Wikinvest Wire

Out with the thirty years and out

Monday, February 23, 2009

Last week's WSJ story by Paul Ingrassia about cushy retirement options available to workers at U.S. automakers showed up at MSN Money this morning. That's a good thing, because otherwise it would have been missed.

GM's Plan: Subsidize Our 48-Year-Old Retirees
Lots of taxpayers would like to get the deal UAW workers still get

GM's new restructuring plan seeks another $16.6 billion in government aid -- for now. Chrysler wants an additional $5 billion. The $30 billion that GM has either received or requested since December doesn't count the $8 billion it wants to develop fuel-efficient cars, and another $6 billion it's soliciting from foreign governments.

For these taxpayer subsidies, the government could buy hundreds of thousands of GM cars a month and give them to deserving citizens. Make mine a Corvette, please.
In a brief digression from the point of this story, why is it that these zany proposals are sounding better and better these days?

Buy up millions of cars and give them away to people who could probably use a new set of wheels or pay off millions of mortgages to make the financial industry solvent?

These ideas increasingly appear to be a better alternative than pushing more and more government bailout/stimulus money toward what appears to be a black hole.

Back to the story...
Before deciding what to do with Detroit's demands, uh, requests, government officials first need to confront a fundamental question: How could so many smart people produce such a disastrous result? Make no mistake, there have been many bright minds in the American auto industry over the years -- at the auto makers, the United Auto Workers union, and the components companies. Most of them saw today's troubles coming for years, even decades.

"I frankly don't see how we're going to meet the foreign competition," said Henry Ford II, then chairman and CEO of Ford Motor Co., on May 13, 1971, right after the annual shareholders' meeting. "We've only seen the beginning," he predicted. Regarding American's increasing preference for small cars, Henry II declared: "Mini car, mini profits."

That was a couple years before Detroit agreed to let auto workers retire with full pension and benefits after 30 years on the job, regardless of their age. In practice, that meant a worker could start at age 18, retire at 48, and spend more years collecting a pension and free health care than he or she actually spent working. It wasn't long before even union officials realized they had created a monster.

In 1977, UAW Vice President Irving Bluestone said he was "flabbergasted" that so many workers were retiring at age 55 or younger. "We were aware that the trend to early retirement was escalating . . . but we were surprised at the escalation in 1976," Mr. Bluestone declared. "It is astounding."

None of this is ancient history. The 30-and-out retirement program persists -- a sacred part of the inflated cost structure that makes it unprofitable for Detroit to make small cars in America.
While there are no easy solutions, particularly for those who were made promises that should be kept, generous pensions are a growing "wedge" issue between workers in the public sector and workers in the large non-unionized portion of the private sector.

After hearing so many stories about public employees in California making huge salaries and then "double-dipping" in one way or another in their later years, this growing disparity in retirement benefits is likely to come to a head now that unemployment in the private sector is racing toward levels not seen in decades.

Back when private sector wages were soaring and stocks held in 401k plans were making big advances, income for public employees lagged and "traditional" pensions looked dated.

Then, you could make a case for a more generous retirement system for public workers which, truth be told, is still probably a better way to go through life for most people - get used to a more modest income while you work, then get a stress-free retirement income that was just a little below your last salary.

But now, after public sector incomes played catch-up for years with no big drop-off in retirement benefits, the gap between public and private workers is tilted decidedly toward the former, a development that more people in the private sector will surely protest given the abundance of free time that many of them now have.

This may not end well.


donna said...

I would certainly rather see older workers being able to reitre than those holding entry level jobs just to get health care.

But then I have twenty something kids and know how tough it is for the kids to get decent jobs these days.

Seriously, we're going to need national health care just to get people to retire, just as social security was originally designed to move older workers out of the job market. Nobody remembers this, of course, but that's why it was started.

But, if you don't have 20 year olds in your family looking for work, I guess stories about people retiring at 48 will tick you off. Even though that is exactly what happens with military and government jobs all the time.

Anonymous said...

Or how about just everybody working?
Even if its just part time? Certainly doing what you are physically capable of as long as you can...

Back in the 50's and sixties most of us were predicted to die 10 or 15 year later, and that is what was factored into retirement cost.

Now we have talk of living to 150
(see the Barbra Walters TV special) and
the health care costs to make that happen are through the roof (forget about cost of food and housing even.)

The Jarvik heart, complete joint replacements, and 100$ of pills a day add up quick.... and folks still think its fair to retire before 65!

People need to get real!

Anonymous said...

noone lives until 150 now, and most people only live about 13 years after they retire (average lifespan).

Anonymous said...


in the United States, the average age at which individuals retired in 1910 was 74 years old. In 2002, however, the average retirement age was 62.

and from

Life expectancy at birth:

total population: 78.14 years

78.14 - 62 = 16.14 years of support
for the retired.

However please note how folks back "in the old days" just dealt with it and kept working until they were much older. But, that was well before the depression, modern "easy credit", and a national assumed sense of entitlement! If you want to know about working hard when you are old talk to a family farmer...
I think they can and will tell you about it, not to mention they will also do just fine (with increased challenge of course) through the upcoming crisis where anyone who expects an employment entity (some one else) to "take care of them" will have a much tougher time.

How do they say it... "easy come easy go" right?

Rudie said...

The problem with "life expectancy at birth" is that it is at birth. Life expectancy for a 62 year old new retiree is significantly longer than 16 years.

staghounds said...

This is crazier and crazier, now TheOne promises to halve the deficit.

What company makes the presses for the BEP? Because that's the stock to buy...

Anonymous said...

The wave of baby boomers that are at retirement age is just starting. Bad news for the finances of everyone issuing debt or equities -- companies, state and local governments who have promised pension benefits.

Bad news for investors, not to mention those who hoped to retire. When it rains it pours -- trite phrase but appropriate.

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