Journey Into Retirement

As I have mentioned previously, the primary focus of this blog is not to serve as a platform for political commentary. However, political events over the last couple of years and particularly in the past couple of months are worth a look in terms of how they might affect retirees.

Despite continuous denials, Republicans and Democrats both engage in class warfare to further their political agendas. Republicans are focused on the wealthy while vilifying low income people by characterizing them as lazy cheaters who game the system. Democrats, on the other hand cater to those in need of help from the social safety net and vilify the wealthy as power hungry, greedy and people who game the system. Both cater to the middle class, probably because that’s where the votes are. During any election cycle, you can see class warfare in full bloom while both parties fervently deny that is what they are doing.

Now we have budget deficits that threaten the longterm health of the economy. So, how long will it before both parties switch to generational warfare in an attempt to reduce Social Security and Medicare costs. Advocates for seniors will point out that we are only asking for those benefits and services that long have been promised by the politicians of both parties. Those advocating for younger workers will point out that despite the promises, the benefits that have been promised are unsustainable. Hence, for the longterm good of the country seniors should allow benefit cuts to occur. They can find ways to adjust. They always do – or at least that will be the rationale.

Recently, I have started thinking about this because of three things that have happened:

• First, I have begun to get frequent e-mails from AARP asking me to send protest letters to congress in response to proposed changes in Social Security and Medicare. I have obliged.

• Second is the recent happenings in Detroit where the city has threatened bankruptcy as a tactic to get out of a crushing pension obligation. OK, pension benefits in Detroit are probably a little too lucrative. However, this is not the issue. The issue is that these benefits have been promised in exchange for worker loyalty and support to the city. So, going forward, you may want to back off. However, people already in the system deserve what they were promised. When you are planning retirement, you need to be able to count on these sources of income.

• Finally, locally in St. Louis there has been recent court decisions in favor of the Patriot Coal Company which has declared bankruptcy and has asked to be alleviated of their pension and healthcare promises to retirees. This has been particularly disturbing because Patriot Coal is a subsidiary of Peabody Energy who appears to have created the company with the sole purpose of alleviating themselves of their legal obligation to retirees and other debts. The legal system has played along despite the clear chicanery of Peabody to game the system for their own benefit and those of their executives.

As the latter two events have unfolded, there has been frequent commentary in the news media of how other companies and government entities have been watching. Read this as an attempt to find a way to alleviate themselves of their promised and legal obligation to retirees. If these succeed, is there any doubt that the floodgates while have been opened with nobody’s promised benefits being safe. If the lawyers can game the legal system to deprive the many of promised benefits to the advantage of the few, then activism and protests will probably be required. If the legal system allows this to go on, is there any doubt that social activism will be required to right the wrongs.

The advantage that seniors have in these battles is that they have organizations like AARP vigorously pushing their issues. In addition, sheer size helps. Seniors represent a huge voting block that has greater voter participation than most other age groups. So, if you are a politician, you tangle with boomers at your own peril. Of course, judges have little accountability.

The happening in the city of Detroit and with Patriot Coal are obvious and “in your face.” So, protests have been quick and loud. Both may eventually get away with their tactics, but there will be a price to pay in the end – or one would hope. If nothing else, other stakeholder groups will witness what’s going on and organize to preempt these tactics.

For the federal government in regards to Social Security and Medicare the politicians are a little wary. So, their solution is not so blatant. They attempt to use tactics that are below the noise such as:

• Cut Social Security expenses by using the “Chained CPI” adjustment for inflation. The reduction in benefits seems so small – only 0.25% off of the inflation adjustment each year. This is only a small sacrifice – right? However, in the end, benefit reductions and increases in taxes that result from this could be anything but minor. This is sneaky and backdoor, hoping that no-one will notice.

• Means test social security. If you are an affluent senior, we should cut your benefits because you really don’t need them like lower income retirees. Sounds reasonable, right? In time we can just reduce the income needed to be called affluent and this will cut Social Security expenses. Savings accomplished!!

• For Medicare, we can let income determine the monthly premiums and simply adjust the criteria we use to generate revenue against Medicare expenses paid out by the government. A couple of dollars here or there should not be noticed, unless you are defined into an affluent group where higher monthly premiums could cause financial distress. Maybe we can means test the benefits provided as well.

Let’s get it straight, politicians are smart, but sneaky and most have an agenda. Class warfare will probably not go away, but now we can layer generational warfare on top of that. Yes, in the future there will be a need for retiree activism and I think that most of us will be in the trenches. But hey, in retirement we will probably have the time. We will definitely be in the voting booth. See you on the front lines!