The Crisis in Pensions and Retirement Plans

Retirement Piggy BankDespite being considered the financial centre of the world, it’s still very possible for the United States to learn from other countries. See the infographic below; it presents a brief history of retirement plans in the U.S. including state and local government pensions and Social Security. Now let’s put things in perspective: Countries with strongest pension programs (based on 2013 pensions, both public and private) rank the U.S. in 11th place. Perhaps we can learn from a country such as Australia:

Retirement Crisis


A brief history of retirement in the U.S.

Colonial Times to 1885: The Pre-retirement Era
• In the beginning, there was birth, a very brief childhood, work, and death. In other words: no retirement.
• If you lived, you worked. In 1850, 77% of men over 65 still worked.
• If you stopped working, you were probably dead.
• Average life expectancy: 38

1885 to 1929: The Industrial Age Gives Rise to Mandatory Retirement
• By 1920: mandatory retirement with some small company pension slowly evolved as the method for moving older workers aside.
• Percent of men over 65 who retired: 1880s to 1920s
• 1880: 23%
• 1890: 26%
• 1910: 42%
• 1930: 42%

1930 to 1940: The Great Depression Turns Retirement into a Duty
• Government gets involved in retirement
• 1935: Railroad Retirement Act: retire older people, hire younger…during the depression
• In the 1920s, 84% of railroad workers covered by pensions
• Percentage of men over 65 who were retired
• 1930: 42%
• 1940: 56%
• Social Security Act of 1935 enacted

1940 to 1975: The Post-War Era and the Selling of Retirement
• World War II put everyone back to work
• 1940: 12 % of workers had pensions
• 1945: 17% of workers had pensions
• 1955: 32.1 % had pensions
• 1965: 45.7%
• 1975: 55.2%

1975 to 2050: The Consequences Pile Up
• 1900: 65 % of Americans over 65 worked
• 1975: That number dropped to 17 %
• Employee Retirement Income Security Act of 1974 (ERISA) increased pension funding requirements.
• 1983: short term funding crisis threatens social security; pension and retirement costs rise to 5% of business revenues
• Over the next 40 years: people over 65 will account for over 20% of the U.S. population.
• The 85+ age group will be fastest growing age.
• Wow FACT: By 2050, people over 85 will be as large a percentage of the population (4.6%) as people over 65 were in 1930!

QUESTION: Will our economy be able to support this many retired people?


America’s 100 largest corporate pension plans were underfunded by $217 billion at the end of 2008.
50: percentage of all workers in the United State with less than $2,000 saved for retirement.
36 percent of Americans don’t contribute anything to retirement savings.
The number of pensions at risk inside failing companies more than tripled during the recession.
24% of U.S. workers say they have postponed their retirement at least once during the past year.

State and Local Government Pensions: 
• Study: 50 states are collectively facing $5.17 trillion in pension obligations, but they only have $1.94 trillion set aside in state pension funds.
• That is a difference of $3.2 trillion.

Social Security

6 out of every 10: non-retirees in the United States believe that the Social Security system will NOT be able to pay benefits when they stop working.

About 57 %: of Barack Obama’s 3.8 trillion dollar budget for 2011 consisted of direct payments to individual Americans or is money that is spent on their behalf.

35% of Americans: over the age of 65 rely almost entirely on Social Security payments.

According to the Congressional Budget Office, the Social Security system paid out more in benefits than it received, beginning in 2010.That was not supposed to happen until at least 2016.

56 percent of current retirees believe that the U.S. government will cut their social security benefits.

In 1950, each retiree’s Social Security benefit was paid for by 16 U.S. workers. In 2010, each retiree’s Social Security benefit is paid for by approximately 3.3 U.S. workers.

By 2025, there will be 2 workers for each retiree.

The shortfall in entitlement programs in the years ahead is mind blowing: The present value of projected benefits surpasses revenues for programs such as Social Security and Medicare by $46 trillion over the next 75 years. $46 Trillion!!!

Social Security and Medicare will absorb 92 cents of every dollar of federal revenue by the year 2019.

Put it in perspective: Countries with strongest pension programs (based on 2013 pensions, both public and private)… U.S. is #11.

• Denmark
• Netherlands
• Australia
• Switzerland
• Sweden
• Canada
• Singapore
• Chile
• UK
• Germany
• U.S.A.
• Poland
• France
• Brazil
• Mexico

Can we learn anything from Australia? 
Here’s how the Aussies do it:
• The Age Pension (their version of social security).
• Pays up to $28,000 a year to people 65 and over (until 2023 when it rises to 67)
• Australians don’t pay into the system; the money comes from the government’s general revenues.
• The Age Pension is means-tested; 56% of people get the full pension; the rest get a reduced version.
• Qualifying for the Age Pension also entitles recipients to discounted prescription drugs and transportation expenses.
• The Super
• Employers contribute 9 % of revenues to all employees retirement fund, age 18-70.
• Employees can contribute to their own plan. But only 20% do.
• A flaw: the self-employed don’t have access to The Super