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Boomers and avoiding default

By Jennie L. Phipps ·
Thursday, July 21, 2011
Posted: 2 pm ET

Keeping up financially with our retired parents could prove to be an impossible challenge for many Americans, especially as we swallow the reforms that will help the country avoid default.

Look at it this way, let's say your parents have a $40,000 per year pension -- not an unusual, or even particularly generous, number for many people who retired with conventional pensions from corporations and public entities. And then they are able to tack on the average husband and wife Social Security payment -- $1,650 per month or $19,800 per year, according to Social Security. Plus, they have some money in savings on which they can draw some regular income. Let's say they have a modest $50,000 in the bank. Therefore, they can, at least, afford to pull off $2,000 in mad money.

Add it all up, that's $61,800 that in many states is almost free of state taxes, and the federal tax rate is modest as well. As an 80-year-old friend of mine --  a retired janitor for the now-defunct ACDelco Plant in Dayton, Ohio -- told me at Christmas, "We're living better than we ever lived in our lives."

The boomer generation isn't likely to do so well. According to a study by Bankers Life and Casualty Company of middle-income boomers between ages 47 and 65 with incomes between $25,000 and $75,000 found:

  • 14 percent have no pension and no retirement savings.
  • 55 percent have no pension and have saved less than $100,000.
  • 67 percent say they are behind where they expected to be at this point in their lives in terms of financial readiness to retire.
  • 75 percent expect to work in retirement.
  • 48 percent don't expect to pay off their mortgages before they retire.
  • 60 percent envy their parents' pensions.

Taken all together, it's a pretty ugly picture of boomer finances. That leads us to where the Congress is in figuring out a budget plan that enough of them can agree on to vote to raise the $14.3 trillion debt ceiling and avoid default.

One of the leading plans on the table -- that devised by the "Gang of Six" Senators -- calls for several things that have a big impact on retirement planning:

  • An immediate repeal of the voluntary long-term care insurance program, the CLASS Act, part of health care reform.
  • Adoption of the lower "chained" cost-of-living adjustment, or COLA, for Social Security recipients, offset by the addition of a guaranteed minimum Social Security payment for low-income recipients that won't fall below the poverty line for five years.
  • Elimination or reduction of tax breaks for mortgage interest, charitable donations, and employer-provided health coverage and tax-advantaged savings plans like IRAs and 401(k)s.
  • Cuts of $500 billion in spending from Medicare and Medicaid.
  • A commitment to reform Social Security in a way that makes the program solvent for at least 75 years. Any savings would have to be used to improve the program -- not pay for other government activities.

It looks like baby boomers at or close to retirement are going to feel the deficit reduction plan hard -- but default would be lots worse.

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1 Comment
Cary Williams
September 06, 2011 at 6:01 am

Are the people in this gang of 6 also discussing a REPAYMENT PLAN,because before we take away ANYTHING from social security IT WOULD ONLY BE FAIR,LEGAL,AND JUST to replace the money that has been removed by past presidents for such things as fighting wars.AND,how many times has money been pulled out of the social security fund and how much was pulled out in total?????