Was the recession good for the U.S.? Part 2: Pensions

Again I wish to start by saying many people were hurt by the recession, but I wish to discuss some possibly positive side effects.

There are many articles in the news about underfunded pensions. I live in a state where the counties negotiates pensions and the state pays them. It is not hard to see how that will lead to problems. The states have several choices:

1. Renege on their promises. Not every politician is willing to say what Governor Earl Long once said: “Just tell them I lied.”  It can be done subtly eliminating (or reducing) promised cost-of-living increases or paying slightly less than promised.  It can be done blatantly by requiring a needs test.

2. Tax current workers. If taxes are too high, many people will leave the state, cutting the tax base. Many retirees move after retirement anyway.

3. Convince workers to retire later. They still get their pensions, but they get them for a shorter time.

The recession is helping with solution 3. Of course workers who are currently working are, by definition, not part of the unemployed. But in a family with the wife a teacher and the husband who lost his job in the recession, the early retirement of the teacher is less and less attractive. Many families depended upon savings or home values to boost their retirement. The recession eliminated that cushion.

Also many retirees are caught between two generations. They expected the wealth of their aging parents to be part of their retirement. That wealth has been eaten into. On the other hand, they may have helped their jobless children. Another few years of working becomes more and more attractive.

There is also the motivation of caution. If I lived in California, I would not want to trust my retirement to the state. Another year or two of working would boost my social security benefits and add to my savings account. If enough people do this, the states may not be in quite as bad shape as predicted.

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