old people

There will be elderly poor.  Look at page 26 of this PDF.  I interpret those that don’t know or declined as being well below $50K in assets.  That means 60% of those reaching “retirement age” will have less than two years income stored up.

That said I feel more sorry for younger workers who have to pay high amounts into Social Security/Medicare, and they will not get out of program what they put in.  There’s a longish article here, excerpting from a recently released book on the topic.  In general, the older you are, the sweeter the deal was for those who received payments from Social Security, at least until 2026 when benefits will be cut by 25%, or taxes raised.

What this means is that in aggregate, Americans don’t save enough, particularly the Baby Boomers, of which I am one, but not a negligent one.

We are heading for elderly poverty/work for a large portion of Americans.  I suspect that many older people will continue to work, solving their problem but taking jobs from those who are younger.

This should be no surprise.  Incomes should be declining for lower skilled people in the US, because there are more people who can do that work abroad.  My advice to all readers is to make sure you cannot be obsoleted by foreigners.

One more note: don’t expect the asset markets to bail you out.  Returns to financial assets will do poorly as so many begin to sell them to pay for living expenses, whether directly as individuals, or indirectly as defined benefit plans pay retirement benefits.

This is on top of the problem that when high-quality long interest rates are so low, it is typically a bad time to try to make money in financial assets, because returns on risky assets are typically only 0-2% percent higher than the yield on long BBB/Baa debt over the long run.

All for now…

By David Merkel, CFA of Aleph Blog