Retirement is something that many Americans look forward to after a long and productive life of work. The law of unintended consequences is coming to the surface in terms of how World War 2 is affecting the current state of retirement. Yes, we can go back to the late 40’s, 50’s and early 60’s to begin the metamorphosis to that we now call the baby boom generation.
We know that the postwar era created an enormous growth in the American family. The children of this generation are now retiring in numbers never seen before. As such, the Social Security retirement system is now being overtaken by the need to provide benefits to the baby boomer generation. Why is this a big deal you ask? To begin, the Bureau of Labor Statistics estimates that by 2023 the Social Security system will need to reduce benefits by some 23 percent to stay afloat. Now we are beginning to put the pieces together. The phenomena that was the baby boomers is now the millennials.
The population cycle is just that, a cycle that comes and goes. For numerous reasons, the population growth of the West, and the U.S., in particular, is falling at a rapid pace. One that cannot keep up with its elderly population. Simplistically, this means that there are more people receiving money from Social Security retirement than there are paying into the system. This deficit continues to widen.
The private sector is coming to the rescue in the form of retirement plans like 401 (k’s) that allow employees to invest tax-free until they’re retirement age. Currently, this is only mandated for large businesses and corporations, leaving their smaller counterparts unable to offer a similar retirement savings plan. In an attempt to alleviate this, Congress is now looking seriously at changing the laws that encumber retirement plans for small business. As I glanced over some of the proposed solutions, I was again reminded why government is the way it is. Control of your money and the way you save it hardly seems to change under this iteration of alleged help for the masses. A closer look.
We know about individual retirement accounts (IRAs) and 401(k) plans; I hope. One idea being considered would be to raise the age limit—currently 70½—on contributions to IRAs. Nothing like jumping on that retirement savings at age 71. That should be a huge help to those who live in Washington, DC, who have a life expectancy of 72. Let me know when the cynicism is getting a little thick. Okay, Congress is off to a great start here, not.
Next. Lawmakers also propose to tinker with existing 401(k) plans in two ways. In the first instance, small employers would be allowed to join forces to offer retirement plans to workers that might not have them now. Since administrative costs would be spread out, fees could be lowered, allowing more employers to help their workers participate. Okay. Why not? This levels the playing field with big businesses, so this should be a no-brainer. The second proposed idea gets a little slippery, as it would require investment firms to tell you how much guaranteed cash your savings would generate each month if it was treated like an annuity. Raise your hands if you know what an annuity is. I didn’t think so.
An annuity is an insurance product that pays out income, and can be used as part of a retirement strategy. You’ve probably had a co-worker or a UPS driver try to sell you annuities at some point. I know I have. The UPS driver told me that my retirement investment would be guaranteed for life. Right there is when you should turn and run away. Death, taxes, yes they are guaranteed. Payment of your annuity, far from it. If you had a guaranteed annuity from one of the hundreds of insurance companies that went bankrupt in the junk bond and savings and loan scandals of the past, your only guarantee would be that you would be eating Raman noodles today. Sarcasm is thick now. Don’t get me started on annuities; just say no.
Whatever the merits of these ideas, and the possible motivations behind them, you shouldn’t expect anything to happen. Congress will recess for summer in a few weeks, and all will be forgotten. You still have the option of burying the coffee can of cash in the backyard. Good luck. We will need it.