Since the Great Recession (years 2007 to 2009), these trends have accelerated. As the labour-market in the U.S.A. illustrates, personal careers based on lifelong jobs with only one or two employers are a faint memory from our grandparents’ era. The generous employer-provided health-insurance and defined-benefit pension-plans (including many that did not require workers even to contribute!) that our parents’ generation took for granted are increasingly rare. Where they do exist, such plans are usually closed to new enrollments, thus favouring older workers over newer/younger ones. Nowadays, the most common form of employer-provided pension-plan is one with defined contributions, but no guarantee of final benefits.
Gut-wrenchingly, this also means that many workers’ fortunes rise and fall with each economic cycle, and persons are dashed to despair with each market-crash. Just think of the millions of workers who were at or near retirement-age when the U.S. equity-markets (the largest in the world) fell over 50% (during year 2008 to year 2009), losing trillions of dollars of collective value, and dramatically plunging the worth of all related pension-assets (either through direct shareholdings or indirectly through mutual funds). Ten years later, many firms and families have still not recovered fully from such losses (which are both financial and psychological). Investment-firms and financial institutions as large as Bear Stearns, AIG, CLICO, C. L. Financial, Sir Alan Stanford’s Financial Group, British American Insurance Company (BAICO), Lehman Brothers (with over U.S.$600 billion of assets at its demise, the largest bankruptcy in history) merged, declared bankruptcy, restructured, or disappeared altogether.
Indeed, even as they are becoming more and more important and are very much needed, workplace-sponsored pension-plans of any kind are rare in several industries and are (or becoming) extinct in many types of companies. Without strong unions to protect their rights, most workers in the private sector are left to fend for themselves in many respects, including planning and funding their own retirements. This is made even more difficult without the convenience of having automatic deductions from payroll directly to formal retirement-savings plans, or the added benefit of employers’ contributions to pension-funds. In countries that provide tax-benefits for persons who contribute to retirement-accounts, this trend widens the already large and astonishingly inequitable gap between the top 10% and the bottom 90%. It means that those who would benefit proportionately more from any tax-benefit are often the ones least likely to qualify for it, whilst the richest and highest paid are most likely to be in a position to maximise both retirement-savings and all applicable tax-benefits.
Not surprisingly, therefore, the notion of retirement itself is being challenged by the Millennial Generation (which can be broadly defined as those born since the year 1980). Young workers, having seen their parents and grandparents lose their savings and investments in the Great Recession, are much less inclined to participate in the stock-market. This is ironic because equities and growth-oriented investments are exactly what persons under 40 years of age need to maximise their protection against long-term inflation and the relentless rise in the cost of living.
REFLECTION: at just 3% to 3.50% inflation per year, the cost of living DOUBLES every generation (20 to 25 years)! That means that, within two generations, the cost of living will QUADRUPLE! E.g., What costs $100 today will cost $400 in the next 4 decades.
Case-Study: in my grandparents’ era, a flying fish in Barbados sold for a penny; today, one costs over $1.00 (more than a hundred times more!). By the way, the same fisher-folk now have cafes and restaurants at the fish-market, offering a simple fish-plus-sides meal for $25.00 to $30.00 every weekend. Clearly, they are taking care of their retirement-savings rather well, right? [smile]
Coupled with (a) long periods of joblessness, (b) the tragedy of waves of retrenchments and downsizing, and (c) falling incomes and/or no salary-increases for many workers during the past ten years (the Lost Decade of years 2008 to 2017), real incomes have hardly changed, on average, for large numbers of households . . . since the 1960s. Ouch! To many people, therefore, it still feels like a recession even though the news-headlines declare that G.D.P. is growing again. Wage-increases, if and when they do come, have been wholly inadequate to compensate for years/decades of slow/no growth.
The resistance of many employers and interest-groups even to modest changes in the minimum wage highlights the gross inequity perpetrated by ever wealthier corporate executives against labour, and the continuing onslaught on the low-income and middle-income strata of the workforce. Even $15 per hour is a small consolation to the tens of millions of people who have only part-time or short-term jobs. For overpaid executives with golden parachutes, even being fired can be extremely lucrative, with reported severance-packages in the millions of dollars up to the hundreds of millions of dollars. By contrast, for many workers and their families, even one missed pay-cheque spells acute stress, if not an immediate financial disaster!
REFLECTION: How many weeks/months could you sustain your standard of living without working for a pay-cheque?
Young people also witnessed how many families lost their jobs as well as their homes during these past ten years. Accordingly, home-ownership rates are declining, and this trend extends to other assets such as cars, revolutionizing industries where ride-hailing (e.g., Uber and Lyft) and home-sharing (e.g., Airbnb) are much more common than they were just 5 to 10 years ago. For the first time in history, as of the year 2017, telecommuting has surpassed public transit to become the second most frequent way that U.S. workers “travel” or relate to their workplaces, thus further reducing the need of physical travel and transportation.
Historically, their home was the biggest asset and investment that most persons or families had. Over the typical 4 to 6 decades of an adult’s working life, the appreciation of real assets consistently outpaced the rate of inflation in consumer-prices. Among other benefits, this provided a long-term safety-net of private wealth, which then underpinned a secure retirement, propelling upward social mobility, and a burgeoning middle class. Related financial solutions, such as (a) home-equity loans, (b) home-equity lines of credit, and, more recently, (c) the availability of increasingly relevant and useful reverse mortgages (which pay you a guaranteed lifelong retirement-income against the value of your home, instead of the typical mortgage in which you spend decades of your life paying a loan), have all added value to home-ownership among older persons. By contrast, younger persons without homes, . . . without full-time or permanent jobs, . . . without corporate pension-schemes, . . . and/or lacking conventional expectations of upward social mobility and economic security . . . will clearly face much bigger financial risks in the coming years.
INSIGHT: Many people will not be able to afford to retire!
In these circumstances, Social Security programmes (or National Insurance Schemes) are more important than ever before. If the majority of employers are no longer providing a defined pension-benefit, . . . or, worst of all, no pension-plan at all, . . . workers must provide for themselves as a matter of survival. Otherwise, later years of life will be like facing a very, very long Winter (e.g., life-expectancies are rising), but with little or no indoor heating (e.g., little or no pension or other post-retirement benefits) . . . an outcome that is potentially deadly! Extending the analogy, many will, of course, have heating (some form of pension and/or other income in later years of life), but will they have a steady supply of firewood or gas? To be fully adequate, retirement-planning and pensions must be satisfactory in all three dimensions: (1) absolute amount, (2) relative amount (e.g., suited to the local cost of living; inflation-proof), and (3) duration (e.g., from retirement to death).
Thirsting for some sun-rays of hope behind such darkening economic clouds, what are the options for workers and for countries amidst these major social and economic trends sweeping the globe? For workers, the three main strategies are: (1) reduce expenses/spending; (2) find ways to earn extra income(s); and/or (3) save/invest more. For countries, the three main strategies are: (1) increase the rates of contribution to Social Security systems; (2) broaden the base of contributors; and/or (3) defer the qualifying pensionable age. In subsequent articles, we shall explore each of these six strategies in some detail, learning from the best case-studies of people and places that are succeeding, while noticing the lessons to be learned from those that have failed . . . or that are on a course to failure.