By Robert Hardaway, ,
Published May 06, 2015
With multiple social "wars" now being labeled as such by the media, perhaps there’s room for one more on the pundits’ pages —a war on baby boomers.
Consider the hard working and frugal worker who, over a working lifetime of forty-five years, scrimps and saves and somehow manages to save a million dollars for retirement.
In 1981, during the Reagan administration, a retiring worker could put that sum into US short term treasuries yielding a guaranteed and safe annualized return of $160,300 ($13,000 a month), or into either 10 or 30 year treasuries yielding in excess of $150,000 a year (over $12,000 month), with the principal left untouched and available to leave to family upon his death.
Now fast forward to 2012 pursuant to government policies designed to punish those who scrimp and save in order to subsidize those who do not.
A retiring baby boomer who somehow manages to set aside that same million dollars for retirement and invests in the same risk-free US short term treasuries can expect his or her retirement savings to yield a grand total of $65 a month, or, if willing to risk considerable reduction in principal if interest rates rise, $1,300 a month in 10 year treasuries.
For a retiree today investing in short term treasuries to earn the same amount as retirees earned in 1981, he would need a nest egg in excess of $200 million dollars. Which is fine for those who have a quarter billion or so to invest in short term treasuries, but not so great for the rest of us.
While the treasury yields in 1981 and 2012 obviously represent the ends of the retirement yield spectrum over the past 40 years, and yields have fluctuated considerably in the intervening years, it should be noted that as recently as five years ago that even short-term treasuries yielded over $4,000 a month in guaranteed retirement income.
While the baby boomer retiree trying to live on $65 a month plus social security will no doubt be labeled a “millionaire” by some politicians, the fact is that retiring baby boomers face few viable options in planning for retirement unless they have been lucky enough to work for the federal government (which can simply print money or impose higher taxes on hapless taxpayers), or who are otherwise entitled to the proceeds of a dwindling number of state or corporate “defined benefit” plans, many of which face insolvency in coming years.
They can, of course, invest in the stock or corporate bond market, and thereby risk an up to 50% decline in their retirement funds (as happened in 2007-08). Or they can eke out a slightly higher return by buying long term US and corporate bonds, and risk a decline of 50% or more in their principle when interest rates rise, as most believe they will in the face of mounting government spending and deficits and the pending collapse of the euro.
They may even risk their retirement or 401(k) assets by buying a so-called “annuity” investing in private companies in hopes that the private companies won’t fail, as so many did during the last financial crisis. Or they can simply spend their principal in hopes that they will die within the next 10 or 20 years before their principal is depleted.
Baby boomers not willing to risk retiring without a guaranteed income, however, are faced with the prospect of living on $65 a month plus social security even if they have saved $1 million. And many, of course, haven’t saved even that much.
Meanwhile, hapless baby boomers who haven’t saved $200 million dollars must rely on a social security system which makes it very clear, in their annual statements to recipients, that social security benefits are not in any way guaranteed, and can be reduced or eliminated at any time at the whim of Congress.
Though few doubt that social security benefits will indeed have to be reduced as the demographics change, politicians perversely and puzzlingly reject any and all calls for private accounts in which social security payments could be used to buy US treasuries, backed by the full faith and credit of the United States and placed into private accounts which could not be reduced or confiscated in any way by the federal government without violating the due process clause of the US Constitution.
The government policy of borrowing a trillion dollars from China to fund “stimulus” programs for government bureaucracies or favored private companies such as Solyndra, rather than reducing taxes and putting money into the hands of hard pressed taxpayers who would instead use the money to demand goods and services in the private sector and thereby stimulate jobs and growth, reveals a deliberate policy which has reduced baby boomers to their present state.
If one can think of a better label than “war” to describe a policy that has led to many baby boomers resigned to working unto death, one suspects that many baby boomers would be glad to use it instead.