ABA Banking Journal - November/December 2015 - (Page 18)
> ECONOMIC OUTLOOK
America Is Woefully
Unprepared for Retirement
BY CARL TANNENBAUM
I HAD ONE of those days recently when nothing went right. I went
to the wrong location for a meeting and had to scramble to reach
the correct destination. My slides were a mess, and questions were
asked that I could not answer.
Later on, a project
status meeting showed
my assignments drifting
from green to yellow,
and yellow to red.
When I finally returned to my office, there
were six auditors waiting to speak with
me. Oh, and my son called to request
rent money that was due in 24 hours.
When I got home that evening, dejected
and disheveled, I suggested to my wife
that I was contemplating retirement.
"Well, I don't want you around all the
time," she said warmly. That was the
perfect coda to a perfectly awful day.
Happily, things have stabilized on
all fronts since then, so there is no
rush to prepare for retirement. But
other members of the Baby Boom
generation are looking ahead more
anxiously to retirement, and many
are realizing that public and private
preparations for their golden years are
inadequate. This situation promises to
have significant consequences for the
American economy in the years ahead.
Projecting demographics is among the
more manageable aspects of economic
forecasting. So we have known for
decades that the post-World War II
generation would be reaching the end of
their working lives right about now. Given
that long lead time, one would think that
retirement regimes would be comfortably
ready to meet their obligations. Instead,
ABA BANKING JOURNAL | NOVEMBER/DECEMBER 2015
many public pension systems are
Reserves in the nation's Social Security
system are projected to be depleted
in less than 20 years, triggering a
reduction in scheduled payments.
And the shortcomings of state and
local pension systems are prompting
some very difficult discussions between
governments and beneficiaries.
As an example, the Social Security
trust fund is a "pay-as-you-go"
system whose reserves can only be
invested in U.S. Treasury securities-
an asset allocation that few would
recommend for long-term goals.
Private-sector preparedness for
retirement is uneven. Evidence from
the Federal Reserve's most recent
Survey of Consumer Finances reveals
that while some households are in a
very good position, many have few
resources set aside for retirement.
Again, here, flaws in both design and
behavior have brought us to this point.
In 1980, almost 40 percent of the
American working-age population was
covered by a pension plan. Since then,
retirement benefits in the United States
have moved decisively toward defined
contribution structures like 401(k) plans.
As an added complication, retirement
horizons have been lengthening as
people live longer. Those who reach 65
in the United States today can expect to
live about 20 more years, on average.
Many will need financial resources that
last until they are well into their 90s.
One reaction to all of this is that
Americans are working longer than they
used to. The labor force participation
rate among people over the age of 65
has risen from 11 percent in 1991 to
19 percent today. Another reaction
is the heightened level of emotion
that surrounds any discussion of
entitlement reform. For one-third of
current retirees, Social Security benefits
represent at least 90 percent of their
income. And those benefits are far
from generous: the average retiree is
getting about $16,000 annually, which
isn't much above the poverty line.
Solutions are elusive. We cannot
turn back the clock and increase
our saving rates or invest with the
benefit of hindsight. But from here
forward, we need to take a hard look
at the structure of public and private
retirement systems and reinforce
financial literacy among beneficiaries.
With the benefit of some calm, I was able
to engage my wife more productively
in a discussion about retirement.
Unfortunately, a review of my investment
spreadsheet indicated that I will have to
work until I am 92 before I can quit.
CARL TANNENBAUM is SVP
and chief economist, Northern
Trust Corp., and incoming
chairman of ABA's Economic
Table of Contents for the Digital Edition of ABA Banking Journal - November/December 2015
A Conversation With the Comptroller
Cover Story Doing the Right Thing
Big Data and Predictive Analytics: A Big Deal, Indeed
Stress Testing: Feeling the Pressure?
ABA Compliance Center Inbox
Cybersecurity Self-Assessment Tool Helps Combat Risk
Real Estate Lending
Banker Recommended Reading
From the States
Corporate Social Responsibility
Index of Advertisers
ABA Banking Journal - November/December 2015