As the first of the 80 million Baby Boomers have begun to retire, it has become increasingly apparent that the United States is facing a pension crisis of unprecedented magnitude. State and local government pension plans are woefully underfunded, dozens of large corporate pension plans either have collapsed or are on the verge of collapsing, Social Security is a complete and total financial disaster and about half of all Americans essentially have nothing saved up for retirement.So yes, to say that we are facing a retirement crisis would be a tremendous understatement. There is simply no way that we can keep all of the financial promises that we have made to the Baby Boomer generation. Unfortunately, the crumbling U.S. economy simply cannot support the comfortable retirement of tens of millions of elderly Americans any longer. The truth is that we are all going to have to start fundamentally changing the way that we think about our golden years.
Once upon a time, you could count on getting a big, fat pension if you put 30 years into a job. But now pension plans everywhere are failing. State and local governments are cutting back and are raising retirement ages. A majority of Americans have even lost faith in the Social Security system, which was supposed to be the most secure of them all.
The reality is that we are moving into a time when there is not going to be such a thing as “financial security” as we have known it in the past. Things have fundamentally changed, and we are all going to have to struggle to stay above water in the economic nightmare that is coming.
Part of the reason we have such a gigantic economic mess on the way is because we have promised vastly more than we can deliver to future retirees. When you closely examine the numbers, it quickly becomes clear that a financial tsunami is about to hit us that is going to be so devastating that it will change everything that we know about retirement.
Approximately half of all workers in the United States have less than $2000 saved up for retirement.
24% of U.S. workers admit that they have postponed their planned retirement age at least once during the past year.
Pension consultant Girard Miller recently told California's Little Hoover Commission that state and local government bodies in the state of California have $325 billion in combined unfunded pension liabilities. When you break that down, it comes to $22,000 for every single working adult in California.
Source: LA Times
California's three biggest pension funds are as much as $500 billion short of meeting future retiree benefit obligations.
In New Jersey, the governor has proposed not making the state's entire $3 billion contribution to its pension funds because of the state's $11 billion budget deficit.
It has been reported that the $33.7 billion Illinois Teachers Retirement System is 61% underfunded and is on the verge of total collapse.
The state of Illinois recently raised its retirement age to 67 and capped the salary on which public pensions are figured.
The state of Virginia is requiring employees to pay into the state pension fund for the first time ever.
In New York City, annual pension contributions have increased sixfold in the past decade alone and are now so large that they would be able to finance entire new police and fire departments.
Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern's Kellogg School of Management recently calculated the combined pension liability for all 50 U.S. states. What they found was that the 50 states are collectively facing $5.17 trillion in pension obligations, but they only have $1.94 trillion set aside in state pension funds. That is a difference of 3.2 trillion dollars.
6 out of every 10 non-retirees in the United States believe that the Social Security system will not be able to pay them benefits when they stop working.
A very large percentage of the federal budget is made up of entitlement programs such as Social Security and Medicare that cannot be reduced without a change in the law. Approximately 57 per cent of Barack Obama's 3.8 trillion dollar budget for 2011 consists of direct payments to individual Americans or is money that is spent on their behalf.
56 per cent of current retirees believe that the U.S. government will eventually cut their Social Security benefits.
In 1950, each retiree's Social Security benefit was paid for by 16 U.S. workers. In 2010, each retiree's Social Security benefit is paid for by approximately 3.3 U.S. workers. By 2025, it is projected that there will be approximately two U.S. workers for each retiree.
Right now, interest on the U.S. national debt and spending on entitlement programs like Social Security and Medicare is somewhere in the neighbourhood of 15 per cent of GDP. By 2080, those combined expenditures are projected to eat up approximately 50 per cent of GDP.
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