Past Solutions May Be Warranted for Today’s Retirement Problems

by Nigel Bolton-Shaw on August 8, 2012

Nearly half of all American senior citizens die broke, according to a study from researchers at Harvard, MIT and Dartmouth. The study claims that half of all US citizens die without financial assets after living almost entirely on Social Security.

More specifically, some 46 percent of senior citizens die with a total of $10,000 in financial assets, and that includes financial instruments such as stocks and bonds plus cash.

Lacking financial resources, health care emergencies and other kinds of late-life difficulties become harder to surmount. For this reason, there is a correlation between lifespan and financial resources. Wealthier seniors tend to live longer.

Interestingly, the study emerges in time for the US political season when there is increased focus on federal solutions that might help alleviate the issue of senior poverty.

Coverage by the Washington Post noted the “major impact that changes to Social Security would have for many ordinary Americans.”

One of the studies authors noted, meanwhile that, “If we were to substantially reduce Social Security benefits for those later in life, there is a share of the elderly households for whom that would translate very directly into reduced income, because they seem to have accumulated little in the way of financial resources.”

Unintended Consequences of Well-Intended Policies

In the early 1960s, when JFK was in the White House and William McChesney Martin was Fed chairman, Keynesian economics was in full bloom. One of its major tenets is the Phillips Curve, which posits a stable inverse relationship between the rate of inflation and the unemployment rate. Yale professor James Tobin and others argued that the social outcome could be improved by a more activist monetary and fiscal policy. Specifically, they contended that the unemployment rate could be lowered while only resulting in slightly higher inflation.

The argument posited the notion that economic policymakers had sufficient knowledge to intervene or fine-tune the economy with tools like those of a surgeon. Presidents Johnson, Nixon, and Carter (two Democrats and one Republican) followed this policy. At one point, President Nixon made the famous statement that “We are all Keynesians now.” Moreover, as the White House led, the Fed chairmen of the era – Martin, Burns, and Miller – generally acquiesced.

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The trouble for advocating for a continuance of the current socio-political regime is that US finances as currently constituted are headed toward bankruptcy. The US has already been downgraded by Standard & Poor’s from AAA to AA-plus.

Worse, the US’s total indebtedness is a staggering US$200 trillion. This figure was arrived at and then reported not a year ago by economics professor Laurence J. Kotlikoff, who served as a senior economist on President Reagan’s Council of Economic Advisers.

Kotlikoff made national news with an announcement that the US national debt of US$14 trillion was not even 10 percent of total US obligations.

America’s “unofficial” payment obligations including Social Security and health care costs add tens of trillions to the US$14 trillion figure.

NPR quoted Kotlikoff as follows: “If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $211 trillion. That’s the fiscal gap. That’s our true indebtedness.”

We don’t hear more about this enormous number, Kotlikoff says, because politicians have chosen their language carefully to keep most of the problem off the books.

Kotlikoff went on to point out that, “We’ve got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person. Multiply 78 million by $40,000 — you’re talking about more than $3 trillion a year just to give to a portion of the population …

“What you have to do is either immediately and permanently raise taxes by about two-thirds, or immediately and permanently cut every dollar of spending by 40 percent forever. The [Congressional Budget Office's] numbers say we have an absolutely enormous problem facing us.”

In fact, the US is not going to pay off its two hundred trillion debt, not at current prices anyway. Just like Europe, the US will need to undergo a significant shift in its foundational social and monetary practices. It will be forced to do so.

As it does, Western citizens may begin to be impelled to re-examine the solutions of modernity when it comes to retirement and caring for seniors. Once upon a time, after all, the problems of senior survival were seen as family issues. Seniors often lived at home with their children and took care of the grandchildren while the parents worked.

Even medical care tended to be administered within the context of the home environment.

But the senior study on which we’re commenting examines the problems of senior citizens within the context of the modern day retirement and its separate facilities and expensive medical care for the aging and aged.

Removing seniors as a matter of social policy from their families and potential support networks is part of what has driven the cost of caring for seniors up exponentially. It also has created difficult situations for seniors who must align themselves with society’s expectations of senior independence, even at relatively advanced ages.

From both a financial and health point of view, the extended family of years past had much to recommend it. As the West has adopted increasingly technocratic approaches to retirement, costs have gone up while livability has eroded.

Ironically, while there may continue to be substantive debate on how to care for the aged, cold numerical realities will likely enforce certain solutions.

These solutions, worked for eons and featured the extended family rather than state-supported programs and corollary private programs that graft on to larger legislative mandates.

The old ways survived for a reason. Chances are, they shall stage a comeback.

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