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WASHINGTON — Our nation
doesn't just have a retirement problem, it has several
of them.
Social Security and
Medicare are unsustainable in their current form.
Traditional pensions are going away, and people haven't
saved enough on their own. A vicious bear market has
eroded our 401(k) accounts.
Not only that, but the
suggested remedies — work longer and save more —
don't work for everyone. The number of unemployed people
between ages 55 and 64 has risen 143 percent in the past
year, and the number of jobless over 65 is up 73
percent. It's hard to work longer if you can't find
work.
Even if you make it to
retirement with a decent-size nest egg, medical costs
may gobble it up. Fidelity Investments says the average
65-year-old couple can expect to spend $240,000 on
health care during their retirement years.
Are there any answers to
these big problems?
A stronger economy and a
stock market comeback would help a great deal. Dallas
Salisbury, president of the Employee Benefit Research
Institute, calculates that if 401(k) accounts earn just
5 percent a year, most workers' accounts will be back to
their December 2007 level within four years. That
doesn't mean you'll have recouped all your losses, but
it does mean that you'll have had time to replenish your
account.
"The dynamics of
investment return plus the power of new contributions
are significant," Salisbury told a group of
journalists recently at the National Press Foundation in
Washington. "That doesn't make it easier. ... The
need to work longer ends up being somewhere in the two-
to four-year range for the vast majority of
individuals."
Salisbury is optimistic
that most people will make such adjustments, even as
their employers become stingier. In the last 17 months,
188 large companies with 4.7 million employees have
suspended their matching 401(k) contributions.
When Salisbury studied
similar suspensions during the 2001 recession, he
learned two things: Companies that survived the downturn
eventually restored the employer match. And employees
didn't just complain, they reacted by putting
significantly more of their own money into the 401(k).
Some of our retirement
problems, however, can't be solved by kitchen table
decision-making. Social Security, Medicare and health
care costs will have to be addressed instead at
congressional committee tables.
Sen. Bob Casey, D-Pa.,
cautions that the issues will be tackled one at a time,
and that health care will occupy almost all of Congress'
attention this summer.
"Obviously, when you
dedicate that kind of time, you are crowding out time
for a lot of issues," Casey told our group of
journalists. "There's no question that these issues
on retirement security are being crowded out."
There's a case to be
made, though, that retirement policy shouldn't be made
piecemeal. Individuals can't plan adequately if they
don't know what's going to happen to the big federal
retirement programs.
Isabel Sawhill, a senior
fellow at the Brookings Institution, goes even further.
She says the nation needs to forge a new social compact,
encompassing tax code changes and educational funding as
well as retirement policy. Older workers and retirees
may have to give up tax breaks and accept less-generous
benefits, she says, in order to invest more in the
young.
Today's children, after
all, will be the tax-paying workers of the future. One
way or another, they're going to have to finance the
baby boom generation's golden years.
If we don't invest enough
to make those kids the best-educated, most productive
generation in history, then we really will have a
retirement problem.
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