WASHINGTON -- People have accused the baby boomers of being whiners almost since we were born. But just wait until we get to retirement age and discover that we don't have nearly enough money to take care of our "golden years." That's going to be the ultimate generational bummer.
I've been gathering some data about what I'll call, with the usual boomer understatement, the "retirement crisis." My mentors have been Eugene Ludwig, the head of the consulting firm Promontory Financial Group, and his colleague Michael Foot. The numbers show a genuinely frightening gap between what people have saved for retirement and what they will need. And many of these studies don't take into account last year's stock market crash, which will make the problem worse.
Let's start with the basic fact that only about half of Americans have any employer-sponsored retirement plan at all. The other folks will have to depend on Social Security. For a typical boomer worker, that would mean a monthly benefit of about $2,400 if you reach retirement age of 66 in 2020. On that, you won't be able to afford many lattes at Starbucks.
But let's assume that our average worker is one of the lucky ones with an employer-sponsored pension. Not so long ago, that usually would have meant a "defined benefit" pension at retirement. About 80 percent of employees in medium and large companies had such plans in 1985, according to the Labor Department. By 2000, the defined-benefit recipients totaled just 36 percent.
What's happened is that employees have taken on the investment and actuarial risks, as their employers shifted to "defined contribution" formulas. Employers now contribute to 401(k) plans that are managed by the employees. Unfortunately, workers often don't do a good job as investors. They underestimate what they will need in retirement, and they underfund their 401(k) plans. And as for shifting out of stocks before the market tanks, well, let's just forget about that. ...
How bad are baby boomers at financial planning? Extremely bad, according to Annamaria Lusardi and Olivia Mitchell of the National Bureau of Economic Research. They found that more than one-quarter of boomer households thought "hardly at all" about retirement, and that financial literacy among boomers was "alarmingly low." Half could not do a simple math calculation (divide $2 million by 5) and fewer than 20 percent could calculate compound interest. The NBER researchers also found that, as of 2004, the typical boomer household was holding nearly half its wealth in the form of housing equity. Uh-oh.
For a closer look at the retirement squeeze, consider a study released last month by the Congressional Research Service. Patrick Purcell analyzed the most recent data on consumer finances gathered by the Federal Reserve. He found that for the 53 percent of households that hold at least one retirement account, the median combined balance was a mere $45,000.
Hold on, you say, that figure includes some younger workers who haven't started saving in earnest yet. OK, for households headed by persons between the ages of 55 and 64, the median value of all retirement accounts was just $100,000. Purcell noted that for a 65-year-old man retiring in April 2009, that $100,000 would buy an annuity that would pay a paltry $700 a month for life, based on current interest rates.
And here's an extra bit of bad news: The Fed data used in Purcell's study were gathered in 2007. With stock market declines since then, the median account balances are probably even lower now.
What's going to happen? Certainly, people will try to save more. But my guess, knowing my generational cohort, is that we'll want a government bailout to supplement our too-meager retirement savings. Unfortunately, the Treasury won't have enough money to fund our Medicare benefits, let alone a top-up in Social Security.
A poll released in January by the National Institute for Retirement Security shows the anxiety about this issue. Because of the recession, 83 percent of those polled said they were worried about having a secure retirement; of those with a 401(k) account, only about half thought they would have enough money to retire. And 71 percent said it was harder to retire now than for previous generations.
Are you whining yet? I am. As my pension mentor Foot says: "This is a time bomb that has been building for years. The recession has made it more acute. It has pricked the bubble of hope that high investment returns could get us out of the crisis."