The Coming Pension Pinch
Baby boomers smugly contemplating a happy retirement unfortunately risk getting snared in a numbers game that won’t add up -- for them or their kids. Two recent developments -- financial troubles at the U.S. agency that guarantees pensions for 45 million Americans and a sobering report on disappearing retiree medical benefits -- should smack them in the face about their prospects for a tranquil old age. Factor in this nation’s spendthrift practices and failure to save, plus the ticking time bomb that is Social Security, and just when will the country start to come to grips with the reality that the dream of a carefree retirement looks increasingly like a nightmare?
Experts shuddered Jan. 15 when the Pension Benefit Guarantee Corp. admitted it had a record $11.2-billion deficit, prompting fears of a costly taxpayer bailout for the federal agency that mails monthly checks to 459,000 people whose pension plans have failed. Even as that crisis loomed, the Kaiser Family Foundation reported that more workers would retire without company-sponsored medical coverage -- and those blessed with coverage will pay dearly for it.
Even before this latest bad news, the nonprofit Employee Benefits Research Institute had estimated that, between 2020 and 2030, retired Americans would face a cumulative $400-billion shortfall between what they’ll need to cover basic expenses and what they’ll have squirreled away.
Congress and the Treasury Department promise to tackle contentious pension reform this year. But there are no simple fixes because the U.S. guarantee agency is funded by premiums paid by companies sponsoring pension plans; raise premiums to cover its deficit, and many marginal firms and their pension plans will fail. Many middle-income Americans can ease future pain by setting aside a modest 5% of their annual income for retirement, benefits researchers say. But the poor, particularly single women, can’t salt away that impossible suggested 25% of their already-meager income for retirement.
The affluent, who have gotten many boosts lately from the Bush administration, would benefit from proposed tax-free health savings accounts. But current low rates of return on savings and stocks will make the journey tougher for most workers. And hefty savings won’t protect the Medicare and Social Security systems from the tsunami of soon-retiring boomers. The General Accounting Office estimates that, left unchecked, budget deficits would force the U.S. to slash spending by more than a third in 2030 to maintain current services to retirees -- or raise taxes by a whopping 40%.
Congress must start on a long road to real solutions by rejecting President Bush’s call to make permanent his administration’s deficit-fueling tax cuts. Lawmakers also must stop idling and tackle Social Security and health-care reform. With far too many aging boomers, too few young workers and too many empty coffers, the U.S. can’t keep ignoring this wreck.
