Wednesday, January 7, 2015

Why Boomers may not be prepared for retirement Part 2

Some other factors that affected Boomers and their ability to save are below. Many of these factors are omitted when critics discuss the mess Boomers are in as they move to retirement. I am not excusing my generation, what I am saying is that it is easy to focus blame on the individual or a generation, when the facts do not support that position. Many factors contributed to the problem, hiding this makes it harder to come up with fair and just solutions for both Boomers and those coming next.

1) A history of generational overcrowding

In the short span of 20 years, from 1946 to 1964, America grew by 76 million Boomers. The country was not equipped for this population explosion.

Boomers share overcrowding nightmares such as snaking lines encircling movie theaters. They recall public school classes convening in temporary manufactured houses erected to compensate for not enough space inside old school buildings. They remember competing against peers at every turn, from getting into a good university to winning a promotion.

It has always been a buyer's market when it comes to tapping the Boomer human resources aquifer. Overcrowding has limited the careers and opportunities for many. Doors have not opened; promotions have not happened; salaries have not steadily increased.

2) Corporate downsizing

In 1995, the New York Times ran a series of articles about job erosion across America, leading eventually to a book entitled The Downsizing of America. As the editors observed, between 1979 and 1995, 43 million jobs vanished. “And while many more have been created, increasingly, the jobs that are disappearing are those of higher-paid, white-collar workers, and many of the new jobs pay much less than those they replaced.”[2]

Boomers were often the first to endure sacrificial “resource reallocations” because they populated the middle-management jobs of greatest vulnerability. A new language emerged to describe their plight: downsized, separated, severed, unassigned, or surplused.

The situation for Boomers today is more tenuous than it was in the mid-90s—and they are older and more vulnerable. Too many vie for too few jobs.

Downsizing means job losses, but often it means more. As theNew York Times concluded: “For two decades, most people had also seen their wages level off or decline, and now dispossessed workers were frequently finding that the replacement jobs available to them paid appreciably less than their lost positions. Everywhere, people were working longer hours and feeling expendable.”[3]

3) Exportation of blue collar, then white collar jobs

Academy Award-winning documentary director Michael Moore has built a reputation as an irascible filmmaker. He first became nationally prominent when his contemptuous lens exposed General Motors for exporting manufacturing jobs from Flint, Michigan. The corporate pronouncement decimated Flint, thrusting both the city and its workers into poverty.

Roger and Me was more than a feisty documentary; the film became a metaphor for the breakdown in loyalty between large corporations and workers. It warned those who hang on to the belief that a job well attended is a career entitlement.

The downsizing virus afflicting American blue-collar jobs then became a contagious trend for white-collar sectors.

Who could have imagined that high-tech workers in middle eastern countries would someday take over Boomers’ white-collar jobs for a fraction of Boomers’ annual salaries?

4) Shift from defined benefit to defined contribution retirement plans

Once upon a time, employers wanted to buy and reward loyalty. They accomplished this in part with guaranteed or “defined benefit” retirement plans. That was the governing view for most of the 20th century.

Then along came “defined contribution” plans, the ubiquitous 401(k). In a growing economy, this type of plan could accumulate significant wealth in a shorter time, irrespective of length of tenure — an investment approach preferred by younger investors.

The number of employees covered by employer-paid defined benefit plans has fallen precipitously in the last two decades.

Furthermore, many Boomers will outlive their companies, and then what happens to their retirement accounts? Just ask former employees of Enron, Arthur Anderson, Global Crossing, or dozens of other dot-bomb era companies.

5) Market crashes that decimated market investments

The Employee Retirement Income Security Act, signed into law in 1974, made it possible for the traditional security of a long-term retirement plan to become a market shell game. This legislation allowed companies to throw the risk of funding retirement programs squarely on the shoulders of employees. And risk it has been.

On April 3, 2000, the U.S. NASDAQ exchange recorded its largest one-day fall, 26 years after E.R.I.S.A. became law. Thus began the process of evaporating retirement savings.

Corporate pension funds lost $630 billion—a 14 percent decline. Lost in this staggering number is a full accounting of the number of people whose private retirement accounts and long-term personal savings have been jeopardized or who have already suffered financial ruin.

For example, a high-profile video production executive in Denver watched his retirement nest egg shrivel from over three million to under $30,000.00 in eighteen months.

Forestalled or thwarted retirement savings bode badly for Boomers and older generations. Both the affluent minority and the struggling majority must recognize that the coming retirement funding crisis is a reflection of many complex demographic and sociological issues. It is rarely a consequence of failed moral rectitude.

[1] Boomer Bummer: Retirement May Get Ugly for Generation,The Wall Street Journal, July 9, 2003

[2] The New York Times Special Report: The Downsizing of America, © 1996, The New York Times Company, Inc.

[3] The New York Times Special Report: The Downsizing of America, © 1996, The New York Times Company, Inc., page x

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