Journey Into Retirement

On various posts on this blog, I have mentioned the need for seniors to become more activist to protect the promises made about retirement benefits. As the Federal budget deficit grows and as there is more competition for limited Federal funds, expect this to become a huge issue.

When you look at the political ideologies of the Republicans and Democrats and despite denials on both sides of the aisle, class warfare is alive and well. The Republicans are advocates for the “haves” and more recently the “super-haves” and Democrats are advocates for the “have nots” and the middle class. In this regard, we would expect the Democrats to be the advocates for seniors. The real question is how long it will be before these battle lines shift to generational warfare (young against old) and the politicians try to balance the Federal budget on the backs of seniors. Can we expect the Democrats to be our advocates? The answer is “don’t count on it.”

Attacks on retirement benefits are clearly happening now. We see attempts to chip away at benefits by both parties, not just on the part of the Republicans. However, let’s start with the Republicans. The Bush (”W”) administration proposed privatizing Social Security. The idea was that some of your benefits would come from investment returns from a portion of Social Security taxes diverted to the stock market. If a portion of Social Security benefits are derived from investment returns, the government will not need to pay them out. Of course, if the stock market tanks, your benefits will be reduced. And, the reality is that we would be putting billions of dollars in the hands of the same greedy and corrupt banks and large investment firms that caused the 2008 crash. If this had been adopted, the 2008 crash could have put many retirees in dire straits. Of course with few exceptions, the banks and investment houses came out of 2008 just fine. It just goes to show you what campaign contributions can do.

Another example: In 2012 Paul Ryan, the congressional representative from Wisconsin and vice presidential candidate proposed a voucher system for Medicare. Retirees would be given a specified amount to find coverage in the private marketplace. It was generally believed that this could have significantly increased medical costs for seniors and reduced the quality of care that they could afford.

The Republicans and particularly the right-wing of the party have been the most vocal advocates for reducing retirement benefits to seniors as part of their general opposition to social welfare and related programs. However, the Democrats have also contributed to the angst. In 2013 negotiations with the Republicans, President Obama offered up a shift to a chained CPI approach to determining what inflation adjustments would be applied annually to Social Security benefits. This would have shaved about 0.25% off of the inflation adjustment each year. It was attractive because this could save the government $341 billion over a 10 year period. The reduction in the inflation adjustment does not sound like much, but over a 30 year retirement, this could cost the average Social Security recipient $40,000 or more in benefits. There are serious questions as to whether even the current inflation adjustments are adequate given the way that seniors spend their money. Moving to the chained CPI would make matters worse. For a great discussion of this issue, see the YouTube post by Robert Reich – link attached (Chained CPI Video).

Recently, Republicans have upped the ante. An unrelated rider in the recent continuing budget resolution bill broke new ground on the ongoing attack on senior benefits. The rider was narrowly directed at pension funds that are maintained by multiple employers. These tend to be pension funds that deliver benefits to retired union members. Since the Republicans are engaged in a long-term battle against the unions who generally side with Democrats during elections, this was just another salvo in that battle. Where this rider broke new ground – and why it should concern all of us – is that pension funds that were grossly underfunded and in danger of going bankrupt, for the first time were allowed to cut the benefits of current retirees. In other words, if you were already collecting pension benefits, this rider allowed your benefits to be slashed. One of the most important concepts in retirement planning is that you need to be able to anticipate your income. At the time of retirement, you need to know what you will have. This rider puts that in doubt for many retirees at a time when it would be very difficult to adjust. In addition, although this rider is very narrow in its scope now, how long will it be before it is expanded to cover virtually all pension funds that are underfunded? Certainly the large corporations who are bankrolling the politicians would love to have legislation like that. Once this trend gets rolling, how long will it be before pension funds are intentionally underfunded to the point of insolvency to capitalize on this legislative windfall.

So, for retirees near or in retirement, there are many reasons to be concerned about future benefits. Promises are promises until they are not. We already see examples of this. Peabody Energy in St. Louis spun off a subsidiary (Patriot Coal) and loaded up the new company with their debt and much of their pension obligations. Patriot Coal, weighted down by this huge debt, subsequently filed for bankruptcy protection and absolved themselves of promised pension guarantees to their workers and retirees. Peabody was able to circumvent their obligations to retirees through these legal maneuvers. The sad thing was that the courts sided with Peabody against the union. Again, promises are promises until they are not.

What you will hear from the politicians is that we all need to do our part. It is our patriotic duty to our country to bite the bullet. Reductions in Social Security and Medicare will be required to insure the long-term financial solvency of America they will tell you. This is total nonsense. These same politicians will load up spending bills with pork that benefit special interest campaign contributors. They will fund expensive weapons systems that the military neither needs nor wants because these systems are produced in their states. They will offer subsidies to rich and profitable corporations at the general expense of taxpayers, largely as rewards for campaign contributions. They will build a thousand metaphorical “bridges to nowhere” to court votes in their districts. And then, they will tell you that you must sacrifice your promised retirement benefits for the national good. Don’t believe a word of it.

I would recommend membership and involvement with organizations like AARP who are working to protect the rights of seniors. Don’t become complacent because promises by Washington and the corporations can be negated in a nanosecond and the courts seem quite willing to go along. You need to fight for what is legitimately yours!!! Make the government and large corporations honor their commitments or pay a significant price if they don’t. As important, watch how your elected representatives are voting and let them know how you feel with your immediate feedback. Beyond that, send a clear message on Election Day. Mess with retirement benefits at your own peril. Or, as Clint Eastwood would say “go ahead, make my day!”