The New Retirement Model – Work Until you Die

My oldest son is 22 years old and will be graduating from college at the end of this year.  When he was home for Spring Break we sat down and talked about his future employment prospects in an America that is experiencing a 9% unemployment rate.  

I thought back to advice I received from my father and grandmother at a similar age.  Both recommended working for the government – any government – state, local, or federal, citing the benefits and security in government employment over the private sector.

My grandmother was a retired county worker.  Her decision to retire was ultimately an economic one – she would make more money in retirement, based on her pension and social security, than if she continued working.  My father on the other hand spent his entire career in private industry, in fleet truck tire sales.  Just about every job he had he opted for a guaranteed salary rather than work on a commission, even though he knew he would make more money had he worked on a commission basis.  He valued the security of a regular paycheck over the risk/reward of commission sales.

Without trying, I ended up heeding their advice.  After college I went into the Army and after 10 years in uniform, moving in to a defense civil servant was an easy transition.  I continued to view the benefits of working for the federal government as safe, with “deferred compensation” making up for the less pay I’d make annually when compared to government contractors working in the quasi-private industry of government contracting.

With that backdrop, the best advice I could offer my son was along the lines of:
“Get whatever you can – find a job that pays you well as soon as you can.  Don’t think in terms of having a career with a specific company (or in the public sector) as whatever long-term benefits offered are not likely to be there when you need them.  Save as much as you possibly can because your retirement will be on you.  There are no guarantees any longer.”
Pretty crappy advice to give a young man on the verge of entering the job market, but in fairness, the employment landscape has changed dramatically in the last couple decades; however, the latest change is where the public sector is now beginning to feel the effects of a poor economy, and poor fiscal management, that began in the private sector nearly 30 years ago.

Now I know many private sector workers are reading this and may be thinking – “welcome to the real world buddy,” and I suppose to an extent they are justified in thinking that way – after all, the private sector has experienced an erosion of retirement benefits over the last 30 plus years, but it’s only been in the last year or so that all of a sudden, local, state and federal workers have become seen as having such opulent benefits.


Public employee benefits became a national headline earlier this year when Wisconsin governor Scott Walker cut state employee benefits and killed collective bargaining with the state employee unions. Similar efforts, in other mid-western, mainly Republican-controlled state houses, have sought to control fiscal deficits by cutting costs associated with public employees – pay, health care costs, and pensions.*


Prior to this year, public service had long been viewed as a “safe” career. Lower salaries coupled with long-term benefits, otherwise known as deferred compensation.   As our children were growing up, my wife (also a government employee) and I would tell them that as federal workers, we would never be rich but we would never need them to care for us in retirement.  One part of that statement is guaranteed, the other remains to be seen.


The slash and burn tactics of the 1980’s as entire industry sectors contracted and or disappeared altogether essentially killed unions in America and the benefits unions lobbied for on behalf of the workforce.  As businesses sought to remain lean and competitive in the takeover era, unions were forced to renegotiate benefits and wages and in many cases disband altogether.   

At their height in the late 1940’s 36 per cent of the American labor force was represented by a union.  Today, when the public sector unions are taken out of the equation, that total has plummeted to about 7 per cent. Source 

Just as businesses essentially busted unions by either whittling away benefits or disbanding in favor of continued, albeit reduced employment, the same model is being applied today in the public sector.  Employees are no longer an asset on the balance sheet and the liability carried by governments in order to meet obligations promised to retirees are such that governments can no longer carry on in a business as usual mode without dramatic changes.

The Pew Center on the States, a division of the Pew Charitable Trust, issues an annual report of the health of state’s abilities to meet public employee benefits.  The latest update, published in April showed some shocking results of irresponsible fiscal management across the country. The report, entitled The Widening Gap, found that:
“In the midst of the Great Recession and severe investment declines, the gap between the promises states made for employees’ retirement benefits and the money they set aside to pay for them grew to at least $1.26 trillion in fiscal year 2009, resulting in a 26 percent increase in one year. State pension plans represented slightly more than half of this shortfall, with $2.28 trillion stowed away to cover $2.94 trillion in long-term liabilities—leaving about a $660 billion gap, according to an analysis by the Pew Center on the States. Retiree health care and other benefits accounted for the remaining $607 billion, with assets totaling $31 billion to pay for $638 billion in liabilities. Pension funding shortfalls surpassed funding gaps for retiree health care and other benefits for the first time since states began reporting liabilities for the latter in fiscal year 2006.” Source
It should come as no surprise that CNN reported today that 110,000 state jobs are forecasted to be lost in the 3rd quarter of this year
“Caught in a fiscal bind, local governments will have to reduce personnel expenses since it is the costliest part of their budgets and they’ve already slashed their programs and services. “We’re at the tip of the iceberg,” said Christiana McFarland, the National League of Cities’ program director for finance and economic development. Cities “don’t have many options at this point.” Teachers and school staff will bear the brunt of the layoffs this summer, as hundreds of thousands will likely be laid off around the nation. The national job numbers should reflect the hit in July and September.” Source
In the last 30 years we have seen a revolution in the approach of employer-employee relationship in terms of retirement.  Prior to 1980, the standard model was an employee would work for his or her company their entire career and in retirement they would receive a defined benefit (DB).  Corporate mergers and leveraged buyouts throughout the 80’s ended the certainty of long-term employment stability as companies literally ate each other up and spit out the bones.  Pension funds were seen as assets to be used to ward off predatory buyouts and were liberally “borrowed” against – often leaving employees with little more than a severance package when the corporate death knell finally came.


As a result of the changing economy and the fluidity of employment, portable retirement benefits emerged as a buttress against the end of lifetime employment. Defined contributions (DC), or 401k plans, rapidly surpassed DB plans. According to the AFL-CIO, “Since 1980, the number of defined benefit plans plummeted from 148,096 plans covering some 38 percent of private-sector workers to only 48,982 today. The U.S. Bureau of Labor Statistics finds 20 percent of workers in the private sector have defined benefit pensions. In the public sector, defined benefit plan coverage is four times greater—about 79 percent according to BLS.” Source

As the public sector follows in the footsteps of the private sector one truism begins to emerge – everyone’s retirement is at risk.  This is not simply an American-unique problem set – the same issues are impacting just about every modern economy.

Most people under 40 years old have longed assumed that Social Security benefits will likely not be around when they retire, but now, with reduced pensions a strong possibility, coupled with the strong possibility of a vastly reduced Social Security benefit, the new model for American employment may simply be to work until you die – that is, if you’re lucky enough to have a job…

* This is simply a factual point and not necessarily an indictment of Republicans.  Nearly all states are facing fiscal crises due to poor forecasting models for investment coupled with histories of poor labor negotiations promising deferred compensation packages that were unsustainable.


The primary difference between Democratic and Republican philosophies is how to deal with the widening gap in operating costs.  Democrats are more inclined to raise revenues, i.e. taxes, to pay for current costs while Republicans are averse to any form of tax hike and are willing to gut public sector employment benefits in order to lower state deficits.

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One Response to The New Retirement Model – Work Until you Die

  1. Bottom line: be nice to your kids; they'll be picking out, and probably paying for, your nursing home!

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