised 12.4 percent of the workforce in 1998. The share jumped to 18.1 percent in 2008 and is expected to be almost 25 percent by 2018.

Why do I keep writing these financial doom posts? I'd like to convince even a small number of people to prepare for what's coming. Don't get despondent or morose. Seriously think about what you can do to improve your career trajectory and preparedness.

Preparation can take many forms. I know someone who is planting lots of fruit and nut trees. You can lower your heating bill by heavily insulating your home. Or you could move closer to work to save on transportation costs. Or increase your 401k savings in each paycheck. Or take some online courses that will enable you transfer into a job that will last longer.

You can take steps to improve your health too. Some of these step are really easy: eat some nuts every day. I just bought a lot of mixed nuts and am grabbing a handful every day. You could start walking somewhere you currently drive to. I've made the habit of walking to the supermarket since I live close enough to one to walk. My neighbors thought it weird to see me walking down the street with grocery bags when I started doing it. One offered to drive me if my car was broke down (really, it is not that far).

Seriously, have any of you made any changes to your life in recent years to prepare for what's coming? If so, and if you do not mind sharing, what did you do? Got more changes planned?

Share |      By Randall Parker at 2014 January 01 08:00 PM 


Comments
4a552f55cbb9 said at January 1, 2014 9:50 PM:

I'm not buying the nut thing. They're missing something in the controls. Nuts are loaded with PUFAs, various phytochemical stressors, and also often with mold toxins.

Anyway, these observational studies are on fat, stressed out nurses and such who eat plenty of processed garbage. The fact that a glass of wine and a handful of nuts somehow helps keep fast food eating chubby Joe Blow from keeling over in his inflamed state really offers no guidance to me personally. I don't eat or live like Joe Blow.

radical white blogger said at January 2, 2014 5:03 AM:

dream on, brainwashed young tool of Capital. We old folks vote. I will be retiring and drawing my federal pension within a couple years or so, and going on disability for the next few years until I can go on Social Security. Once you are over 55 years of age, getting disability is a gimme..why? Cuz we vote.

J. said at January 2, 2014 8:48 AM:

Once you are over 55 years of age, getting disability is a gimme..why? Cuz we vote.

Detroit residents voted too. It didn't stop Detroit going bankrupt.

Polynices said at January 2, 2014 9:59 AM:

Regarding possible "bad" things in nuts, look up hormesis. It's a (seemingly) crazy concept but conceivably stuff like that actually contributes to nuts being good.

Though it's probably just bad controls, like you said.

Nobody said at January 2, 2014 7:20 PM:

"If so, and if you do not mind sharing, what did you do?"

I buy silver, gold, brass and lead. There is also a family farm and acreage that is productive. Chickens, honey, etc...

Randall Parker said at January 2, 2014 7:56 PM:

Nobody,

You are a practical person. Good to know. But brass? Why brass? For that matter: I would rather buy very long lasting supplies I can barter than buy gold. Though what makes the most sense depends on the collapse scenario.

Got trees you can use for heating?

Lead: Got good firing zones on the farm?

radical,

The number of people scamming the Social Security disability program keeps going up. The program is very expensive. Some of the scammers do not try hard to hide their lack of disability. I think the US government will, out of necessity, be forced to crack down and toughen requirements. They will need to ramp up the number of Social Security Administration judges who look at claims since the judges have to look thru far too many cases. I think computers could help a lot here and some detectives to investigate claims.

Nobody said at January 3, 2014 7:51 AM:

Randall,
Brass and lead go together. It is a slang term for ammunition. Grass being the casing, lead the bullet. And yes, there are trees for heating. No, no firing zones per say, but access to the homestead is not easy to do unseen. The dogs will likely notice if we don't. And having a bit of gold tucked away never hurts.

drponzi said at January 3, 2014 7:46 PM:

It is time to find ways to default on promised benefits, especially the end of life expenses. Decrepit seniors need to die faster. Give them easier painkillers. That is what I want for myself.

Nick said at January 3, 2014 11:17 PM:

I'm in the process of leaving my academic job in Silicon Valley and moving back to Poland, where my parents came from. I prefer the more homogenous population and traditional culture over the multicultural and "progressive" Bay Area. I'm working on getting a Polish passport, which will allow me to move and work freely across the EU. I'll still retain my U.S. passport. I'm working on a PhD in history, which alone isn't the most practical thing to do, but I am tying it in with a personal project that I plan to develop as an independent income stream. Getting a well-paying job is fine, but I think if you truly want to prepare yourself for tough times ahead, you need to build up your knowledge, expertise and "brand" as an entity independent of any one employer. One example of this where I live is the tech workers (programmers, execs ,engineers, etc.) that get swooped up by another company in no time, and who basically set their own terms for compensation, because of their track record. I'd still prefer to avoid salaried employment, but its good to have marketable skills to fall back on. As I've been preparing for this move I've stopped all retirement contributions (I'm 30 now). I'd rather invest in my freedom now to pursue my own projects and develop a potentially much larger income than I ever could in a salaried job. Whether you plan on staying put or traveling, you should have savings for 6 months of expenses.

Many commenters may already be familiar with this, but SurvivalBlog.com is a great resource for "prepping" in anticipation of a variety of SHTF (Sh*t Hits the Fan) scenarios. If things ever truly get anarchic for an extended period of time, I think most people's best laid plans will go right out the window. At a minimum though, you should be prepared for 2-4 weeks of having no access to outside help (this would be true in a natural disaster such as a hurricane or major earthquake). I see more of a gradual decline, represented by rising prices/inflation. If you have the resources now, stock up on things you use regularly: vitamins, non-perishable foods, contact lenses, toiletries, alcohol, medications. Downsize your living accommodations. I live in a 150 sq./ft studio. It still costs $1000 a month because it's Palo Alto, but I save money by walking to work which is also healthier, and I really don't need more space (though ~300 sq./ft would be very nice). I don't have cable TV, just an internet hotspot through Virgin Mobile which connects to the Sprint network ($35 per month). Part of the rationale for moving to Poland is the lower cost of living. I could live a more comfortable life there on $20,000 per year (after tax) than $40-60K here. The one downside I see is medical care, which is much better in the U.S. and western Europe than in Poland. Since I am still relatively young, I think this is a calculated risk. As I age I will be willing to spend more money for better medical care in private clinics or abroad.

Thanks Randall for always emphasizing the need to take matters into your own hands. I never hear anyone on mainstream conservative radio or most web articles (with the exception of Chuck Baldwin and of course James Rawles at SurvivalBlog) talk about these practical issues.

Wolf-Dog said at January 4, 2014 12:17 AM:

If the retirement age is being raised and the retirement benefits are being reduced while the inflation-adjusted median salaries are declining, this means that there is a lot more production for less real income for most people even though the total production and productivity of the individual workers are increasing, which then implies that a small group of people are harvesting all the benefits of increasing production in the form of accumulated wealth. If all the production were shared, there would be less work but more income for every individual, but instead, the robots are being used to maximize profit and fire the ones who cannot compete.

Randall Parker said at January 4, 2014 10:00 AM:

Nick,

I cycle between reading parts of many books. In the course of a month I probably read parts of about 40 books. One of the books I just put into my Kindle DX and Nexus 10 Kindle readers: Race Against The Machine. I'm about 20 pages into it. The book explains one of the several causes of worsening job market prospects for most Americans. Appreciate what it means for your future.

Computers in the last 10 years have started to make serious inroads into jobs that were previously seen as seriously hard to automate. Erik Brynjolfsson and Andrew McAfee point to automated vehicles in particular as something seen quite recently as a very hard problem which already work decently. I expect they'll start to displace long haul truck drivers in the 2020s or at latest in the 2030s.

I think you need to plan for loss of ability to make a living at some of the ways you think you'll make money in the future. If you are smart enough to develop some technical skills (sounds like it) then you ought to develop some. You can make more money with fewer hours worked than in most other occupations. I personally opt for long hours to make much more money. But if you don't mind living on much less you still need to develop skills that will help you make money in work that will still exist 10 and 20 years from now.

Medical care: things go wrong. My advice is to work for a few years at something that pays really well and accumulate cash as an insurance policy against all that can go wrong. The marginal utility of cash in the bank can suddenly and unexpectedly become very large. I've spent years being poor and it was unnecessarily stressful and constricting of my life options.

Sgt. Joe Firday said at January 5, 2014 5:02 PM:

Not to mention the fact that eastern European women are some of the hottest on the planet.

The fourth doorman of the apocalypse said at January 5, 2014 10:17 PM:

The marginal utility of cash in the bank can suddenly and unexpectedly become very large.

Except when the government decides to tax savings to help its debt situation.

aandrews said at January 6, 2014 10:36 AM:

Re doorman:

"The marginal utility of cash in the bank...."

I think he means (in part) that it is common practice for a physician to knock off half the bill if one pays in cash money and not involve an insurance company. So...it's good to have cash (because money doesn't care who's got it).

S. Harris said at January 6, 2014 4:45 PM:

Who is responsible for all this? I mean rising retirement ages, reductions in retiree benefits.

I would really like to read some views on who or what is responsible for all this mess nobody was even thinking about 7 or 8 years ago.

How can an economy system plunge like this so fast?

Sharpen your ideas.

Engineer-Poet said at January 6, 2014 6:57 PM:

Who is responsible?  A partial list:

  • The architects of the 1965 and later immigration acts, which brought in hordes of low-productivity workers and plain parasites.
  • The authors of the 1986 amnesty, ditto.
  • The American people, for applauding the Social Security act and acting as if it relieved them of the task of bearing and raising the next generation of workers to pay their Social Security benefits.

John Cunningham said at January 6, 2014 8:47 PM:

who is responsible? I suggest you walk into the bathroom, and peer into the mirror. Congress repeatedly raised social security benefit payments throughout the past 50 years, far above what ssa tax payments would cover. also, the plan is inherently a Ponzi scheme, which worked for a few decades because of the demographic profile of the population. in the 1950s, there were 18 taxpayers supporting 1 retired person. as peoples' lifespans increase, the share of population retired has vaulted upwards. currently, there are 2.5 taxpayers supporting each retiree. soon, it will be one to one.

leftistconservative said at January 7, 2014 4:41 PM:

I am going to go on disability before I take my Social Security at age 62, and I am going to ask that my payments come from your taxes.

We are going to get liz warren as prez, and she has said she will expand SS.

Check it out said at January 8, 2014 4:59 PM:

Who is responsible?

The parasites.

It's always the parasites who cause a system to collapse. These are 1. the POLITICIANS who abdicate their role of regulating and keeping in check the other type of parasites: 2. BIG BUSINESS AND BIG CORPORATIONS, which are private banks, oil companies, food chains, soda manufacturers, big retailes, software empires, etc, whose owners are helplessly addicted to money. These fascist pricks have enough money to buy governments, policies, armies, police and high-rank politicians to the point of making them their bitches. Finally, 3. Priests, Bishops, Mullas and all religious ministers from assorted religions. They only thing they provide, the only thing they produce is corny blessings, fears of a very hot "hell", "eternal bliss" and all sorts of fairy-tale metaphysics to be collected after you die, but only if you first made them rich.

The only class act in any society are the people who work. Hard working people is what supports all those lazy fucks mentioned above. Hard working citizens and immigrants who work for minimun or lower wage. They have all the right to retire with their pensions, because they deserve it. They are the truck driver, the plumber, the carpenter, the teacher, the clerk, the bus driver, the waiter, they stewardess, the stocker, the farmer, the janitor, the construction worker, the fisherman, the miner, the painter, they pilot, the emergency paramedic, the air-traffic controler, the mechanic, the undertaker or funeral disposer, the illegal dishwasher, the illegal chicken gut-puller, the doctor, the errand boy and the scientist, the sanitation crew, the night crew on the icy road. These are people who produce, who extract, who cure, who save lives, who discover, who fix your things, who clean bathrooms and empty the toilets of the buses and planes you use, who plow and harvest in the outdoor heat what you eat, who carry cement and lay plaster and install your faucet and toilet, who set your doors and locks, who land the plane you are in safely against a fucken crosswind, who mow your lawn and sweep the streets and carry your garbage an wastes away everyday, who teach your kid how to read and add. Those are the heroes of society. Whoever tells you that these heroes are useless,is an air-headed idiot, whoever tells you that they are "low-skilled" workers because they're not in the big business, is a lier, whoever tells you that hard-working immigrants are the cause of the country's current mess is a nazi coward.

Remember, bankers, pseudoartists like miley cyrus, michel jackson and justin beaver, priests, ministers, politicians of all kinds, corporation owners, soda manufactures and golfers are the idle, worthless good-for-nothing bums. They are the low-skilled idiots who can't even polish their own shoes, tie their tie right or wash their own fucken clothes.

George Carlin would say, "Let these rich cocksuckers fuck with a windmill for an hour and a half or so, see if there's really any skill among these people."

Randall Parker said at January 12, 2014 1:03 PM:

Sean,

The decline is not sudden. I've been writing about it for many years and others have been writing about it longer than me. You can find lots of measures of the decline.

The white male labor force participation rate has been declining since 1955. Look at the graph. Long term trend. Note that While the latest recession accelerated the trend the trend goes back to at least 1950.

Median household income declined in 9 of the last 12 years in the United States.

One really big problem: the dropping worker-retiree ratio. It is made worse by the declining labor market participation trend. Also, longer life expectancies drop the ratio.

We can't have a dropping worker-retiree ratio and stagnating incomes and maintain current retirement benefits.

WJ said at January 12, 2014 3:30 PM:

"The marginal utility of cash in the bank can suddenly and unexpectedly become very large."

"Except when the government decides to tax savings to help its debt situation."

The value of cash in the bank has nothing to do with the interest it earns, which is now close to zero, anyway. It has to do with having the ability to snap up distressed assets on the cheap during a crisis. Of course the conundrum is that you have to forgo asset/stock appreciation during a boom, or else have some real skill at timing the boom/bust cycle.

What the Fed has done is to make it very costly to keep cash in the bank for such crises by making the return on that cash minimal.

Randall Parker said at January 12, 2014 7:22 PM:

The fourth doorman,

If you find yourself wanting a life saving medical treatment that is only available abroad the value of cash can suddenly become quite large.

aandrews,

Yes, you can save a lot on medical bills by offering cash up front.

S. Harris,

Boston University economist Laurence Kotlikoff has been warning about the US fiscal situation due to retirment entitlements for a long time. That link summarizes some of his latest thoughts. Here is more from Kotlikoff. A number of European countries are in even worse shape.


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