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Commentary: New ‘retirement plan’ is dire

Posted in the Prior Lake American: Thursday, January 7, 2016 9:45 am

By John Diers

There’s a new baby boomer retirement plan. It’s called “work ‘til you’re dead.”

As 76 million boomers head into retirement, well over half, according to some estimates, don’t have enough money to take them through their old age. Worse, too few of them know, think about or have planned for it. Many look back at their parents’ generation that came through World War II, went to college under the GI Bill, found good jobs, bought homes in the ‘50s and early ‘60s and enjoyed a comfortable retirement. They assumed they would follow the same path, but while they were building careers and families and sending their kids off to college in hopes of a better life, the rules, and the economy, changed, and too few of them took notice — or could even afford to take notice, if they had.

It’s a looming crisis of unprecedented proportions that will affect every profession, every business and, more acutely, every level of local, state and federal government. It’s a change that will affect Prior Lake and is a good reason to pause as the city proceeds to double its debt while pursuing 2040 development dreams that likely won’t come true because of these coming economic changes — and, worse, taxpayers wouldn’t be able to afford them if they did.

Boomers hit the peak of their working lives in the late 1990s, the same time that participation in the labor force – the share of the population that has a job or is trying to find one – hit its peak. It’s gone downhill ever since and has recently hit a 36-year low. In 2003, 82 percent of boomers were part of the labor force. A decade later it was 66 percent and will continue to fall. Keep in mind the boomer generation is the engine that has powered the economy since the 1950s.

What happens when boomers stop buying stuff, stop paying taxes, need long-term care because of Alzheimer’s and other illnesses of old age, and discover that Social Security and feeble pension plans or savings won’t be enough to pick up the tab? What happens when Gen Xers, the sons and daughters of baby boomers, find themselves in the same trap?

Defined-benefit pensions sustained the wartime generation through its retirement, but pensions, along with lifelong employment, vanished as employers shifted their loyalties to Wall Street. Then, 401(k)s came along. They offered portability, but they also transferred the need and the risk to save for retirement from corporations to individuals along with the responsibility for managing those savings at a sustainable rate that might have to last for 30 years or more after retirement. Consider, too, that personal savings have had to overcome the long-lasting effects of financial setbacks, like the Great Recession, real estate bubbles, college for kids, skyrocketing health care costs and any number of personal tragedies that affect families, not to mention bad judgment. All of us make mistakes.

Investment and retirement experts counsel that people should retire with savings equal to eight times their annual salary and should have secured and tucked away five times their salary by the time they’re 55. How do you do that with bank interest rates in the tank and investments subject to the vagaries of the market? What happens when the next recession hits?

Fundamental to the problem is that real wages and incomes, measured against inflation, have been in decline since the 1970s, steadily eroding a middle class that grew up and thrived in the postwar prosperity. Now, across the country and in the economy, we’re seeing real wealth move into fewer and fewer hands.

The National Institute on Retirement Security notes that in 2010, the top 5 percent of boomers controlled 54 percent of boomer retirement assets, leaving the rest for everyone else.

Worse, this hasn’t improved since 2010, nor is it going to improve in the next decade in Minnesota, where, according to the Office of the State Demographer, nearly as many will people will turn 65 as in the previous four decades combined, and the 65-plus population will exceed enrollment in K-12 schools. Think about what that means for school referendums.

There’s a lot of latent fear, worry and anger, and, yes, strong populist feeling out there that’s going to catalyze the outcome of the 2016 election and bring change to all levels of government, even in Prior Lake. What’s clear, locally, given the strong negative reaction to the recently proposed and approved tax increase, is that leadership and policy changes are needed, voters want to make them, and they’re coming.

Happy New Year. “May you (we) live in interesting times.”

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John Diers is a Prior Lake resident who spent 40 years working in the transit industry and author of “Twin Cities by Trolley: The Streetcar Era in Minneapolis and St. Paul” and “St. Paul Union Depot.” To submit questions or topics for community columnists, email editor@plamerican.com. (Editor’s note: Diers is a community columnist and not employed by, or paid by, the newspaper.)