Boom(ers) and Doom: The Retirement Income Crisis

We don’t feel this growing problem is getting enough attention so we are coming out and calling it a “crisis.”  It is.  There is much at stake.

The details may differ but the impact of the baby-boomers shows up everywhere; their pensions will be a huge burden on coming generations.

The Economist is to be complimented for facing this matter head-on.  We have posted earlier on some of their articles.  Here are excerpts from another.  Well done.  

from The Economist: A special report on pensions: Falling Short


A pension promise can be easy to make but expensive to keep. The employers who promised higher pensions in the past knew they would not be in their posts when the bill became due. That made it tempting for them to offer higher pensions rather than better pay. Over the past 15 years the economics of the deal have become clear, initially in the private sector, where pensions (and health-care costs after retirement) were central to the bankruptcy of General Motors and many other firms.

There are big national differences, but in most developed countries:

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Selling Employees Life-Long Austerity to Create Retirement Income

The financial services industry has quite a sales job ahead.  Is lifelong austerity the only solutions to the radically extended retirement income needs of future generations?

Want to “change the world” or “save the world?”  Set aside the tropical locations and clean water, micro-lending, mosquito nets or the next “mating and dating” super app – get every employee at your local tool and die shop to embrace austerity and save more for retirement – truly.

To meet growing retirement income funding needs, we are looking at an abrupt “about-face” in lifestyles and spending, especially for younger employees.

Actuarial Certainties
There appear to be three certainties in the new future of retirement:

  • Lifespans have already extended to historically unprecedented lengths.  These lengths will likely continue to extend out into more decades beyond normal worklife.  Especially for women.
  • Funding of these extended lifespans must come from savings accumulated during everyone’s worklife.
  • The default financial behavior is to spend now and never save for the future. 

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Cautions on Retirement Income “Promises” from 401(k) Plans:Response to Fred Reish Proposals

401(k) plans and employers can neither “promise” retirement-income adequacy nor should they be asked to. 

Fred Resish in his recent piece (see here) calls for crossing some real boundaries in terms of plan sponsors and other telling employees about retirement income matters — further burdening the 401(k) plans with the imprudent burden of taking-on retirement income adequacy.  Below are some quotes from the piece and comments.

Our objections include the following:

  • Claiming 401(k) savings plans as “retirement” plans and then implicitly suggesting the goal for them of retirement-income adequacy is fraught with risk for all – and factually incorrect.
  • The Reish, and Institutional Retirement Income Council (IRIC), proposals place significant burdens on plan sponsors whilce paradoxically admitting that plan sponsors have no way to adequately advise or even collect full data to advise employees on retirement income matters.

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Retirement Income and Consulting Blueprint? Lecture: Robert Merton @MIT Video

Out of all topics Merton choose the quandary of retirement income.  He is straightforward and seems to lay-out the blueprint for addressing this very tough challenge.

Here is the full lecture on video — worth studying and watching — more than once.

To illustrate society’s need for financial innovation, Merton uses “a live case study:” the vast problem of retirement funding. In the past decade, stock market declines and falling interest rates have hit mainstream employer pension plans hard. Municipal pension plans may be underfunded to the tune of three trillion dollars. (“It makes the S&L crisis look like nothing.”)

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Robert Merton @#MIT on Retirement Investment Challenges - Blueprint for the Future?