Bookends of a coming mega-meltdown

Twenty or so years from now, Americans will look back and ask: Why didn’t we do more? Why didn’t we accept some modest sacrifice to avoid the extreme suffering of today? Why did we ignore what was so perfectly clear back then?

No, I’m not talking about climate change, though you can add that one too. Rather, I’m looking at the scary, jolting confluence of sky high student loan repayment burdens concentrated on one end of the adult age spectrum, and woeful shortfalls in retirement funding for a majority of Americans on the other. I’ve written on both of these topics before (especially America’s retirement readiness), but let me add one excellent investigative piece and one important study to the mix.

Student loan debt

If you’re in college or grad school, or you’re a parent of someone who is, you likely know the score. Gone are the days when a few thousand dollars saved from the family budget covered a big chunk of a child’s tuition and expenses. Income levels have stagnated for most in the U.S., but tuition costs have soared. And the lion’s share of people seeking post-secondary education must borrow money, often gobs of it, to pay those bills.

If you want more detail, the Rolling Stone‘s Matt Taibbi has written a superb investigative article — Ripping Off Young America: The College-Loan Scandal — that is must reading for anyone affected by the financing of higher education. Here’s a snippet:

How is this happening? It’s complicated. But throw off the mystery and what you’ll uncover is a shameful and oppressive outrage that for years now has been systematically perpetrated against a generation of young adults. For this story, I interviewed people who developed crippling mental and physical conditions, who considered suicide, who had to give up hope of having children, who were forced to leave the country, or who even entered a life of crime because of their student debts.

…[T]he underlying cause of all that later-life distress and heartache – the reason they carry such crushing, life-alteringly huge college debt – is that our university-tuition system really is exploitative and unfair, designed primarily to benefit two major actors.

First in line are the colleges and universities, and the contractors who build their extravagant athletic complexes, hotel-like dormitories and God knows what other campus embellishments….

…Next up is the government itself. While it’s not commonly discussed on the Hill, the government actually stands to make an enormous profit on the president’s new federal student-loan system….

The crisis is compounded by a horrible entry-level job market for recent graduates. It’s hard to pay off those loans and save a bit of money when you’re doing your 5th or 6th unpaid internship.

Retirement funding

In the meantime, at the older end of the population, the nation’s largest generation is hurtling towards the traditional retirement years. The only problem is that many Boomers will be in no position to retire, even if Social Security remains intact. Their numbers just don’t add up.

Recent confirmation of the dire situation comes from the National Institute on Retirement Security, a non-profit, non-partisan research and education center. Its 28-page study, The Retirement Savings Crisis: Is It Worse Than We Think?, by labor economist Nari Rhee, is clearly laid out and alarming to read. Here are the major findings:

New NIRS research finds retirement savings are dangerously low, and the U.S. retirement savings deficit is between $6.8 and $14.0 trillion.

…The average working household has virtually no retirement savings. When all households are included— not just households with retirement accounts—the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households.  

The findings confirm that the American Dream of retiring comfortably after a lifetime of work will be impossible for many. Based on 401(k)–type account and IRA balances alone, some 92 percent of working households do not meet conservative retirement savings targets for their age and income. Even when counting their entire net worth, 65 percent still fall short.

Where the twain meet

Let us fast forward 20 years and assume we’ve done nothing besides making some minor tweaks to Social Security and lowering the interest rate a tad on student loans.

It’s 2033, and millions of Boomers are working into their 70s and 80s, not by choice, but rather by necessity. The Social Security Trust Fund is running dry, and older Americans who didn’t have, or already burned through, retirement savings are faced with a 25 percent cut to Social Security benefits, funded now on a pay-as-we-go basis by payroll taxes on aging Gen Xers and Millennials.

These younger folks, by the way, are struggling to pay off student loans that are not dischargeable in a bankruptcy proceeding. For many, their finances have required them to make some hard decisions, such as having fewer or no kids.

Of course, this means they’re less likely to be in the market to buy the big suburban houses put on sale by older Boomers looking to downsize their living spaces and reduce living expenses. (It wouldn’t have mattered anyway, as their credit ratings are blown from their student loans and the credit card debt they’ve taken on to make ends meet.)

In the year 2033, many of the Gen Xers and Millennials are hoping to pay off their student loans and modest mortgages (that’s all the house they could afford) by their late 50s. Some of their retirement prospects, by the way, are even dimmer than that of the average Boomer.

In 2033, what we could’ve done now will seem so obvious…

Obvious, but not easy. It will require belt-tightening by institutions and individuals who can afford it, higher taxes on some (including raising the payroll tax cap to beef up Social Security), creative public policies to recreate the retirement system, an all-out war on the student loan racket, more emphasis on community needs, and less tolerance for extravagance, waste, and corruption. Some kindness will go a long way, too.

It may sound like I’m preaching the meme of austerity. No, to the contrary. I’m suggesting that we strive to live comfortable, healthy, safe, and enriching lives rather than be in a state of want. But we’ll need a values adjustment to get there.

(By the way, much of this will help to address global climate change. Less mad, privatized consumption will have a cooling effect on our planet, literally and figuratively.)

Call me Chicken Little, Cassandra, whatever

The sky is falling. But this begs the philosophical question: If the sky falls on Washington D.C. and Wall Street, but no one there heard or felt it, did it really fall?

Seriously, at a time when dramatic measures are needed to avoid terrible societal and individual pain later, our leaders in the private, public, and non-profit sectors aren’t exactly sounding the alarm bells. And much of America is oblivious to, or willfully ignoring, this coming mega-meltdown.

We do have choices, but time is running out.

3 responses

  1. I agree with your editorial and am rather pessimistic about change. The system benefits the powers that be, so they will stay the course until it is no longer profitable. Obviously, the role of government will have to increase to provide for the tsunami of baby boomers who will be unable to support themselves in retirement. There won’t be enough workers to sustain the safety net, so eventually the US will have to rely on immigration to make up for low fertility like Europe does.

  2. Some of the fixes are relatively easy. Social Security, for one. It remains among the most stable of our safety net programs, and shoring it up now will keep it solvent. But if we wait…

    The current bickering in D.C. about Social Security, student loan interest rates, etc., ignores the bigger picture. These concerns have to be addressed on a much wider scale.

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