Are You Ready to Work Until You’re 80?

[MacGyverIt]

Apparently the CEO of AIG had a moment of honesty with the Non-Mustachian folks in his audience, the remarks are aimed at the "big picture" national fiscal issues but imo, they are just as relevant to individual households.
                                                                       
"We have to realize that we need to lower our expectations, because, simply stated, the baby boomers didn't save enough, and we're running too big of a deficit," he says. He argues that it is "disingenuous and dishonest" to suggest that we can maintain our current quality of life and level of spending into the distant future.

From the article's author:
Even though a retirement age of 80 is merely a discussion at this point, if nothing else, it portrays how poorly we have manged our fiscal affairs, while recklessly leveraging the futures of the children, youth, and young families of today.

EDIT: Holy cow, I just noticed the Comments section below the article -- there are more than 4,600 comments made in less than 24 hours on this article...
http://finance.yahoo.com/blogs/breakout/ready-until-80-172821954.html

[strider3700]

The interesting part isn't the fact that he figures people will have to work till their 80 since the pension system can't afford to take care of them if they don't.   It's the fact that so many of the comments are people pissed that they won't be taken care of until later in their lives instead of 65.   

I wonder how many people working today have done the math and see how much money they'll get every month on their pensions?   It would be great if with every paycheck you got a nice little note at the bottom.  "this month you made $3000,  if you were on a pension we'd have given you $230 have you considered putting some of this money in a savings account instead of getting that tv?"

[Trebek]

haha oh man some of the comments in there are hilarious!

Still, it does make me think about an ominous cloud that drifts over all our retirement plans.
- Everyone is living longer (according to life expectancy I should quite likely live until I'm 100+ w00t!)
- Debt is getting bigger and bigger which means saving is going down in flames
- Few, if any, even think about their retirement until it's far too late (50+?, maybe 45?) and even then, they don't consider the fact they'll live until 100
- World population is falling (as it should be, isn't 7 billion enough?) meaning there are fewer and fewer new borns every year

So I've got this image in my mind that in say, 40 year's time, when the Gen Y people are coming to retirement age of 65 (me), there will be SOOO many of them, either massively in debt, or who will have been so in debt that they'll have no savings what so ever. Because this is looking very likely to be the vast majority of people, we'll have huge amounts of people on the pension (what we call social security here) and very few actual working people.

So what happens when the vast majority of the population is flat broke and wants to retire? They'll likely demand that the government subsidises their retirement. "Increase the pension!" they'll yell. As they are the majority, (them along with Gen X and any remaining Boomers) who may all live to be well over 100, the government will no doubt comply as the only ones fighting to say "no" will be the few under 50's or so.

So who pays for all this increased pension? Why that would be the rich people of course through taxes. Who's going to be rich? Hopefully me...

I'm very seriously concerned that this will play out and taxes will go mental. As I'll have saved properly for retirement I'll no doubt be considered "rich" and thus should pay for everyone else who didn't give a rats and just bought shiny iPads and boats. The only possible saviour is if we can live SUCH a frugal life (say $30,000/year) and only "earn" that much which would mean we shouldn't cop much of the taxes... Anyone else thought about this future?

[grantmeaname]

The world population isn't falling. Even the most pessimistic UN projection has it rising until about 2050:

If Europe is any indication, the decline in developed world birth rates is nearly made up for by increased immigration from the developing world. That said, if the pessimistic forecast is accurate it will be rough for those our age who don't save for retirement... China's dealing with the 4-2-1 problem problem now, in which one worker has to be the sole support for parents and in some cases grandparents. If we have a birth rate decline, we'll see some of that as a more prevalent issue as well.

80% of employees eligible for 401ks nationwide contribute to them. Right now, retirees mostly get by off of pensions, social security, and employment income, with investment income contributing 13% of income. As 401(k)s become more common in retirees, hopefully they'll start making up for the big share of income currently provided by pensions. Since 30% of today's retirees' income is from employment, it stands to reason that many retirees will continue working when you and I retire in 2050, whether or not they're used to the idea or say they're happy about it. With all that combined, I'm not too worried about the politcal environment in 2050.

[sol]

we'll have huge amounts of people on the pension (what we call social security here) and very few actual working people.

We already face this problem on the revenue side.  Approximately half of the US population has a job (the other half is retirees, children, people who choose not to work like stay-at-home-parents, and the unemployed).  Only about half of that working population pays any net taxes.

So all tolled, all of our government services from defense to environmental protection to NASA, is paid for by roughly 25% of the population.  Who pay average effective rates of 11% on their income.

If you have a job and pay taxes, you are the minority that keeps America running.  Thank you.

[BenDarDunDat]

"We have to realize that we need to lower our expectations, because, simply stated, the baby boomers didn't save enough, and we're running too big of a deficit," he says. He argues that it is "disingenuous and dishonest" to suggest that we can maintain our current quality of life and level of spending into the distant future.

This from the CEO of AIG ...yes the very same AIG that received 182 billion in taxpayer bailouts.  He says this from his seaside villa in Croatia while drawing compensation of 10 million dollars from his rescued 'too big to fail' company.

I just rolled my eyes and ignored everything this guy had to say. Here is one of the new robber barons bleeding the bulk of the world while continuing to dupe an easily duped public.  I say go for it, as long as it continues to work.

[arebelspy]

"We have to realize that we need to lower our expectations, because, simply stated, the baby boomers didn't save enough, and we're running too big of a deficit," he says. He argues that it is "disingenuous and dishonest" to suggest that we can maintain our current quality of life and level of spending into the distant future.

This from the CEO of AIG ...yes the very same AIG that received 182 billion in taxpayer bailouts.  He says this from his seaside villa in Croatia while drawing compensation of 10 million dollars from his rescued 'too big to fail' company.

I just rolled my eyes and ignored everything this guy had to say. Here is one of the new robber barons bleeding the bulk of the world while continuing to dupe an easily duped public.  I say go for it, as long as it continues to work.

Just because you may disagree with his personal choices, business ethics, whatever, does not automatically make what he says wrong.

Would you disagree then with that bold, underlined part?  The baby boomers did, in fact, save enough?

[skyrefuge]

80% of employees eligible for 401ks nationwide contribute to them.

Yeah, and 50% of Millennials don't believe Social Security will exist when they retire (pdf).  Only 5% think it will exist and the benefits will be the same as today.  So while current retirees may have been counting on SS their whole lives, future retirees are already well-conditioned to not expect it.  Of course just because they don't expect it now doesn't mean that they won't demand it later, but surely the demand will be lower than if they had considered it a given their whole lives.  Though there is another complicating factor from that survey: paradoxically, the less a respondent expects SS to be there, the less he is contributing to his own retirement savings.  Maybe that's a sign of hopelessness, thinking that they'll never be able to retire, so why save for it?  Anyway, that works out fine for us too!  :-)

Only about half of that working population pays any net taxes.

No, only about half (53.6% in 2011) of all households (regardless of whether they're working) pay federal income taxes.  But that's just one form of tax.  Almost everyone who works pay payroll taxes, which is what (theoretically) funds Social Security/Medicare, the topic at hand.  So those paying in vs. those receiving benefits isn't quite as off-balance as you wrote.

[grantmeaname]

If you're interested, Frank Curmudgeon of Bad Money Advice has an extremely interesting analysis of this poll (at the bottom).

People do not really think that they will never see any Social Security money, it is just something they tell pollsters. It could be because it is an amusingly catty thing to say, or perhaps because have heard the cliché and think it is the “right” answer to give.

Whatever the reason, when pollsters get down to practical details it is clear that 60% do not truly expect to be stiffed by Uncle Sam. A few months previously Gallup found that 34% of non-retirees expected Social Security to be a “major source” of income in retirement. That is slightly less than the 36% who answered that they expected to get Social Security at all. But it is very hard to believe that practically nobody expects both that they will get the checks but that it won’t be a major source of retirement income.

Moreover, in the same five years that the percentage of those claiming to expect nothing climbed from 50% to 60%, the percent of those counting on it as a major source of income also rose from 28% to 34%.

[Bank]

This from the CEO of AIG ...yes the very same AIG that received 182 billion in taxpayer bailouts.  He says this from his seaside villa in Croatia while drawing compensation of 10 million dollars from his rescued 'too big to fail' company.

I just rolled my eyes and ignored everything this guy had to say. Here is one of the new robber barons bleeding the bulk of the world while continuing to dupe an easily duped public.  I say go for it, as long as it continues to work.

I think your comment is misleading.  Benmosche was not at AIG when it went down.  He was installed by the government to handle its workout and sale.  In August 2009, he succeeded Edward Liddy, who was also installed as CEO by the government in 2008.  The guys that drove the ship onto the rocks are Robert Willumstadt and Martin Sullivan.

I have no personal liking for Benmosche (he has a reputation of being a bit of an ass), but he didn't bankrupt AIG or take taxpayer money.  His compensation is definitely high compared to mine, but being CEO of AIG is a truly awful job.  It burned out Liddy in less than a year.

[BenDarDunDat]

"We have to realize that we need to lower our expectations, because, simply stated, the baby boomers didn't save enough, and we're running too big of a deficit," he says. He argues that it is "disingenuous and dishonest" to suggest that we can maintain our current quality of life and level of spending into the distant future.

This from the CEO of AIG ...yes the very same AIG that received 182 billion in taxpayer bailouts.  He says this from his seaside villa in Croatia while drawing compensation of 10 million dollars from his rescued 'too big to fail' company.

I just rolled my eyes and ignored everything this guy had to say. Here is one of the new robber barons bleeding the bulk of the world while continuing to dupe an easily duped public.  I say go for it, as long as it continues to work.

Just because you may disagree with his personal choices, business ethics, whatever, does not automatically make what he says wrong.

Would you disagree then with that bold, underlined part?  The baby boomers did, in fact, save enough?

I'd take it with the same seriousness I would a car thief lamenting there were fewer expensive German cars being bought. Or a car company lamenting on the lack of used cars after lobbying for "No Car Left Behind"

Baby boomers have been robbed of pensions that were contracted for, were robbed of the extra they were asked to pay into SS, were robbed by the corporations they helped build, only to watch their jobs shipped overseas, watched their savings evaporate during extended periods of unemployment, watched helplessly as corporations like AIG traded risky derivatives and paid out billions of wealth so that a few select officers can have villas all over the world, only to get left with the bill when the house of cards came crashing down. 

[JR]

"We have to realize that we need to lower our expectations, because, simply stated, the baby boomers didn't save enough, and we're running too big of a deficit," he says. He argues that it is "disingenuous and dishonest" to suggest that we can maintain our current quality of life and level of spending into the distant future.

This from the CEO of AIG ...yes the very same AIG that received 182 billion in taxpayer bailouts.  He says this from his seaside villa in Croatia while drawing compensation of 10 million dollars from his rescued 'too big to fail' company.

I just rolled my eyes and ignored everything this guy had to say. Here is one of the new robber barons bleeding the bulk of the world while continuing to dupe an easily duped public.  I say go for it, as long as it continues to work.

Just because you may disagree with his personal choices, business ethics, whatever, does not automatically make what he says wrong.

Would you disagree then with that bold, underlined part?  The baby boomers did, in fact, save enough?

I'd take it with the same seriousness I would a car thief lamenting there were fewer expensive German cars being bought. Or a car company lamenting on the lack of used cars after lobbying for "No Car Left Behind"

Baby boomers have been robbed of pensions that were contracted for, were robbed of the extra they were asked to pay into SS, were robbed by the corporations they helped build, only to watch their jobs shipped overseas, watched their savings evaporate during extended periods of unemployment, watched helplessly as corporations like AIG traded risky derivatives and paid out billions of wealth so that a few select officers can have villas all over the world, only to get left with the bill when the house of cards came crashing down.

Don't you think you're being a little hyperbolic?  You are focusing on the negative but leaving out the years of economic prosperity that most baby boomers enjoyed throughout their careers.

[arebelspy]

Don't you think you're being a little hyperbolic?  You are focusing on the negative but leaving out the years of economic prosperity that most baby boomers enjoyed throughout their careers.

If we don't focus on the negative, who could we blame?  Gotta blame somebody.

[grantmeaname]

And obviously it's AIG executives who are at fault for outsourcing and manufacturing companies underfunding pensions.

[Trebek]

The world population isn't falling. Even the most pessimistic UN projection has it rising until about 2050

My mistake, you are right that it is rising, I meant to state that the world growth rate is declining (as it should be).

http://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=sp_pop_grow&tdim=true&dl=en&hl=en&q=world+population+growth

[grantmeaname]

That makes more sense. Intuitively, it's the growth rate that determines the sizes of generations relative to each other.

[KittyWrestler]

"We have to realize that we need to lower our expectations, because, simply stated, the baby boomers didn't save enough, and we're running too big of a deficit," he says. He argues that it is "disingenuous and dishonest" to suggest that we can maintain our current quality of life and level of spending into the distant future.

This from the CEO of AIG ...yes the very same AIG that received 182 billion in taxpayer bailouts.  He says this from his seaside villa in Croatia while drawing compensation of 10 million dollars from his rescued 'too big to fail' company.

I just rolled my eyes and ignored everything this guy had to say. Here is one of the new robber barons bleeding the bulk of the world while continuing to dupe an easily duped public.  I say go for it, as long as it continues to work.

Just because you may disagree with his personal choices, business ethics, whatever, does not automatically make what he says wrong.

Would you disagree then with that bold, underlined part?  The baby boomers did, in fact, save enough?

+1 on that notion...

The real trouble comes in 10 years when majority of the baby boomers enter retirement age and going to realize social security can't even pay for their boat!

$50K in 401k at age 50? Not even? That's going to hurt bad... I hope they have good kids to rely on..

[arebelspy]

+1 on that notion...

The real trouble comes in 10 years when majority of the baby boomers enter retirement age and going to realize social security can't even pay for their boat!

$50K in 401k at age 50? Not even? That's going to hurt bad... I hope they have good kids to rely on..

Agreed. 

Or, you know, a good voting block.

[KittyWrestler]

+1 on that notion...

The real trouble comes in 10 years when majority of the baby boomers enter retirement age and going to realize social security can't even pay for their boat!

$50K in 401k at age 50? Not even? That's going to hurt bad... I hope they have good kids to rely on..

Agreed. 

Or, you know, a good voting block.

Wow, I feel like wining a lottery that you actually agree with me... flattered.. :D

[Saving mom]

I thought this article was on point with this topic.  Most people nearing retirement haven't even saved $100k but think they have one a good job prepping for retirement:
http://investing.schwab.com/public/schwab/resource_center/expert_insight/retirement_strategies/planning/baby_boomer_reality_check.html

And can I thank one of the posters for mentioning Bad Money Advice? I loved that blog and I clicked through the link and noticed he is posting again. I had stopped reading most other finance websites once I found MMM. Now I will have two rational sites to visit!!

[Jamesqf]

To answer the original question: I certainly hope so!  I like working, and hope to be doing something interesting & productive long after that.  My neighbor's 97, and still works part-time as a mining consultant.

[Uncephalized]

I am running my life on the pessimistic assumption that I will receive no SS benefits (I'm 24). If I do get benefits (which in reality I probably will) then great, bonus. If I don't, whatever, I'll be fine.

The idea that people who are perfectly capable of generating and saving enough income to retire comfortably don't do so, because Rich Daddy Government will "take care of them" when they get old is disgusting to me. I want to EARN my retirement, and relying on the goodwill of voters for my basic living is NOT financial independence; it's the opposite, in fact.

[grantmeaname]

Luckily for you, SS is politically unassailable. In the public domain, we put aside the fact that the old are the wealthiest demographic and exchange it for a sob story about grandma on fixed income who is barely making ends meet as it is. On top of that, the AARP and near-AARP crowd runs the country, with a 48-year old president considered extraordinarily young and the average voter age about 50 years old (thanks, James, for challenging me to look into that).

In other news, it's not really voter whimsy so much as our deeply held views about the individual and society that have changed. If those views have prevailed through a World War, a sixty-year police conflict, terrorist attacks on the nation, the end of the Cold War, the Civil Rights movement, a depression and a great recession, I feel comfortable in saying they'll last at least another forty years till we "retire".

Financially, I totally agree. If you want to retire at 30 or 35, it can make no difference to your planning that you're eligible for SS at 62-70. It is another safety net, but with that much time between retirement and receiving benefits, you really need a conservative SWR like 4% to ensure you're gonna make it.

[BenDarDunDat]

I am running my life on the pessimistic assumption that I will receive no SS benefits (I'm 24). If I do get benefits (which in reality I probably will) then great, bonus. If I don't, whatever, I'll be fine.

The idea that people who are perfectly capable of generating and saving enough income to retire comfortably don't do so, because Rich Daddy Government will "take care of them" when they get old is disgusting to me. I want to EARN my retirement, and relying on the goodwill of voters for my basic living is NOT financial independence; it's the opposite, in fact.

Would you pay $450 per month for health insurance every month - but feel like you can't count on it when you get sick? Would you then feel like you should EARN for paying for your healthcare costs on top of it? I don't understand this thinking. You pay for social security just like you pay for your 401k. You are not being coddled by Rich Daddy Government, but by those who will be paying into social security.

[Uncephalized]

Yeah, I was a bit grumpy when I wrote that for some reason. I agree that people are paying into the system as they go and deserve to get benefits when they are old. What I think really frustrates me is some people do NOTHING independently to save for retirement, and that seems foolish to me. There's no reason to think SS alone will give you a pleasant or comfortable retirement--unless you are very frugal, in which case, perversely, you are very unlikely to be relying on it as your only income anyway.

[Jamesqf]

Would you pay $450 per month for health insurance every month - but feel like you can't count on it when you get sick? Would you then feel like you should EARN for paying for your healthcare costs on top of it?

Would you pay $450/month for health insurance, and then neglect your own health - smoke, overeat, not exercise, etc - because your health insurance payments are supposed to take care of all that?

Myself, I think trying to make sure that I don't get sick is far better than relying on health insurance, just as having enough money of my own to live on is better than depending on SS.  It is, after all, supposed to be a safety net.

[Uncephalized]

Would you pay $450 per month for health insurance every month - but feel like you can't count on it when you get sick? Would you then feel like you should EARN for paying for your healthcare costs on top of it?

Would you pay $450/month for health insurance, and then neglect your own health - smoke, overeat, not exercise, etc - because your health insurance payments are supposed to take care of all that?

Myself, I think trying to make sure that I don't get sick is far better than relying on health insurance, just as having enough money of my own to live on is better than depending on SS.  It is, after all, supposed to be a safety net.

The "right" kind of health insurance is high-deductible catastrophic coverage anyway, IMO. You should be budgeting for regular "maintenance" on your body (food, exercise, occasional checkups)--and if you do you'll almost certainly come out ahead by cutting out the insurance company's profit margin. You need insurance for the stuff that has unpredictable and possibly crippling costs, not the small regular expenses.

[Trebek]

I am running my life on the pessimistic assumption that I will receive no SS benefits (I'm 24). If I do get benefits (which in reality I probably will) then great, bonus. If I don't, whatever, I'll be fine.

Dito. (Except it's the "pension" here in Australia). The math of it all (by the time it's 2050 or so) just doesn't add up from what I can see. Yes, you do pay into the system as you go, but it's already costing way too much now... it's just not possible (in it's current form at least) for THAT many older people to be living off so few younger working people. I imagine it will still be around by 2050... but it will be so vastly different I think it'll be essentially useless for our generation.

[Gerard]

As far as I know, the Canadian public pension scheme got put through the actuarial wringer a few years back and now looks to be stable through the bulge years (largely by greatly increasing the amount current generations are paying in). Problem is, it pays out a very small amount, so past governments introduced a top-up paid for out of current general tax revenues (the "old age supplement"). This is basically free welfare for the elderly. But, as others have pointed out, that's the generation that votes and votes selfishly, so that particular programme's untouchable. And, as others have pointed out for other jurisdictions, the elderly are now the age group *least* likely to live in poverty in Canada. Still, I feel comfortable expecting that money to be there when I hit 65 (or 67 actually... the government will be pushing back the age that it kicks in, just in time for me).

[Jamesqf]

The "right" kind of health insurance is high-deductible catastrophic coverage anyway, IMO.

I think you entirely missed the point I was trying to make, which is that any sensible person should realize that just as it's better to stay healthy than to have the world's best health insurance (even if staying healthy requires a lot of work on your part), so is it better to provide for your own retirement and/or financial independence than to rely on someone else to do so.

[grantmeaname]

I don't think anyone is arguing with you that it's better to depend only on social security when you retire. Your opinion of social security a safety net is your moral value, and you're free to believe it, but it's not one the rest of the nation shared. If it was, there would be means testing and there would be a minimum and a maximum guaranteed retirement income including social security. As it is, that's not what the nation uses social security for, and it's functioning like a partial pension. If you want to ignore that or pretend it won't be there, fine. As I said, I'm not depending on it solely for old age. But I also don't think it's a sign of moral weakness to consider it in your retirement plan, after you've been paying 7% of your earnings into it your whole life.

[Jamesqf]

Moral weakness?  No.  Proper respect for Murphy's Law?  Yes.  It's the old triple redundancy principle at work.  Take me for an example: once I finish paying off the mortgage (about the time I'd be eligible for SS), I'll have three income streams, any one of which would allow me to live in modest comfort:

  1) I can keep working doing what I do now (since I'm basically self-employed), or do something different, well past the standard retirement age.

  2) I can do nothing and live off investments.

  3) I can live on what SS would pay, assuming it keeps pace with inflation &c.

Now you say that most of the nation doesn't think like this, and most likely you're right, but I say that's their failing, not mine.