You’ve heard it before:
- Corporations are no longer loyal to their employees or vice versa.
- Medical Insurance is disappearing.
- Corporate pensions are dinosaurs.
- Future Social Security benefits will probably be lower, if they exist at all.
Such statements may be hyperbole but they correctly identify major trends. What they don’t do is tell us what we need to do to adapt and thrive. That’s what we’re going to try to find out in the next few columns.
The Way We Were.
When the histories are written, we’ll look back and see that the Golden Age of Benefits lasted about forty years and ended sometime in the mid-eighties. During that period the workweek was shortened, vacations and holidays grew, corporate pension plans dominated our futures, and health benefits expanded year after year. Even as corporate largesse expanded, government benefits also ballooned. Social Security schedules were improved. Early retirement became possible. And lifetime government medical insurance was created and expanded.
Nor did the cornucopia end there. Fueled by government backed home mortgages, home ownership became possible for millions of American families. The expansion of home ownership began what may have been the largest redistribution of wealth in the history of the world.
In the late seventies and early eighties, I regularly received letters from readers who were trying to plan their retirement. They had no 401k plans and their savings were limited. A few had profit sharing plans. But many had some combination of the following:
- A company pension that rewarded 30 years of service with a lifetime income that replaced about 40 percent of their final salary.
- A profit sharing plan that created, for some, a small fortune.
- Social Security benefits that replaced another 35 to 40 percent of their salary for themselves and additional benefits for their non-working spouse. The total came to more than 50 percent of their final salary. Combined with the corporate pension, the total replacement rate for their earned income was nearly 100 percent.
- A home that was paid for and that had probably tripled in value since purchase. In some instances, the home value had multiplied 10 times. More important, the home could be sold as part of a move from the Northeast or Mid-West to the Sunbelt states where housing, taxes, insurance, food, and utility expenses were lower.
The rules for doing well were simple: stay as long as possible with one employer; buy as much house as possible; and hang on.
The New World
That world has all but disappeared. The number of corporate pension plans peaked in 1985 at 112,200 and hit 42,300 in 1998. At that rate of decline, they will be all but gone in a decade. Of those still in operation, many are being modified too in ways that reduce future benefits.
While scheduled Social Security benefits will replace the same portion of income as in the past, workers now have to pay more into the system. Each year that goes by reduces the relative benefit to participants. Worse, benefits were made taxable for some recipients in 1983, becoming de facto means tested. Some analysts worry that benefits will have to be scaled down as much as 25 percent when the baby boomers retire.
Finally, homeownership is no longer a lead pipe cinch. On the inflated east and west coasts, prices are beyond the reach of most workers. Throughout the country shifts in regional fortune have created bonanzas for some, and disasters for others.
To create still more uncertainty, the cornucopia of government health care for the elderly now faces demands and pressures never imagined. Today, a woman approaching 60 who is currently healthy, has no history of heart disease or cancer in her family, and has a healthy lifestyle, can expect to live to be nearly 100 years old, vastly increasing her need for income to pay both living expenses and health care bills.
Only a century ago, we feared that our children would die in childhood, almost before memories. Today, we fear outliving our memory and even our identity.
The rules for living have changed.
Photo: Pixabay
(c) Scott Burns, 2022