Boomers, Retirement and Interest Rates

The unemployment rate clicked down last month while a relatively anemic 150,000 jobs were added. What’s going on? As I have been saying for months, the leading edge of Baby Boomer retirement is kicking in and this is a good thing.

But a number of economists are arguing that the recession is distracting people from the real story — long-run demographic trends that have nothing to do with the current economy. Baby boomers are starting to retire en masse, which means that there are fewer eligible American workers.

Demographics have always played a big role in the rise and fall of the labor force. Between 1960 and 2000, the labor force in the United States surged from 59 percent to a peak of 67.3 percent. That was largely due to the fact that more women were entering the labor force while improvements in health and information technology allowed Americans to work more years.

But since 2000, the labor force rate has been steadily declining as the baby-boom generation has been retiring. Because of this, the Federal Reserve Bank of Chicago expects the labor force participation rate to be lower in 2020 than it is today, regardless of how well the economy does.

In a March report titled “Dispelling an Urban Legend,” Dean Maki, an economist at Barclays Capital, found that demographics accounted for a majority of the drop in the participation rate since 2002.

Every year, for the foreseeable future, 3.5 million boomers will retire. Thus, the 300,000 people who left the workforce last month is about on track with that figure. Mitt Romney can rattle on about how horrible this is, but he’s just wrong. If you have worked a lifetime and have a decent pension, you will retire when you get a chance.

This brings us to the real unemployment crisis. The private sector has been adding jobs at a rate that brings employment about back to where it was when Obama took office. But because of draconian government budget cuts, public sector employment is dropping radically. Teachers, fireman, police–all are facing continued layoffs. As Floyd Norris points out this morning, (despite Republican rhetoric to the contrary) government share of GDP is falling for the first time in decades.

And of course the rapidly shrinking investment in infrastructure (down 11.6%) by state and local governments will only come back to haunt us in the future as bridges crumble and schools deteriorate.The elections in Europe this weekend will probably signal a revolt against the austerity policies of the right that driven the region back into recession. Already the Conservatives in England suffered huge losses in local elections and by all accounts the French and Greeks will move to the Left on Sunday.

One final thought. In an interesting post this week, the Hedge Fund guru, David Einhorn argues that Bernanke is harming the economy by keeping short term rates so low. The million of boomers retiring are forced to speculate in the stock market rather than invest in CD’s and bonds that could pay a safe 3.5% return. On the other side, this also encourages massive speculation by the 1% who can borrow cheaply.

For the super wealthy, zero rates supported by a Bernanke put on the bond market encourage outsized income through leveraged speculation. For everyone else, zero rates reduce the standard of living because greater food and energy costs soak up income. Ironically, it is some Republicans that are beginning to question the Jelly Donut monetary policy, while Democrats generally support it. Democrats who sincerely care about income inequality should speak out against the Fed’s policies.

I have asked some economist folks to give me some input on Einhorn’s piece. I’m not sure he is right, but if the Boomer retirement is preceding apace, I think it is work considering.


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13 Responses to Boomers, Retirement and Interest Rates

  1. JTMcPhee says:

    Jon, I have to ask: was the empty text box at the bottom actually intentional, or just accidental, snark? (As in, “I have asked some economist folks to give me some input on Einhorn’s piece.” And you got [crickets] in response?)

    Re Boomer “retirement:” I’m still working and will continue to do so, even though necessity has impelled me to start my Social Security payouts. You got any stats on what percentage of the Boomer Bunch are going to actually “retire,” taking themselves out of the employment-unemployment matrix? I bet it this poll has it pretty close to right:

    And what number of us will depend largely on SS for our living expenses, post-“retirement,” once we are no longer able to work, or are booted in favor of an overseas jobholder or some desperate youngling?

    Too bad there’s so many people looking to profit from dissension between the age sets, and so few who actually look at the simple, inexpensive fixes that are so readily available and so “politically impossible,” per the Serious People who have lifetime medical and defined-benefit pensions…

    Worgon, what’s happened to you? Cat got your tongue?

  2. Rick Turner says:

    No way I can retire, and I’ll be 69 in a couple of months. My 401K? It’s called “every dime I have is tied up in my business”, and the only way to get the dough out would be to sell my shares of the company…which doesn’t seem very likely at this point. Like JTM, I’m now pulling my SSI, and I’m really thankful for MediCare…not that I didn’t put into the system for decades…and am still putting in. The only way I could afford to retire any time soon would be to become severely disabled or live on the streets. That’s my reality.

    I’m figuring that I’ll be working my current deal for at least another five years, and then? Well, I’d love to be out from being the boss; I’d love not to be sweating payroll every week. But I’ll keep working until I croak because I do basically love being creative, and I love that I have the chops and knowledge to make good stuff. I’d just like to be working for myself with no employees at some point again.

  3. Jon Taplin says:

    Guys-I’m not about to retire either. But if you had a good union job driving a fucking bus for 45 years, you are retiring at 65.

  4. JTMcPhee says:

    @Jon Taplin
    And what did you do if you were an aging housemaid, or a 50-year-old construction worker with what’s called “failed back syndrome,” or a fucking nurse or CNA caring, on your feet, lifting and turning large people in necessarily awkward positions, as best you can, for 30+ patients, for 30+ years, on your shift in the nursing home, et cetera?

    What’s your point? That unions are a good idea? Or that unionized people are lazy slugs who featherbed their way through their “working lives,” siphon off all the profits, and then go slough off on Maui? Most unions that are still around are mixed bags, with some greedhead leaders and some featherbeds, but with some major and increasingly obvious truth to the reasoning that “capital” can only be constrained by “organized labor.” Or is there not enough information in your little post, that you actually aim at something else? People need something to drive us toward living the Golden Rule, and striving for the Golden Mean, and not any one of the fucked snarkisms that people word-play off of those terms. We ain’t got much of that here, and maybe Europeans, and ARABS, for Christ’s sake, who have lived with the excesses of Industrial Revolutions and Imperial war-dumbness and financialism longer that America has, are about to react to the fucking they are getting by those sacred bond holders and reactionary politicians and dictatorial rulers.

    I finally like what I do, and I hope to be able to keep doing it on into my dotage. That’s the bit about “work” that people on the libertarian and “conservative” side find so opaque and puzzling. Not everyone is anywhere near so lucky.

    Like a lot of folks, I have had several “401ks” evaporate in a froth of popping bubbles. Says the tough guy (maybe Papola?), “Well, that’s your fault for not being a sophisticated investor.” But the fees the funds charge are supposed to be paydays for the really “sophisticated” people who give you those verbal representations (backed up, of course, by that written, small-type parenthetical, “past performance is no guarantee blah blah blah, that lets them off the hook for self-dealing and incompetence,) that they will manage your money well for you, behind their stylish suspenders and $100 shirts and rep ties and mahogany or glass desks that just REEK of “competence.” And what do people do, now, in a system that’s devoid of honest “investments” and reasonable “interest on savings?” Other than just pay higher prices for their necessities, because The Man can charge always a little more than the traffic will bear? And then go jump on an “ice flow” and disappear into the mist?

    There is an “us versus them,” here, all right, and Warren Buffett has limned it just perfectly.

    How’s APL doing, these days?

  5. len says:

    All things considered, long threads on economics and the anonymous but surprisingly informed cold nasty snarks about royalties for work done 40+ years ago and now largely disappeared from airplay, the idea of a union pension plus SS and medicare reinforces the idea that living low and quiet in a sure food chain really is the ultimate American Dream. Typing this from The Chair, hooked up to Blue Cross Blue Shield tubes of cure and poison, aiming for more years of paying the bills working for the Beasties, I have to ask, is it really such a grind? Since most of you have almost a decade on me, the tail end of the baby boom who won’t get the payoff of 60s cultural smorgasbord, maybe the Work Until You Drop destiny really is the old fable of the grasshopper and the ant played out in real life in reverse.

    From this chair, it seems each of you have exactly the lives you wanted. And so do I.

    And now the nurse gives me the blood sugar speech….. great… at least this is the last week of this and now without any vacation left or sick leave (five mos of chemo chews it all up so if I catch anything this summer it’s LWOP), I can work the full five or six until Christmas when they force us to take a week off LWOP so they can save money to increase profits paid by a non-public company to a hand full of generals and our mystery owners. Wunderbar. So good to have a job. Daughter leaves for college in three months and one way or another, I have to keep on keeping on doing whatever for whomever to pay the bills.

    It gets harder and harder to read economic diatribes when I know he and his can drink the finest wines over dinner conversations of how bad it all is and how much worse it will get if we vote for the wrong guy when in effect all I can remember since…. ever…. is a series of the wrong guys. Quit electing tokens. If you don’t care, don’t complain. The Baby Boomer run is over and if we can’t retire, well, pick up a sign and join OWS. At least they know the truth and don’t hide from it.

    Obama saw to it my kids will have insurance until they are 26. Got my vote. Health care vs Don’t Care is a pretty good stump speech even if I have to die at the desk to keep it.

  6. Rick Turner says:

    I’m not particularly complaining about continuing to work other than I’d like the nature of my work to shift away from so much admin back over to what I’m really better at…designing. It does burn my ass when I see civil servants thinking that they deserve full retirement at age 50 or 55 just because they put in thirty years on their asses behind desks saying “no” to hard working citizens. I think that government workers should be on the same plan as most…you opt to retire at 65 to get full benefits no matter when you started. And cops and firefighters should maybe get some sort of break, but should transition into desk jobs when the physical demands become too much. I’m also fed up with the “we have to pay them that much because that’s what they’d get in the private sector” bullshit re. civil servant admin people. The private sector in the form of bankers and Wall Streeters have been ripping us all off for too long and don’t deserve those salaries and bonuses that become a false benchmark.

  7. len says:

    @Rick Turner

    :) Didn’t think you didn’t Rick. It shows in the work and the guitar players say Thanks!!!

    In my biz du jour, everyone is trying to get OUT of the private sector and be “insourced” which is to say hired by the government. Yeah, these past eight months I’ve watched the civil service vs the contractor dynamic very close and personal. Like too many industries, ten percent is doing ninety per cent of the work and the rest are doing career politicking. When two supervisors stood in my door and shouted “We pay you to write XML, not write code!” I knew I had heard the stupidest comment ever in my career: a complete lack of technical understanding and a way too obvious put-in-place tactic.

    There are some of these folks I have nothng but admiration for. I know what they did, do and the risks. Make no mistake, they love their hands on work as much as you do, Rick, and that is both sublime and scary as hell.

    Speaking of, sitting here recovering, PBS just ran an ad for T-Bone’s live concert show of the Secret Sisters with Jakob Dylan and Elvis Costello. Should be good. Thank God and the “little people” for PBS. Still worth every penny.

  8. MS says:

    We boomers are in shaky shape, through no fault of our own, as many of us face a prospect of no retirement. Those who get to retire are lucky and I’m glad their unions protected their wages and pensions.

    Despite the Republican narrative, we are not a poor country. We don’t have “enough” because the corporations who now direct so much of our legislation have shifted the cost of governance and care down-down-down the chain.

    Because the corporations and the 1% don’t pay their fair share of taxes — and we have “bought” the ridiculous idea that this is a benefit to our society — there is not enough in the coffers to properly sustain our society.

    My father retired at 65 from work he regretted (VP and buyer for a clothing chain, because his family savings for medical school was lost in the Great Depression). But he retired with a company pension, social security and medicare.

    I am happily getting Medicare – but that all seems precarious as Republicans threaten to limit my benefits, and current regulations require me to pay an extra $200/month to cover insurance for meds I don’t yet need, and to cover the Medicare-gap. That’s a problem for me, and for the bus driver, and worse yet for the person sweeping the floor at McDonald’s or making our hotel beds or the one who lost a job when their company moved to Mexico or India.

  9. Rick Turner says:

    MS, I suspect that that $200.00 a month breaks down to your supplemental coverage + the prescription drug coverage that you don’t need yet. I’m in the same boat; I take very few prescription drugs, and none on a regular basis. But…if you choose not to pay for that coverage, if you do need it some day, they’ll come and squeeze every penny and more that you didn’t pay out of you between the time you went on MediCare and when you start actually using the Rx coverage. That’s how insurance works; it’s a gamble…for you, that you’ll need it some day and you’ll get more back than you put in…for them, that you’ll die before you ever need to buy prescription drugs that they’ll cover. I’ve run into situations where they don’t cover some prescriptions that one doc or another gives me, so I wound up paying retail…while paying for Rx coverage at the same time. Stupid system.

    Also, the Repubs don’t dare drastically change what those of us are already getting in the way of SSI and MediCare benefits, but our kids are going to see a different world.

    Of course, if we’d stop meddling in the affairs of others, we could easily afford to take care of our own…and maybe the Military Industrial Congressional Conspiracy could do the swords into plowshares thing.

  10. Rick Turner says:

    Speaking of which, how about a concept like “Progressive Isolationism”…meaning stay the fuck out of regional wars that have nothing to do with protection of US citizens on US soil. From what I can see, not even the “protection of US interests” has worked out very well except for weapons manufacturers. Didn’t Wolfowitz promise that the Iraq war would be paid for by Iraq oil profits?

  11. len says:

    Because it’s a work in progress? :)

    Unless a reference model is situated in a context, it is meaningless.

    I’m not convinced we are in the shape we are in through no fault of our own.

  12. Fentex says:

    Didn’t Wolfowitz promise that the Iraq war would be paid for by Iraq oil profits?

    Which, even if true, would have been a massive breach law. The very rational – making a subjected country pay for it’s invasion – is criminal in U.S law.

    I quote, from I think was my first comment at this blog…

    “The 1907 Hague Regulations and 1949 Geneva Conventions (to which the U.S is a ratified signatory, thus making those treaties U.S law) forbid the sequestration of sovereign resources and properties through conquest and occupation.”

  13. Rick Turner says:

    Yeah, well illegal, immoral, amoral, stupid…all in a day’s work for the neo-conservative puppeteers.

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