The lack of retirement saving, an over reliance on old-age government welfare programs such as Social Security, is creating a crisis for millions of Americans in their 50s and 60s. Before I begin to offer some suggestions, let us, once again, detail how many Americans are facing a difficult retirement or already are in one.
My wife and I know many of these people. Throughout most of their lives they were accustomed to living comfortable middle-class lives. Now, approaching their retirement years, that appears at an end. They face a dramatic drop in their standard of living.
Who are the people highly dependent or living exclusively on Social Security? Here are some of them:
*75 percent of unmarried women older than 65.
*33 percent of African-American retirees live only on Social Security.
*25 percent of unmarried women over 65 only live on Social Security.
*67 percent of those older than 65 get more than half of their income from Social Security.
These sobering numbers come from the American Association for Retired People (AARP).
What may be more alarming is many of their children are growing up without receiving the traditional values of thrift and self-reliance that our grandparents had. For many young people today, they don’t even know that these values ever existed in America and Western society.
What’s to be done?
*We must re-discover the values of our grandparents
Our grandparents saved and invested on a regular basis. They didn’t buy things by using credit cards. They built small businesses and improved their lives gradually, one paycheck at a time, by saving something every week.
Young people can today graduate high school and even a university without learning a thing about personal finance, money and credit cards. How can we expect young people to know how to save and plan retirement unless they have extraordinary parents or some remarkable adult influence?
Money is an important subject that should never be neglected. Many young people never have a chance to build a healthy financial life. They start out their adult lives with a huge student loan debt. Money problems plague them for decades. Sometimes it leads to bankruptcy. If only they had teachers or parents who were financial educators. But there’s the problem and there is no polite way of saying this: Many parents, and many teachers, are part of the problem—many are financial illiterates.
*The government must stop destructive taxing policies on saving and investment, the building blocks of an improving economy
From scandalous corporate tax rates to pesky taxes on small savers, America has some of the highest taxes on capital in the Western world. Why? Don’t we want people to improve themselves and be less dependent on government programs? Apparently not.
*Investment and saving taxes should be lowered or possibly ended.
What would happen if some American president, aware of the retirement saving crisis, announced a five year holiday on all investment taxes and urged more Americans to save and invest? What if the president acknowledged that millions of Americans are headed for retirement disaster and that the government should stop making things more difficult for them?
What if he or she did it and said, “I acknowledge that many Americans have almost nothing in retirement and financial assets. This is not good for you, not good for our economy and bad for our country, whose living standards are endangered. Therefore, the government is going to get out of your way. It will encourage you to help yourself and, in the process, help the economy, by saving. More savings will lower the costs of capital, otherwise known as interest rates. Go do it.”
Will this cause an explosion in savings and investment? Maybe. Maybe not. But it is worth a try because I believe that, for at least a few Americans, it might help them realize that this is their opportunity to accumulate substantial private assets.
*Reject the runaway welfare state principles of the past 80 years.
Can Americans, and other Western people, understand the risks of a government that can “give” them everything but take many of their liberties in the process? Do we understand the dangers of that? I’m speaking of more than the economic costs—the yearly deficits and cumulative deficits, the debt, that is passed on to generations unborn. My main criticism of our runaway welfare state is what it does to the character of the citizen and to the culture of a society.
The best way to change is individually. Each of us should take charge of our retirement planning. We should not expect it to “save” us. That’s because we know ourselves better than any government agency or person who works for it, no matter how caring he or she may be. That official must follow, for example, Social Security rules, many of which were designed in 1935 and now have little relevance in the 21st century. Mandatory government retirement income programs are often mediocre.
By contrast, in Chile, where people were given a choice between the existing government retirement program and a private savings retirement program, the latter became wildly successful. People liked having private savings under their control and not having retirement assets controlled by a government administration. And, by the way, the change also led to an increase in the Chilean savings rate. That was a good thing both for the country’s economy and the millions of people planning for retirement.
My wife and I are often troubled these days. We know numerous people our ages drifting into retirement without any substantial private assets. We can speculate that there are many more younger people we don’t know who are headed for the same fate in 10 or 20 years.
Inadequate retirement saving is a quiet crisis that won’t go away. That is unless we rediscover the values that many years ago provided America and other Western societies with living standards that were the envy of the rest of the world. However, without dramatic tax and cultural changes, those living standards could be lost by millions of people today and tomorrow.