Thursday, March 24, 2011

Life Isn't So Plush for All Young Retirees

Supporters of Rick Snyder's plan to tax the pensions of Michigan retirees are trying to start some intergenerational warfare with their claim that many retirees are only in their 50s and therefore are better able to pay taxes on their pensions than older people.

This is a bubble that needs bursting.

First of all, many people forced into early retirement in their mid-50s were not happy about it. They were often planning to work several more years to build up their nest egg. Now, they find themselves living on a fixed income with far fewer reserves to fall back on than they had planned. On top of that, their smaller reserves are going to have to cover more retirement years -- maybe 10 more years.

Secondly, many retirees in their mid-50s still have mortgages to pay off. They likely expected to work until their 60s and to finish paying off the house by then. Now they have a mortgage payment, on top of the smaller savings.

Thirdly, it's not at all uncommon for people in their 50s to still have kids in college, maybe a couple. They expected to still be working when their children finished college. So now they have college tuition bills, a mortgage payment, and a smaller nest egg.

Fourth, many retirees in other years could easily find part-time jobs to supplement their income if their company fell on hard times and had to let them go early. But in this economy, employers are snubbing older workers, making that very difficult, especially when many companies are laying off at once. So these young retirees have limited ways to supplement their income, on top of the college tuition bills, a mortgage payment, and a smaller nest egg.

These people may be younger than previous retirees, but that does not by any means guarantee that they are better off. Their golden years may last longer but not be nearly as golden as Snyder wants us to believe.

1 comment:

kevins said...

You make a fair far as it goes.

I have sympathy for people forced into retirement because of layoffs, etc. However, there are people still working and who are paying taxes, so I think the issue is worth public debate.

On the other hand, there are plenty of public employees who have voluntarily retired at an early age because they have a sweet pension and health care benefit.

Here's an example from a real live person. This woman and her husband can retire today and their combined state pensions will be more than $80,000 annually. They would pay no state tax. Their daughter, a teacher making less than half that, would pay a state income tax. Does that seem right? (I admit this is a little skewed, since it compares two pensions to one salary...but there is still a point worth considering.)