49% Of Americans Aren't Saving For Retirement

From the No Shit, Sherlock Network CNN, here comes a report that shows just how dire our collective long term economic predicament really is:

America has a serious problem saving for retirement.

About 49% of Americans say they aren't contributing to any retirement plan, according to a new survey conducted by LIMRA, a trade association for the financial services industry.

"The findings from this survey were disturbing, given that people will increasingly need to rely on their personal savings to make ends meet in retirement," said Matthew Drinkwater, associate managing director at LIMRA's retirement research division.

People ages 18 to 34 are the least likely to be saving, with 56% reporting that they are not currently contributing to a retirement plan like an IRA or a 401(k).

"In order to have the adequate savings necessary to meet their financial needs in retirement -- which could last 20 or more years -- it is critical that these individuals begin saving systematically early in their working years," Drinkwater said.

So what is the reason that so many people are being so neglectful in preparing for their future?

Nearly half of consumers said they aren't planning to contribute to an IRA because they can't afford to, and only a quarter of Americans have worked with a financial professional to plan for retirement, the survey found.

In order to "work with a financial professional to plan for retirement" you gotta have something to plan WITH. If you don't have jack shit, you can't very well make a plan with it. What's maddening is just how much difficulty the mainstream media seems to have in grasping this basic concept.

"My Faith Based Retirement"

Since it is Sunday, I'm going to take a break this morning from writing a longer post and instead allow op-ed columnist Joe Nocera do the talking from a column published on Friday in the New York Times:

My 60th birthday is less than a week and a half away, and if there is one thing I can say with certainty it’s that 60 is not the new 50.

My body creaks and groans. My eyes aren’t what they used to be. I don’t sleep as soundly as I did just a few years ago. Lately, I’ve been seeing a lot of doctors, just to make sure everything still more or less works.

I’ve also found myself with a sudden urge to get my house in order — just, you know, in case. Insurance, wills, that sort of thing. Sixty is when you stop pretending you’re going to live forever. You’re officially old. Or at least old-ish.

The only thing I haven’t dealt with on my to-do checklist is retirement planning. The reason is simple: I’m not planning to retire. More accurately, I can’t retire. My 401(k) plan, which was supposed to take care of my retirement, is in tatters.

Like millions of other aging baby boomers, I first began putting money into a tax-deferred retirement account a few years after they were legislated into existence in the late 1970s. The great bull market, which began in 1982, was just gearing up. As a young journalist, I couldn’t afford to invest a lot of money, but my account grew as the market rose, and the bull market gave me an inflated sense of my investing skills.

I became such an enthusiast of the new investing culture that I wrote my first book, in the mid-1990s, about what I called “the democratization of money.” It was only right, I argued, that the little guy have the same access to the markets as the wealthy. In the book, I didn’t make much of the decline of pensions. After all, we were in the middle of the tech bubble by then. What fun!

The bull market ended with the bursting of that bubble in 2000. My tech-laden portfolio was cut in half. A half-dozen years later, I got divorced, cutting my 401(k) in half again. A few years after that, I bought a house that needed some costly renovations. Since my retirement account was now hopelessly inadequate for actual retirement, I reasoned that I might as well get some use out of the money while I could. So I threw another chunk of my 401(k) at the renovation. That’s where I stand today.

When I related my tale recently to Teresa Ghilarducci, a behavioral economist at The New School who studies retirement and investor behavior, she let out the kind of sigh that made it clear that she had heard it all before. The sad truth, she told me, is that I’m the rule, not the exception. “People have income shock, like divorce or loss of a job or a health crisis,” and those crises tend to drain retirement accounts, she said.

But even putting income shocks aside, she said, most human beings lack the skill and emotional wherewithal to be good investors. Linking investing and retirement has turned out to be a recipe for disaster.

“People tend to be overconfident about their own abilities,” said Ghilarducci. “They tend to focus on the short term rather than thinking about long-term consequences. And they tend to think that whatever the current trend is will always be the trend. That is why people buy high and sell low.”

Because I don't want to reprint the entire article, I'll now flash forward to the money quote, so to speak:

What, then, will people do when they retire? I asked Ghilarducci. “Their retirement plan is faith based,” she replied. “They have faith that it will somehow work out.”

In yesterday's post, I asserted that people who have bought houses in the past couple of years in the mistaken belief that the "bottom was in" on the housing market are like sheep being led to the slaughter because of their blind optimism. This column makes it plainly apparent just how widespread the problem really is. Obviously, I don't know Joe Nocera, but if he is writing op-ed pieces for the New York Times he must be a pretty smart guy. If he got tripped up by his own stupid blind faith, what hope is the for the average mope?


Bonus: I may end up linking to every song on this album before its all over

Illinois ‘Treads Water’ As Unpaid Bills Top $9 Billion

The headline to this article from Bloomberg claims that the State of Illinois is "treading water," when a more apt metaphor would be that the Land of Lincoln is actually drowning in a sea of red ink:

Illinois’s backlog of unpaid bills has risen to more than $9 billion because of pension costs and falling federal aid, leaving the state “essentially treading water,” Comptroller Judy Baar Topinka said.

While revenue grew from higher personal and corporate taxes, “Illinois’ financial position has not improved,” Topinka said in a report today. The combination of unpaid bills to vendors and Medicaid obligations, estimated at $8.5 billion in January, means payment delays will persist, according to the report.

Illinois is second only to California as the state with the lowest credit grade from Standard & Poor’s. S&P may cut the general-obligation rating from A+, fifth highest, “if there is no progress on structural budget solutions and if Illinois does not address the significant pension liabilities and associated cost pressure,” the company said last week.

While tax increases boosted revenue by about $7 billion, or 3.9 percent in the first three quarters of the fiscal year that began in June, the gains were undercut by the loss of federal funding and financing of pension contributions directly, rather than through bonds as in the past two years, Baar Topinka said.

Democratic Governor Pat Quinn has proposed a voluntary 3 percent increase in pension contributions from current employees and a cut in cost-of-living increases for retirees.

“Bold action” is required to save the retirement systems, the governor told reporters in Chicago April 20. In fiscal 2010, Illinois had the lowest-funded state pension in the U.S., with assets equal to 45.4 percent of projected obligations, according to data compiled by Bloomberg.

If you are a state government worker in Illinois or a state government retiree, you probably ought to make plans for the eventual day when the state pension system concedes to reality and implodes.


Bonus: Since Styx is from Chicago, this song seems particularly appropriate

More Seniors Using Reverse Mortgages to Raise Cash, And At A Younger Age

Yet another sign of the economic distress being felt in the real world beyond the manipulated stock markets was seen in this story that appeared on Friday on CNBC:

Finding themselves financially strapped, more seniors at an earlier age are trying to get reverse mortgages on their homes in order to survive, according to a new report.

The study says the percentage of people aged 62 to 64 applying for reverse mortgages has increased 15 percent since 1999.

The reason for the dramatic upswing among 'younger' seniors is simple, the report concludes: They need the money.

"The average age for taking out reverse mortgages has been around 71," explains Sandy Timmerman, director of the MetLife Market Institute who conducted the survey with the National Council on Aging.

"But with job losses, higher debt and living costs, more and more of the 'younger' seniors are looking at reverse mortgages as a way to pay their bills and keep their homes," Timmerman adds. "It shows the devastation some seniors have gone through since the financial downturn."

Reverse mortgages—which allow homeowners to borrow against the value of their homes—have been around since the early 1960's, but have grown in popularity. TV commercials with celebrities like Henry Winkler, Robert Wagner and Fred Thompson promoting reverse mortgages, are rampant during weekends and late night viewing hours.

But whether it's the ads, the financial necessity, or both—reverse mortgages have become attractive to more seniors. In 2010 alone, more than 80,000 Americans over 62 years old finalized a reverse mortgage. That's up from 25,000 in 1995.

'It's not surprising that more seniors are doing this at an earlier age," says Karl Byrd, CFP, vice president at Security Ballew Wealth Management. "We live in a time when people are not planning for their retirement or can even get out of debt. Some seniors can't even buy groceries right now."

I love that little "blame the victim" statement right there from Vice President Karl Byrd of Security Ballew Wealth Management. Have some people foolishly failed to save for retirement despite the fact that they could have easily afforded to do so? Undoubtedly. Are there plenty of others who saw their nest eggs kicked in the balls by the housing and stock market crashes perpetrated by parasitic Wall Street scum? Without a doubt.

The article continues on to describe the pain many seniors are feeling that is forcing them into reverse mortgages:

Another warning signal—reverse loans can use up all or most of the equity and leave seniors with fewer assets as they grow older. And the loans are geared toward older seniors. The older someone is, the more credit is available. That's why most reverse mortgages have been taken out by people in their 70's. That is until now.

"Weaker economic conditions are pushing 'younger seniors' to go for any amount of money they can get at an earlier age," says Timmerman.

"The people we surveyed in the younger age range applying for the loans were clear about their needs for financial help," Timmerman says. "They didn't seem like they could wait."

At a time when more seniors in the U.S. are facing poverty—some 15.9 percent are considered poor— it's not surprising to see the move to reverse mortgages, says Mark Goldman.

"I saw a an older woman at the drug store the other day, asking her pharmacist to please cut the costs of her medicine," Goldman adds. "When you see seniors facing rising health care costs, and as they lose jobs and see 401(k) returns shrink, it's going to be tough not to look at a reverse loan."

And of course, those who do will have very little, if any, wealth to pass on tho their younger heirs who may themselves be struggling with massive student loan debts, underwater mortgages or job losses. As a result, more and more middle class American families will gradually see their wealth permanently evaporate as the downward spiral resulting from the death of or cheap oil-based economy slowly strangles the tattered remnants of the American Dream.


Bonus: Go back to selling your political snake oil, Fred, you cretinous, Ronald Reagan wannabee

Bank Of America Will Freeze Employee Pension Plans

Bad news for Bank of America employees. Here is CNN Money with the details:

Bank of America announced plans Thursday to freeze pension plans, effective in July, and increase its 401(k) contributions instead.

Eligible employees will keep the pension benefits that they've earned to date but will not receive additional benefits, Bank of America (BAC, Fortune 500) spokesman Scott Silvestri said.

The company will instead begin making an additional 2-3% annual contribution to employees' 401(k) accounts, on top of the existing program that matches employee contributions up to 5%.

"Making these changes simplifies our offerings, gives employees control in managing their retirement savings and ensures our retirement benefits remain competitive," Silvestri said in an email.

U.S. companies are increasingly moving away from traditional pensions and toward 401(k) plans in an effort to save costs and minimize funding uncertainty. Last week, General Motors announced that it had shifted its senior salaried workers away from a traditional pension plan to a 401(k) plan.

Of course, this is yet another reason why the Federal Reserve has been so desperate to pump up the stock market. It would be far less palatable for companies to be able to dump their pension plans and go to a 401(k) only system if the DOW were still bouncing around near its March 2009 lows. It also creates a condition where unless the stock market continues to rise robustly forever and ever, the employees will be facing poverty and destitution after they retire, assuming the economy does not crash long before then.


Bonus: Better hope you die before you get old

American Airlines' Nosedive to Impact Employees' Jobs; Pensions

Everyone knows by now that American Airlines is in a world of hurt, especially after the company's bankruptcy declaration last November. The persistent high cost of aviation fuel and a flying public with less money in their pockets to spend on airline tickets has been hammering the entire industry. An article published this week by CNN Money spells out just what is in store for the beleaguered workers:

American Airlines' parent is meeting with its unions this week to lay out cost cuts it wants to implement as part of its bankruptcy reorganization -- moves that could cost many of the company's 81,000 workers their jobs and a portion of their pension benefits.

AMR Corp. said at the time of its Nov. 29 bankruptcy filing that it was forced to file because of the need to achieve a more competitive labor structure. Most other major U.S. airlines have already cut labor costs by their own trips through bankruptcy over the last 10 years.

Among the moves that American's unions expect include having aircraft flown overseas to low-cost maintenance facilities for the extensive overhaul required for planes on a regular basis. Most U.S. airlines, including United, Continental, Southwest Airlines and Delta Air Lines, already have costly maintenance performed at overseas facilities.

AMR, which owns both American and feeder airline American Eagle, is the only major carrier to perform the work in-house at U.S. facilities.

"This is the dirty little secret of U.S. aviation. You don't know where the plane that you're flying was repaired," said Jamie Horwitz, spokesman for the Transport Workers Union. "You assume standards are high for the person who works on your fuel line, but it doesn't necessarily follow."

Doesn't it just give you a warm, fuzzy feeling all over to know that almost all airline maintenance work is now being performed by poorly paid drones God knows where? Fuck, I may never get on an airplane again.

But please continue:

Horwitz said there are two major American-owned facilities doing the heavy maintenance work -- one in Tulsa, Okla., which has 6,500 union members, and another outside of Dallas with 2,200 union members.

Horwitz and industry experts say almost all other U.S. airlines already have outsourced regular overhaul maintenance required for aircraft to facilities in countries such as China, El Salvador and throughout South America.

Oh, so THAT'S where. Yep, I'm seriously going to have to swear off flying. Or do you really think a maintenance worker living in some crowded dormitory and getting paid a buck an hour really gives a shit whether that bolt is tightly fastened or not?

But the airline off-shoring maintenance work isn't the only potential ball of suck in this deal:

He also wouldn't comment on whether the company will seek to move its pension plans, which it estimates are underfunded by $5 billion, to the Pension Benefit Guaranty Corp., a federal agency that protects the pensions of workers in private-sector retirement plans.

The Pension Benefit Guaranty Corp. has issued numerous statements since the American bankruptcy that it would seek to keep the airline from dumping its pensions on the agency, which is already facing a deficit of its own. The agency's estimate is that the American pensions are underfunded by $10 billion.

If the company is successful in shifting its pensions to the agency, workers would likely lose promised retiree health-care benefits. Many, especially the pilots, would have their pension benefits slashed.

And the taxpayer would have to pick up the tab. Beautiful, just beautiful. How fitting is it that the company is still named AMERICAN Airlines? Because they have the new American way down PAT.

Addendum: a subsequent story published by MSNBC after I wrote the initial post listed the number of coming layoffs at American Airlines as up to 15,000 (although an even later update said 13,000):

American Airlines officials were meeting with their three major unions amid reports that the bankrupt airline company is making plans to eliminate up to 15,000 jobs.

Representatives of the Allied Pilots Association, Transport Workers Union, and Association of Professional Flight Attendants were meeting with company officials in Dallas, said Sam Mayer, a long-time American pilot who sits on the union's communication committee. The three unions represent about 54,000 total employees.

"Right now we have no idea what they're going to be asking for as far as pay cuts, work rules, job cuts, furloughs, etc.," Mayer said.

Bonus: Big ol' jet airliner...please don't crash due to poor maintenance

Social Security Blues: 2012 Shaping Up to Be a Third Consecutive Deficit Year

Financial blogger Bruce Krasting produced the above chart to go along with an article he wrote this past week entitled, "Social Security - January 2012 and Beyond," about the current account deficit in the Social Security program and what is likely in store for it in the next few years. Krasting's findings basically support exactly what I've written here several times, namely that the Social Security "trust fund" is nothing more than an accounting gimmick and that Obama's payroll tax holiday is hastening the program's ultimate demise.

Krasting thus concludes:

If we experience a recession in 2013, and the Fed maintains its low interest rate policies, it will be a very bad year for SS. The cash deficit would explode under these conditions. It could easily exceed $100b. The wheels will come off of SS’s cart. As we are seeing now, it is extremely difficult for SS to bounce back in good times. it will be impossible if we hit another economic slow patch.

This is precisely the scenario I’m anticipating for 2013. It will be a decisive year. If we end up going down an economic road as I have described, then SS will fall into full deficit (operating cash deficit + interest income). That would happen circa 2015. The Social Security Trust Fund is forecasting this event but it believes it will happen in 2021. When people realize that the Trust Fund has topped out, and the implications are understood, significant changes at SS will follow.

Krasting is somewhat less alarmist than I am, and being a big shot investor type he doesn't come right out and say what needs to be said: that anyone under the age of about 50 expecting Social Security to be there when they retire, or anyone older than that expecting Social Security to last much beyond another decade or so, needs to seriously reconsider their thinking.


Bonus: I would like to dedicate this song (and its REAL meaning) to the Social Security program

What's the Matter With Philadelphia?

Nothing, really, that isn't wrong in the rest of a nation where voters just unthinkingly keep reelecting the same corrupt fucking assholes time and time and time again. Here is Philly.com with the details:

City Councilwoman Marian Tasco will retire on Friday, collect a six-figure pension payment and then return to work after she is sworn-in on Monday to serve her seventh term.

Francis Bielli, executive director for the city’s Board of Pensions and Retirement, said he was recently notified that Tasco, who is enrolled in the controversial Deferred Retirement Option Plan, will retire on Friday and collect $478,057.

Tasco did not respond to requests for comment.

Tasco was reelected despite her participation in DROP, which drew public ire after elected officials entered the program, ran for re-election and retired for a day to get hefty pension payments, only to return to office.

All is not completely bleak in the City of Brotherly Love, however:

Retiring Councilman Frank DiCicco, who is also in the program, considered running for re-election, but after controversy erupted over DROP, he decided not to. Retiring Councilwoman Donna Reed Miller, who is also enrolled in DROP made a similar decision. Councilman Frank Rizzo lost reelection due in-part to his participation in DROP.

I care not one whit which political party City Councilwoman Marian Tasco represents. Nor should anyone else. The fact that some political hack would so blatantly rip off the taxpayers regardless of partisan affiliation is the real problem. Officerholders of both parties do shit like this and they do it all over the country. And until the electorate wakes up and votes them out of office it is going to continue to happen.


Bonus: The voters of Philadelphia need to start exercising some of this

Spoiled Rotten Nation: Fretting Over Losing the Payroll Tax Cut

I have to admit that it's been a lot of fun watching the Republicans senselessly tie themselves up in knots over extending the payroll tax cut for mere two months. It's just more proof that the party has collectively completely lost its mind.

That doesn't mean the Democrats are much better. President Hopey-Changey originally pushed for the payroll tax cut last year at this time to provide a temporary economic stimulus at the expense of accelerating the insolvency of the Social Security program, which is supposedly his party's signature accomplishment.

The public, of course, largely excoriated the Republicans for "raising their taxes," by initially scuttling the deal to extend the cut. In the face of overwhelming outrage, the Republicans then ran scurrying away with their tails between their legs, in the process essentially guaranteeing that the payroll tax cut will never be rescinded. At the height of the debate last week, this story from Bloomberg was pretty telling:

Some say they'll spend less on groceries. Others expect to cut back on travel. For many, there would be fewer meals out.

Across the country, Americans are bracing for another financial hardship: smaller paychecks starting in January, if Congress doesn't break a deadlock and renew a Social Security tax cut.

The tax cut, which took effect this year, benefits 160 million Americans -- $1,000 a year, or nearly $20 a week, for someone making $50,000, as much as $4,272 or $82 a week for a household with two high-paid workers.

The tax cut is set to expire Jan. 1. If lawmakers don't renew it for 2012, analysts say the economy would slow as individuals and families looked for ways to spend less.

"Of course, it changes my plans," said Craig Duffy, an information-technology worker from Philadelphia and new father of twins. Duffy said his family already has tightened spending, so "we'll have to find a way to cut back."

That might mean canceling a planned trip to visit the twins' grandparents in Wisconsin, Duffy said.

The tax cut is part of legislation that would also renew benefits for the long-term unemployed. If the unemployment benefits aren't renewed, starting in January nearly 6 million people would lose weekly checks averaging about $300 -- the main source of income for most of them.

The article then continues on for about another two-dozen paragraphs. I could have posted the rest of it, but you get the idea. It was basically one long screed about how "raising" the payroll tax would "hurt" American consumers in hard economic times. There was not one single sentence included about how the lost tax revenue is going to harm the Social Security program or increase the federal budget deficit.

The reason the payroll tax cut is causing bigger deficits, of course, is that all of the money in the so-called Social Security "trust fund" was placed into government securities, i.e. debt, meaning that money has already been spent and the trust fund itself is nothing more than an accounting gimmick. So now, having already raided the retirement system's piggy bank, we've decided to reduce the amount of money we're putting into the piggy bank in the first place. All of this in a desperate attempt to try and prop up our consumer economy. Having already saddled future generations with more than $15 trillion in debt (and rising) they will never be able to repay, we are now rapidly bankrupting our own retirement system just so people can buy more shit they don't need like the latest Air Jordan basketball shoes, or maybe some Kardashian products made in Chinese sweatshops, and keep the game going a little longer. We are truly a spoiled rotten nation.

Selfishly, I guess, I should hope that Obama does get his way and the payroll tax cut is extended indefinitely. I won't be eligible to collect Social Security benefits for another 16 years, and fully expect the system to be completely bankrupt well before then. Every dollar I don't pay in payroll taxes now is another dollar in my pocket that I can invest to prepare for what's coming. But as a lifelong believer in the idea of the common good, I will take absolutely no joy in doing so.


Bonus: We have truly become a nation full of Veruca Salts

Yes, Virginia, Our State Pension Fund is $20 Billion in the Hole

As part of my continued and ongoing public service to demonstrate to Americans in both the private and public sector that the pensions they are counting on to support them in their "golden" years will not be there for them when they retire, here is another scary such story out of the Old Dominion:

Virginia's retirement system, considered fiscally sound just two years ago, is now $20 billion short of what it owes public employees, a massive liability that threatens the fund's stability as Gov. Bob McDonnell prepares to send his first budget request to the General Assembly.

State lawmakers struggling to cover multibillion dollar holes in the state's budget since 2008 reduced what they were paying into the pension fund, shorting it by $1.6 billion this year alone, the Virginia Joint Legislative Audit and Review Commission, a bipartisan government oversight panel, reported Monday. At the same time, the fund's investments soured. That one-two punch means the gap between how much the fund has and what it owes grew from $12 billion in 2009 to $20 billion in 2011, a 69 percent increase over the two years.

With McDonnell's backing, lawmakers lowered already flailing pension contributions by $620 million in 2010 for the two-year budget ending June 30, 2012. There is no minimum requirement for the state to make toward retirement benefits, and since 1992 the General Assembly has fully funded its obligations to the fund for public employees only four times and just twice for teachers. Auditors recommended lawmakers establish a minimum contribution level.

If you are an employee of the state of Virginia, you should take heart that this is just a microcosm of what is happening all around the country every day...short-sighted and craven politicians kicking the can down the road by kicking the shit out of your very future. And just to be clear, this is NOT a partisan issue, as Virginia has been run by governors and legislative majorities of both parties at various times since 1992.

I would say you should get angry and demand that this kind of bullshit be stopped, but it is far too late for that at this point. The time to get angry was about 30 years ago when that Hollywood rodeo clown we installed in the White House first started sodomizing the working and middle classes without even the courtesy of giving them a reach around. But hey, tens of millions of them voted for it, and have continued to vote for it in every election since then, so maybe they really don't have any right to complain about it.


Bonus: Bill slams Reagan, "Let's put him UNDER Mt. Rushmore"

Globalization Not to Blame for Falling Living Standards

Our colleague Sandra Polaski over at the Carnegie Endowment released a policy brief today titled "U.S. Living Standards in an Era of Globalization." We like Polaski's work very much. Read the brief here. In it, she argues that while globalization may have exacerbated unequal distribution of economic gains over the past 30 years, the main cause of the erosion in U.S. living standards is made in America.

Some have argued that technology and the low cost of consumer goods have made life better in America. 30 years ago, I would not have been able to listen to my favorite music on my iPhone and rent movies online, goes the argument. But living standards in Polaski's analysis comprise access to health care, job security, and pensions.

Polaski recommends the following domestic solutions:

• Reform U.S. labor laws to give employees more influence over decisions about their wages and benefits, by fully protecting their rights to organize and collectively bargain.

• Adjust the minimum wage for the 30 million workers—one-fifth of the U.S. workforce—that earn less than the $9.80/hour required for a sole wage earner to keep his or her family above the poverty line.

• Create a modern social safety net to mitigate the impacts of globalization and rapid changes in the domestic economy. This should include better unemployment insurance and job-retraining programs, increased social security taxes to ensure the program’s viability, fully portable pension plans, and universal access to health insurance.