big changes

["Devine, James" <jdevine@xxxxxxx>]

Title: big changes

A friend sent me the article at the end and asked "Do you agree?" Here's my reply. Comments are welcome.

I generally agree.

The parents in the story came of age during the high point of what my friend Tom Weisskopf termed "security capitalism," the period when the economic orientation of the US economy was primarily inward (rather than to the world) and toward production -- and the domestic economy was stabilized by the warfare/welfare state (along with a massive investment in education, infrastructure, and the like), so that something close to full employment could be sustained in the late 1960s and even the slowly-declining labor movement could win a piece of the action. Many employers were willing to give union-type benefits even without the presence of unions, i.e., decent wages, defined-benefit pensions, and indemnity health insurance, because they hoped to win the loyalty and productivity of their workers while avoiding unions.

The children in the story (and us) matured in the post-1975 era of insecurity capitalism, the rise of neo-liberalism. The economic orientation of the US economy is more and more primarily toward the world and toward financial games-playing, while the welfare state and government investment are being cut back and undermined. Unions are mostly gone in the private sector and employers have shifted toward using more and more temps (except for the shrinking cadre of core employees), dropping decent wages, defined-benefit pensions, and indemnity health insurance like hot potatoes. By the late 1990s, the low unemployment resulted not from direct government stimulus but from a high-tech-led surge in fixed investment -- that couldn't last as it turned into over-investment. Without unions and fear of unions, little of of the late 1990s prosperity could be converted into permanent gains.

Jim
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A generation gap that's alive and well Elderly Americans may not understand how times have changed

05/29/2003

By SCOTT BURNS / The Dallas Morning News

Question: I've read your advice to parents â to give early and give often. But how do you explain today's economic realities to an 86-year-old?

My parents were born in 1916 and 1917. They started with nothing and managed to amass $1.4 million. They lived in Southern California. My father worked 30 years for AT&T Corp. and retired at age 60 with a pension and excellent health insurance. He joined the company stock plan, and they rode the market as well as realizing 300 percent increases on their home(s). My mother didn't have to work. They sacrificed and worked hard and earned every penny. Their attitude is that if my husband and I did the same, we'd be in the same position as they were â completely independent.

My husband and I are 56 and 57. He has retirement savings accounts with matching funds. I have a 401(k) with no company matching. We live in Texas and have not realized any significant appreciation on our homes. We have lost about $70,000 a year in the current bear market. However, we have always lived below our means, carried minimal to no debt, and saved, saved, saved for retirement.

We will have health insurance in "retirement" â but it will cost us more and provide less. We are currently worth about $1.2 million â but it's not enough for us to retire early, if we plan live to age 90.

A contribution from my parents, now, would make a tremendous difference. If we both work to age 60, we'll be "OK," but over time our assets will erode until we have nothing but the home we live in. Certainly, we won't have enough to afford the assisted living my mother currently enjoys.

Perhaps you can help me understand where we've gone wrong, in not being as financially secure. My attitude is that my parents benefited as much from timing and location as from hard work. Their attitude is that luck played absolutely no part.

M.M., by e-mail from Dallas

Answer: Good luck and fortuitous circumstances are usually forgotten, shoved aside by delusions of uncanny brilliance and sterling character. What your parents have forgotten is that they came of age in a period that saw the introduction and expansion of Social Security; the creation of Medicare; the spread of generous defined-benefit corporate pensions; the addition of corporate profit-sharing plans; the largest increase in homeownership in history; and one of the largest population migrations in history â to California. They also retired when corporate benefits were at a peak. They didn't have to go through benefit reductions, staff reductions. They also didn't have to experience a generation of corporate executives who think of employees as an impediment to profits and stock-option wealth, rather than as players on the same team.

Basically, your parents got into everything while it was cheap. And they got out when the going was good. When your father started paying employment taxes, the employee rate was 1 percent of the first $3,000 of income. That's a maximum of $30 a year. When he retired in the mid-1970s, the tax had risen to 5.85 percent on the first $15,300 of income, a maximum of $895 a year. His total contributions were about $7,500. Your mother now collects this much in a matter of months. I'm sure your dad worked hard, but he and your mom also got a very, very good deal.

It's different now

More important, it is a deal that you and your husband will never have. And neither will your children. Or their children. Today, the employee tax is 7.65 percent of the first $87,000 of income, a maximum of $6,655 a year. (If you earn more, however, there is no limit on the Medicare portion of the tax.) Today, most households have two earners, not one. They have the prospect of paying in far more than they receive in benefits. Their benefits may be taxed, to boot.

While the cost of Social Security has been going up, the benefits are being discreetly scaled back. The 1983 "reform" of Social Security â the one that was supposed to make it solvent for generations â was really a transfer of $1 trillion from young workers to older workers and retirees. It was also the largest tax increase in history, but it was done with subtlety, through Social Security.

You and your husband have been paying your share of that transfer for 20 years. So have your children.

I get a lot of reader mail from seniors who complain about the "entitlement" that baby boomers seem to feel.

What senior citizens don't recognize is how much their own lives have benefited from a vast array of entitlements delivered by government and lobbied for by AARP.

Since your parents retired, defined-benefit pension plans have declined. Social Security benefits are now being scaled back for those born in 1938 and after.

This is not to say that your parents "had it made."

It's just that they are clueless about the size of the economic shift we have seen since the mid-'70s â when your father checked out of the working world. And trust me, politicians of both parties intend to keep them clueless.

It could be worse

Your situation, however, isn't pathetic. You might benefit from reconsidering the content of life's glass. The only reason you have financial worries is that you want to retire by age 60 and might live into your 90s. When your parents were young, life expectancies were much shorter. It was possible to be killed by tuberculosis or to be crippled by polio. You've got a money-and- comfort problem. You can solve it by working a few more years, with or without your parents' help.

Scott Burns answers questions of general interest in his Thursday columns. Write Scott Burns, The Dallas Morning News, P.O. Box 655237, Dallas, Texas 75265, or send an e-mail.

E-mail scott@xxxxxxxxxxxxxx