DICK BAYNTON: A Looming Unnatural Disaster

Dick Bayntoncolumn

Natural disasters are predictable a few hours in advance but often turn up with no advance warning such as the sinkhole that developed only a few days ago in downtown Indianapolis, Indiana. Among unfolding disasters created by human beings (formerly called ‘mankind’) is the approaching shortfall of funding of retirement benefits for all, but especially elderly U.S. citizens.

The Social Security law was passed when President Franklin D. Roosevelt signed it into law on August 14th, 1935. Tax deductions began in 1937 and monthly benefit distributions started in January of 1940. The law covered pensions for workers who had contributed through tax deductions and provided benefits for survivors and handicapped individuals. In those days, remember that men were the main source of family incomes while women were ‘caring for the children and the household.’

Life expectancy for babies born in 1935 was 61.7 years; life expectancy grew to 78.7 in 2010 and in 2017 life expectancy for women was 81 and for men age 76. In 1935 some SS recipients died before they were eligible for benefits at age 65 while in later years some recipients enjoyed retirements of 11 to 16 years, depending on gender. When SS began in 1935, the ratio was 159 workers for each retiree. However, by 1980, the ratio was 3.2, falling further in 2009 to 2.9 and by 2040 that number is expected to reach 2.1 workers per retiree. The ratio has slipped from 159 to 2.1; a change of 7500% greater burden on workers from 1935 to year 2040, 105 years.

Here are some other statistics that will influence retirements of the future reported by various organizations. Incomes of citizens between their mid-fifties and late 60’s started leveling off around year 2000. Families in their mid-fifties to mid-sixties with 401(K) investments could produce up to about $600 monthly retirement income. Debt has risen by almost 70% for families in their mid-fifties and older by 2016; auto loans were up about 25% in 2017 over 2004 and student loan debt was up 600% over the same period of time.

In the 1930’s about 15% of private companies offered retirement plans and in the post-war period (WWII, ‘The Cold War’, Korea and Vietnam) almost half of private sector workers were in pension plans. In 1978, the government offered a new plan for do-it-yourself retirement plans called 401(K) using pretax dollars. Then after year 2008 a worldwide economic crisis arose based mostly on careless government and bank mortgages held and guaranteed by Fannie Mae and Freddie Mac. These two companies, called GSE’s (Government Sponsored Enterprises) were in the vanguard of vast losses amounting to billions of dollars of MBS’s (Mortgage-Backed Securities). As securities markets (NYSE, NASDAQ, etc.) suffered precipitous declines in value, the D-I-Y 401(K) savings plans exposed the amateur and professional investment mistakes of their holders and advisors.

Some of these investments recovered over the years after banks coughed up huge government penalties while consumers rushed to make changes in their investment and savings strategies. Fannie Mae and Freddie Mac borrowed about $187 billion from the Federal Reserve (tax revenues) to survive and live to see another day of (hopefully) wiser practices of guaranteeing mortgage-backed securities.

Social Security was created as a safety net for all citizens; not necessarily a retirement plan but rather a supplement to personal savings, corporate and government savings and retirement plans. SS, SSI and OASDI (Social Security, Supplemental Security Income and Old-Age, Survivors and Disability Insurance) benefits are distributed monthly to over 62 million recipients; that’s a total of about $957 billion annually. The SS Trust Fund is scheduled to become insolvent around 2034, about 16 years from now when it will be able to distribute only 77% of scheduled funds.

Government agencies including Congress have been unable to reach a consensus over the many years for keeping our benefits programs sustainable. The fiduciary duties to taxpayers have been compromised by political bickering and lack of resolve. State and federal retirement benefits are currently under-funded by at least $25 to $30 trillion. The PBGC (Public Benefits Guarantee Corporation) is underfunded by $65 billion.

Everyone will be affected by the calamity of our own design and lack of action.

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