The no-retirement economy takes hold

by William Neikirk

They don't know each other, but Kay Flanery and Mary Ann Bell share something in common. They both saw their savings plunge during the stock market meltdown. Now, they both say they will have to work longer before retiring.

Flanery, of St. Louis, a 54-year accountant and single mother, saw her 401K savings account sink by about 30 percent percent or asmuch as $75,000 during the meltdown. Bell, 61, a high school teacher in Arlington, Va., said she lost roughly 20percent in her savings. In the crash.

Flanery had looked forward to lessening her work load and traveling before retiring in five years or so. "Now I will have to wait until the market recovers," she said. Bell said she likely will delay retirement for at least a year as will many of her colleagues.

They are like many older people who watched in horror as the carnage on Wall Street shrank their nest-eggs. Even before the recent crisis, one in five older Americans had been putting off retirement. Now that figure is undoubtedly higher, say experts.

(See the story surviving an economic crisis in Sunday's Tribune and an expanded account here in the Swamp:)

That raises another question: In a bad economy, will there be enough jobs for them?

But the stock-market crash also has exposed an even greater problem: The Baby Boom population is saving far too little for retirement, putting greater pressure on a Social Security system that has its own funding troubles. There is increasing talk of enhancing Social Security benefits even as insolvency is predicted for 2041.

The Urban Institute estimated the median savings (meaning half are below and half above) of Americans 50 and older is slightly under $90,000, a figure that financial analysts say is a pittance considering that many people could spend 20 years or more in retirement.

Ideally, said Jane White, a financial adviser and president of Retirement Solutions LLC in Madison, N.J., people should have the equivalent of 10 years' salary as savings when they retire. She favors more generous corporate contributions to workers' plans, admittedly a tough sale on Capitol Hill.

"There isn't any government bailout for those who can't afford to retire," White said.

Retirement security is expected to be a hot topic no matter who is elected president. A favorite idea in Congress is to allow companies to enroll workers in 401K plans automatically. But others believe a more comprehensive approach to the private savings problem is needed, possibly including overhaul of 401K plans.

Sen. John McCain said recently he would permit Americans 70 and a half years old to escape taking mandatory distributions--and paying taxes on--their 401K savings. He also said he would negotiate a deal to save Social Security from insolvency. He favors establishing private, voluntary savings accounts that would be in addition to Social Security.

Sen. Barack Obama would require Americans earning more than $250,000 to pay more to bolster Social Security. Obama would also make it harder for bankrupt companies to shed their pension obligations.

To some, the 401K system is essentially broken and should be redone. The Pension
Rights Center, an advocacy group in the nation's capital, is looking at several new
models for boosting savings.

For example, said Karen Friedman, the center's policy director, one such plan would call for contributions both from employers and employers as well tax credits from the government. Also, she said, in echoing other countries, the risks could be pooled among all a firm's employees.

"We need to get more people to have additional savings," said David Certner, legislative policy director of AARP. "We are going to be looking to expand the kinds of simple savings and pension arrangements."

And Social Security, which faces depleted resources as the Baby Boom retires, also may come in for some major changes.

"There's a lot of talk about the next president putting Social Security pretty high up on the list of priorities, simply because it's doable," said Robert Reischauer, president of the Urban Institute and a former congressional budget director.

Almost every analyst agrees that the private-accounts idea proposed by President Bush is dead. But Reischauer said it could re-emerge in a different form as a way to provide more savings for the elderly.

Accounts would have to be highly restricted, safe investments that would be largely
immune from Wall Street's roller-coaster, he said.

David John, an analyst at the Heritage Foundation, said some form of a supplementary or investment account in the Social Security system is likely, despite the failure of Bush's plan.

Among some Washington analysts, support is growing for establishing a minimum Social Security benefit to help low-income people, even as other measures are discussed to curb benefits to rescue it from insolvency, said Christian Weller, analyst for the
Center for American Progress.

Though Social Security has saved millions of Americans from poverty, it is no bonanza. Just ask Phylicia Bos, a 76-year-old retired nurse who lives in subsidized housing in Champaign, Ill.

Suffering from macular degeneration, Bos said she depends on transportation from her sister. "I pay my tithe to the church, I shop where I can find good bargains, and every time I go to lunch, I always have something left," she said. "And I cook really good."

Bos had $100,000 in market savings that she tried not to touch, but the recent plummeting of stock prices reduced that by a third. She hopes the remainder will be adequate for the future, but added that if she had to move into an assisted-living place, her savings "could go away in a couple of years."

Still, she has time to do volunteer work and sits on an advisory council for the East Central Illinois Area Agency on Aging in Bloomington, where executive director Michael O'Donnell praises her for being "very astute" in living on a limited income.

Optimism is hard to find among those nearing retirement. By contrast, those in their 30s and 40s are more optimistic.

Irina Clements, a 46-year-old systems analyst for a defense contractor in Northern Virginia, said her individual retirement account shrink by 20 percent. "I have another
24 years before I retire," she said. "There's plenty of time to recoup."

But Phil Sparks, a 63-year-old communications consultant in the nation's capital, said the 30 percent drop in his 401K means he will have to put off his retirement.

"I hoped to retire when I was 67, but it's very clear that I am going to have to work two more years," he said."I just think it's going to be years, not months, before the stock
market gets back to where it was."

Some older people who had felt relatively comfortable before the market's steep drop now are cutting back. Harley Bennet, a 70-year-old former cost analyst who owns a small farm in Marshall, Ill., said all was well until the value of his and his wife's mutual finds
dropped by 50 percent.

Yet, both have pensions and Social Security and feel that will help them ride out the storm. They now consolidate chores when they take trips. They use the wood stove to supplement propane. They don't eat out as much. His wife freezes vegetables from the garden. They have a pond stocked with fish--and use it for food.

"This is not the time to sell," Benet says of the market. "We are going to ride this thing out."

Harlon McMillian, who owns Allied Office Interiors Inc., a mid-size firm in Bay City,
Mich., said he lost about $180,000 in the market's plunge but isn't hurting financially and plans to sell the company soon. He put an often-heard spin on the savings crisis in
the U.S.

He said he became successful after rising from poverty and he and his wife were "very frugal." But he said today's generation, because of rising prosperity, feels entitled to a middle class standard of living. And their savings reflect that. Over time, as harder times take hold, McMillian said, this generation will exercise more thrift.

Linda Hathaway, a retired 69-year-old who teaches investing in the Washington,
D.C. area, echoed McMillian's remarks, saying too many people today "don't think. They don't plan. They don't think ahead. My generation had parents who knew what is was like."

In Bloomington, Ill., O'Donnell agreed the Baby Boom population has saved less than their parents, adding that "we anticipate social service services will see more younger adults coming to us for assistance. But I am also skeptical of placing blame on generations."

Indeed, studies in recent years have shown a bigger income gap between the rich and the poor, making it harder for workers to save adequately for the future.

Accountant Kay Flanery said she learned at an early age the compounding of returns that comes with steady investments--and that more Americans need to learn that lesson despite the recent decline in stocks.

"It's good to see your money grow," she said. Most people believe that will happen again, but it will be a long slog back.

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