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Retirement now offers security; it's up to you to pin it down

By Thomas WattersonStaff writer of The Christian Science Monitor / November 15, 1985


TO a demographer -- someone who watches population trends -- the news about America's elderly population is very good indeed. ``For the first time in United States history, there is a smaller percentage of people 65 and over living in poverty than the rest of the population,'' says Peter Francese, publisher of American Demographics, a magazine out of Ithaca, N.Y. Today, 12 percent of older Americans are in poverty, compared with a national poverty rate of 14 percent, he says. In 1965, he says, the poverty rate for senior citizens was more than 20 percent.

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This achievement was largely brought about without much effort on the part of the retirees themselves. The two strong supports of social security and company pensions have come together to give retirees a secure living standard. And since social security payments have been indexed to inflation (as are many company pensions), some retirees are even better off, because some inflation components -- home-purchase costs, for instance -- do not affect them.

While Americans can be proud of this accomplishment, they should not become smug about it. The next 20 or 30 years may hold as many bad surprises as the last few decades have provided good ones.

``We never knew 10 years ago where we would be today,'' notes Claire Longden, a first vice-president and financial planner with Butcher & Singer, a brokerage based in Philadelphia. ``We have no way of knowing where we will be 10 years from now. . . . For instance, there's a great disbelief in social security. I'm not sure it's going to be around in eight or 10 years. If I'm wrong, it's wonderful. If I'm right, it could be horrible.''

``Social security will be there in the next century,'' counters C. Arthur Williams Jr., professor of economics and insurance at the University of Minnesota. ``But it may be in a different form than at the present time. There are many financial problems that will have to be handled. The system looks secure, but it will have to undergo major modifications.''

Some modifications have already been made. Beginning at the turn of the century, the minimum age for receiving full benefits will rise two months a year until it reaches 66 in 2005, where it will stay until 2016. By 2027, when today's 25-year-olds will be reaching retirement, the minimum age for full benefits will be 67.

Some retirees have already seen one change: Married couples earning more than $32,000 ($25,000 for singles) must pay taxes on up to half their social security benefits. Income here includes money from investments and tax-exempt interest, such as from municipal bonds.

While Congress has made many efforts to keep the social security system viable, it has also taken steps that have added to the uncertainty about future company pensions.

When the Employment Retirement Income Security Act of 1974 (ERISA) was passed, for example, Congress required companies with pension plans to pay premiums to a federal agency for plans that fail. As a result, many companies have simply terminated their pension plans or made them unavailable to newly hired workers.

This has particularly hurt workers at newer small companies and pushed people toward larger corporations where benefits are more readily available.

``Large, old blue-chip firms are becoming very attractive places to work because of better benefits,'' says Mary Malgoire, a financial planner in Washington, D.C. ``They might have stock plans, pension plans, 401(k) [retirement-savings] plans. They're very attractive.''

A big concern for future retirees is, of course, the fact that there will be so many of them in the next century. As today's baby-boomers begin making serious retirement plans, they will have to consider that there won't be as many workers supporting them through social security payments. Instead of today's worker-retiree ratio of 3.3 to 1, it will be more like 2 to 1 in 2030.

Actually, Mr. Francese of American Demographics says, the situation will be more serious for what he calls the ``late boomers'' than the ``early boomers.'' By and large, he notes, the early boomers, born between 1946 and about 1955, have been able to buy their houses and have gotten most of the fast-track jobs that will lead to higher pay and benefits in the future.