The $6.6 Trillion Retirement Hole

by Addison Wiggin

  • Americans’ $6.6 trillion retirement hole… and two new scary charts

  • Where’s my COLA? How Social Security’s new deal just got rawer

  • Yen intervention aftermath: Our currency trader calls the next move

  • Ultimate solution to the global recession: A new design and spiffy new colors for its reserve currency!

  • Fed up with rising taxes. Sure, but enough to make you move overseas?

We begin a new week with this cheerful thought: Americans are only $6.6 trillion shy of the savings they need for retirement. That’s the optimistic figure arrived at by Boston College’s Center for Retirement Research, published this morning.

To get there, the researchers made an interesting set of assumptions: All retirees will take out a reverse mortgage… And put all their retirement savings into an inflation-protected annuity. They also assumed none of them would need health care or nursing homes.


The shortfall still amounts to $90,000 per households for all Americans aged 32-64. Give or take a few hundred billion dollars.

The report helps put this disturbing fact in context: Unemployment among people 55 and older is the highest on record — and double what it was at the start of the recession.

We’re going to need a whole new economy to help keep those unprepared for retirement gainfully employed! And yet during the current environment, organic job growth cannot keep pace with population growth in the labor force.

Even before the Great Recession, the structural imbalance in the retirement system was a mess. “76 million Americans were born between 1946-1964,” writes Ian Mathias, crunching the hard math of demography.

“On Jan. 1, 2011, the oldest member of this demographic — the largest America has ever known — will turn 65.

“Taking their place will be Generation X, about 46 million people strong. Forgive us for the back-of-the-envelope math, but that sounds like 30 million fewer contributors to the Social Security fund and tens of millions of new beneficiaries. Hmmm…

“When the whole idea of Social Security was first brought to the table, in Depression-era FDR days, there were 16 Social Security contributors for every 1 Social Security beneficiary. Today, that ratio is closer to 4-1.”

By 2030, when America will be bearing the full brunt of retired baby boomers, that ratio will be 2-1.

Those depending on Social Security know how the “fixes” feel already. Judging by the August consumer price index we reported on Friday, Social Security recipients will forego a cost-of-living adjustment (COLA) for the second year in a row.

Thanks, of course, to our friend:

Four years before Alan Greenspan took on his 19-year assignment of managing the purchasing power of the U.S. dollar at the Federal Reserve… uh… he ran a commission aimed at ensuring Social Security would remain solvent.

One of the many things the Greenspan Commission did back in 1983 was to rejigger the annual cost-of-living adjustment. Before, it tracked the consumer price index (CPI). Now it tracks either a figure called the CPI-W figure or an index of wages — whichever is lower.

The Bureau of Labor Statistics says the cost of living has gone up by 1.1% over the past year. Our friend John Williams at Shadow Government Statistics says if BLS were still measuring the way it did during the Carter administration, the figure would be more like 8.5%.

But the CPI-W figure has to hit 2008-style inflation rates before a COLA will kick in. We’ll know for sure once the Labor Department issues September CPI on Oct. 15.

“Ever since Congress in 1983 acted to anticipate the retirement of the baby boom generation,” writes Robert Kuttner, a columnist for The Boston Globe, commenting on additional remedies put in place by the Greenspan Commission, “by raising Social Security taxes and pushing back the retirement age from 65 to 67, Social Security has contributed trillions of dollars to a government surplus. Social Security is still in great shape for at least 30 more years.

“There is no need to further cut benefits, or further raise the retirement age or raise taxes on working Americans. If only Citigroup’s balance sheet were as healthy as Social Security’s!”


Yet one week from next Friday, Uncle Sam’s safety net “officially slips $28 billion into the red,” writes Lifetime Income Report’s Jim Nelson. “And it just keeps sinking deeper from there.

“We all knew this day would come,” says Jim Nelson, summing up a sentiment felt by many readers. “But nobody expected it to come so fast — six years ahead of schedule. A fact even the Congressional Budget Office (CBO) now admits.”

If you’re unable or unwilling to wait around for another commission to decide what benefits you’re “entitled to” — regardless of whether you paid into the fund for years or not — we suggest you seek alternatives.

That’s Jim’s beat. Thousands of his readers have discovered a powerful way of generating retirement income — backed by a government that hasn’t lost its senses the way Washington, D.C., has. If you haven’t checked it out for yourself, it’s high time. Get started here.

Of course, there’s this curious bit of Internet gobbledygook being passed around. Apparently, there are those who think the only problem with the U.S. economy is the design of its most notable image: the U.S. dollar.

A design consultant named Richard Smith has opened the Dollar ReDe$ign Project, aimed at soliciting new designs for Federal Reserve Notes. “Our great ‘rival,’ the euro, looks so spanky in comparison,” says Smith, “it seems the only clear way to revive this global recession is to rebrand and redesign.”

Yeah, that’ll solve everything. Here is the top vote-getter on Smith’s website, submitted by a British firm…

The law currently forbids living presidents on U.S. currency. But that’s just a trifling detail. The winning bid for the $100 dollar bill was a similar design with Franklin Delano Roosevelt depicted in yellow.

“A democracy cannot exist as a permanent form of government,” we were curiously reminded this morning by email of these words attributed to the Scottish historian Alex Tytler. “It can only exist until the voters discover that they can vote themselves largess from the public treasury.”

“From that time on,” Tytler supposedly lectured in 1801, “the majority always votes for the candidate promising the most benefits from the public treasury, with the results that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.”

Alexis de Tocqueville updated the sentiment for the New Republic in the Old World only a few years later: “The American Republic,” said he “will endure until the day Congress discovers that it can bribe the public with the public’s money.”

Our friend David Walker — former U.S. comptroller general, protagonist of I.O.U.S.A. and Vancouver favorite — is reinvigorating his own fight to put the United States on sound fiscal path…

Over the weekend, he dropped a line informing us he’s leaving his post as the founding president and CEO of the Peterson G. Peterson Foundation next month. He’s about to launch the Comeback America Initiative (CAI), named for the solutions he champions in his best-selling book.

“This new venture is exciting news for me,” David says, “since it will provide me with additional time and flexibility to engage in a broader range of issues and pursue more specific solutions to our national fiscal challenge. At the same time, the Comeback America Initiative (CAI) will continue to be a partner with the Peterson Foundation as well as many other organizations in the fight for America’s fiscal future.”

We can’t help but remember the apathy of one Vancouver attendee who was listening to David’s speech. “Never work,” the gentleman mumbled as he left the room.

We wish David “Godspeed” all the same. His is an uphill trek.

The “risk trade” is on this morning. Stocks are up, with the Dow approaching 10,700. Gold is up, near last week’s record territory at $1,280.

Stock traders were unperturbed by a ho-hum confidence index from the National Association of Home Builders. If anything, traders in all markets appear to be anticipating some sort of easing language after tomorrow’s Federal Reserve meeting. We shall see…

Despite money flowing into stocks and precious metals, the dollar index is holding its own this morning at 81.3. Must be that new design making its way around the Internet!

“Here’s a name you need to remember: Yoshihiko Noda. Write it down and Google it from time to time,” advises our excitable currency trading expert Abe Cofnas.

“He is the finance minister of Japan, and when he talks, the markets react. Here’s what he said after the Bank of Japan yen intervention last week: ‘As we have been saying, our basic stance is that we will take decisive steps, including intervention, if necessary, and I’d like to maintain this stance.’

“In other words, the government of Japan has made intervention an activated policy tool to weaken the yen!”

Abe called this one a week ago today — two days before Mr. Noda shook up the markets by buying $12 billion in yen. Specifically, Abe urged a “double-barreled” play very few people have ever heard of: Half the trade bagged a 151% gain, the other half 369%.

What’s next? “The market now believes that the BOJ simply cannot allow its move to be rejected,” Abe says. “Its entire credibility is at stake. Yes, there will be profit taking, but also, the bank’s move has shocked the currency markets.

“There’s a new wave of sentiment expecting the yen to continue weakening. So I am watching for the right opportunity to put on other currency option plays on the yen in the following weeks.”

If you’d like to get in on these trades, Abe’s new Strategic Currency Trader will be coming soon.

Who says an old-fashioned letter to the editor can’t stir things up in the Internet age?

An executive from southern California wrote to The Wall Street Journal about how the prospect of higher taxes on incomes above $250,000 might drive those earners to move overseas… and now he’s all over Drudge.

“My family isn’t wealthy,” Glen Esnard wrote. “I have no funded retirement plan save Social Security, if it is there when I need it. I have no guarantee of permanent health care. I am paying off school loans for our three children…

“Yet those of us who make $250,000 or more are vilified and held accountable for solving our government’s penchant for spending more than it takes in so that politicians can buy votes. We already pay more in taxes than 98% of the population, particularly the nearly 50% of eligible voters who pay no federal income tax..

“Apparently, our president thinks that living in America is so wonderful that we will never leave, despite being directly attacked and held responsible for the political class’ inability to constrain its desire to buy votes with our money. He should think again.”

Asked further about this, Esnard doesn’t sound as if he’s ready to pick up stakes himself: “Although I am not an expert, I think it is a real issue. No different than people leaving states for more hospitable locations.”


Addison Wiggin

The 5 Min. Forecast

P.S.: If you’re fretting over your own retirement prospects, we urge you to check out Mr. Nelson’s presentation on the “other” government-backed retirement program, here.

P.P.S.: “For the past week or so,” writes a reader with a logistical warning, “every link from Agora has been identified as ‘dangerous’ because of ‘malware.’ This has never happened before. Has your system been corrupted?

“Please look into the problem and notify us when it has been fixed.”

The 5: And we thought we were dangerous because of our content. Darn.

Unfortunately, you were among a host of readers to write in. Upon investigation, we were told by the IT Overlords at the Agora HQ that we were under attack by Russian hackers… and the problem became really obvious late Friday.

The Overlords worked on it overtime and by 10:15 EST this morning they reported they had the Russkies licked. We’re assured that at no time was your personal information compromised, and we’re now working with Google to get the warning messages taken down. Let us know if you see any other anomalies.


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