Thursday, September 11, 2014

A Looming Retirement Crisis if Rauner or Tillman Have Their Way?

Pension Vocabulary: “Looming Retirement Crisis?”

On the heels of the latest WTTW Chicago Tonight debate – a contretemps which found Illinois Policy Institute spokesperson John Tillman promoting the need for public workers' being forced into 410 k programs to (1) save the Illinois pension system, (2) give Illinois public workers the opportunity to control their own retirement destinies, (3) align the public workers retirement programs with the successes of the private worker, etc. – comes a seriously disturbing combination of studies from very disparate sources that indicate the strong possibility of a looming retirement crisis for those heading toward the end of their careers.

The Federal Reserve Board has just recently published its triennial Survey of Consumer Finances.  The report is considered the gold standard for understanding the household finances of American families.   Simultaneously, the Joint Center for Housing Studies of Harvard University delivered the carefully researched challenges America will face meeting the housing needs of an aging population over the next decade(s). 

The full report by Mark Miller, former Sunday editor of the Chicago Sun-Times and specialist on retirement issues, can be found at the link following this blog.  His piece is a sobering assessment of what the future holds for those of us unlucky enough to have been middle to lower middle class during the recession, especially if the end of a career is approaching soon. 

His article also clearly identifies the pitfalls in totally investing one’s future retirement in a system designed to charge for speculation of earned money without regard for significant fluctuations in an individual’s holdings, a system originally designed as a supplementary savings plan:  namely, a 401k.  

“The recession wreaked havoc on the retirement plans of millions of Americans, and two studies released last week suggest that most of us haven't recovered well.

“To be more precise: Middle- and lower-income Americans haven't recovered at all, while the wealthiest households have done fine.

“Harvard found that a third of adults over age 50 pay more than 30 percent of their income for housing - including 37 percent of people over age 80. Harvard defines that group as “housing cost burdened.” Another group of "severely burdened" older Americans spend more than 50 percent of income on housing. That group spends 43 percent less on food, and 59 percent less on healthcare, compared with households that can afford their housing.

“The Federal Reserve findings on middle-class retirement prospects are equally troubling. Despite the economy’s gradual mending, the SCF found a widening gap in income and net worth. The top 10 percent of households was the only income band registering rising income (up 2 percent since 2010). Households between the 40th and 90th percentiles of income saw little change in average real incomes from 2010 to 2013. And the rate of homeownership was 65 percent, down from 69 percent in 2004 and 67 percent in 2010.

“Ownership of retirement plan accounts also fell sharply. In the bottom half of income distribution, just 40 percent of households owned any type of account - IRA, 401(k) or traditional pension - in 2013, down from 48 percent in the 2007 survey. The Fed attributes the drop mainly to declining IRA and 401(k) coverage, since defined benefit coverage remained flat. Meanwhile, coverage in the top half of income distribution was much higher. In the top 10 percent, 95 percent of families are covered.

“Overall, the average value of retirement accounts jumped a substantial 10 percent from 2010 to 2013, to $201,300. The Fed attributed that to the strong stock market and larger contributions. But for the lowest-income group that owned accounts, the average combined IRA and 401(k) value was just $39,100 - and that is down more than 20 percent from 2007.”

Note: Always remember this.  Were the State or Rauner ever able to move public workers to a 401k retirement system, it would not be protected under the Pension Clause.  If the State found that matching contributions to a 401k plus the need for Social Security were too much, the General Assembly could do away with 401k plans altogether. 

Read the entire blog below.


  1. I'm already in the process of procuring a good quality paper box that I can put under a bridge at an intersection with good access to good garbage dumpsters. That's my new retirement plan. I just need enough newspaper to stuff into my shoes to keep my feet warm in the winter.

  2. In the meantime, Anony, I'm also stuffing all my money in my mattress.
    Worked for the grandparents!

  3. Illinois Pension Reform Conspiracy (or why a 401(k) is a foolish option, especially when it’s your only retirement plan).

    Don’t be fooled by Rauner and some Illinois politicians’ saccharine prevarications about stabilizing the public employees’ defined-benefit pension plans. What some of them really want to do is reduce and weaken them so they are inevitably eliminated. Defined-benefit plans are lucrative opportunities for corporate predators: