PBS Frontline: Can You Afford to Retire?

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Hedrick Smith
Executive Producer
Wednesday, May 17, 2006; 11:00 AM

Executive producer Hedrick Smith was online Wednesday, May 17, at 11 a.m. ET to discuss the PBS Frontline film, "Can You Afford to Retire?" Members of the baby boomer generation, who enjoy a long life expectancy, could be facing a financial crisis in their retirement years. The impact of insufficient pensions affects not only individual spending power, but could harm the overall economy as well through a decrease in consumer spending. The trend in recent decades to shift the cost of retirement pensions from corporations to employees has altered the plans of many in the workforce who are eyeing retirement.

PBS Frontline's "Can You Afford to Retire?" aired Tuesday, May 16, at 9 p.m. ET ( check local listings ).

The transcript follows.

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Trenton, N.J.: On the Web site Frontline has good resources for young workers. How has this program affected the many young workers who produced it? It's pretty sobering for all of us. Yet more and more have lots of credit card debt and it's really hard to get started on long term retirement now.

Hedrick Smith: Good question. Everyone who worked on the show was deeply sobered by what we found out. Rick Young, the producer, who's in his mid-40s, was constantly talking about how he was going to have to beef up his retirement savings. Typically when the production team comes in from a day of shooting and goes out to dinner, the tendency is to change the subject and talk about other things - sports, the war, family - and so forth. But this time, almost every night, the talk was about what we had learned that day and what the implications were for all of us individually and for the country as a whole.

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Heber Springs, Ark.: In your opinion, which is better for a 55 year old considering early retirement-lump sum distribution or monthly pension?

Hedrick Smith: It really depends upon how much money you have in your account. Having a monthly paycheck come in for the rest of your life is extremely important. So it would probably be smart to put some of your money into an annuity, which is a way of buying a monthly pension check. That also depends upon whether you can do it through an employer-sponsored program where you could get a good price for the annuity. But it's probably also smart to keep some money in cash to invest it. But I would resist at all costs taking a lump-sum distribution because the tendency is to spend out too fast in the early years of your retirement. The advice of professionals is to take out no more than 5% per year and that will give you 20 years of distributions, and at your age, 55, you probably have more than 20 years life expectancy. If you want to get control of the money from your employer, then be sure to roll over some of it into a tax shelter such as an IRA. Otherwise the IRS will tax you on the whole sum and that will hit you very hard. To sum up: no lump sum; if you choose to take control, be sure to roll over into a tax-protected IRA; and try to put at least some of the money into a lifetime pension.

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Moorhead, Minn.: To help aging baby boomers see what life might be like, has any program been planned showing what it's like to live on Social Security, Medicare, and county assistance?

Hedrick Smith: That's an excellent question. Most places have it only in theory. I would press your employer very hard to get precisely that kind of information. You can also press the state government or county government from which you expect to get assistance. you can also try contacting the Employee Benefit Research Institute in Washington, DC, through their web page.

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Windsor, Calif.: Just finish watching this excellent program, and all working Americans should do the same. Hopefully it will be shown again or be able to purchase a DVD on the subject. I am one of the few that is retired (1992 ) with a defined benefits pension and a 401K plan also from my many years with Prudential. Thank you again Hedrick.

Hedrick Smith: Thanks so much for your comments. Our hope was that this program would be a wake-up call for people who need it and provide some helpful advice to the great mass of middle-income Americans. It sounds as though you are over the hump of retirement with the strong backing of a lifetime pension on top of social security as your base. Count yourself as one of the very fortunate.

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Columbus, Ohio: I'm curious about your personal reaction to the poor prospects for retirement for so many in middle America. Your professional circles has focused on the journalistic elite on the East Coast, most of whom have benefited from high salaries, high housing appreciation and wealth compared to others. Is part of the problem too because journalists for the most part haven't felt the pain of retirement woes? (I'm going to assume that your personal retirement plans are comfortably set).

Hedrick Smith: Yes, one of the difficulties in getting to the bottom of this problem is that the policy and intellectual elites, including corporate leadership, who are dealing with this problem, rarely have the same difficulties as the great majority of middle-income Americans. On Monday, I attended a meeting of 250 experts and policy makers who were showing slides to each other and making speeches about the intricacies of various retirement programs and options. From my reporting experience, a lot of what was being discussed would sail way over the heads of ordinary people. There was a disconnect. I showed a 10-minute segment from "Can You Afford to Retire?" with examples of ordinary people and their problems and it changed the tenor of the conversation in the room. So there is no question that policy makers, corporate leaders, pension consultants, and journalists too have to get out into the real world to at least see the pain of retirement woes before they start to prescribe policies and solutions.

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St. Charles, Mo.: How does the U.S. compare to other Western nations in regards to retirement plans for workers?

Hedrick Smith: In Western Europe, most countries have variations of the lifetime pension system for most workers so they are keeping the system that we are walking away from. In Australia, they have a system which combines elements of American-style Social Security for lower-income workers and a MANDATORY 401(k)-style system for the majority of workers. Mandatory meaning that employers must offer and contribute to the retirement system and employees must participate and contribute as well. By comparison, 50% of the American workforce is not offered any retirement plan by their employers. And of those who are offered a plan, roughly 25% do not choose to join. In other words, everything is voluntary, and that's one of the reasons our results are so perilous for most people.

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Chicago, Ill.: Do you think United could have stayed in business without cutting back its employees' pension plan? How could it compete with airlines like Southwest that have fewer employee benefits?

Hedrick Smith: What's interesting about the decision of United Airlines to cut its employee-pension plan is that American Airlines, which faced similar competitive pressures and rising fuel and other costs, managed to keep its pension plans. Where a United put constant pressure on its unions to make give-backs totaling $3.3 billion in wage and other concessions and then went on to cancel its pension plans, American sat down with its unions and worked out comparable packages of concessions from employees but kept its pension plans. So the American example indicates that a major airline can be competitive and can keep the pension plans. By the way, the same thing happened in the steel industry. Several steel companies such as Bethlehem and LTV said they had to cut their pensions in order to survive. But US Steel, facing the same global competitive pressures, have kept its pension system. Those 2 examples suggest that something other than the pensions is at the root of companies' troubles.

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La Plata, Md.: I am 53. I have $200,000 in a keough plan (HR 10) from a past partnership. I expect to get $1300 a month Social Security at 65. I will need $4000 a month to retire on. Do you think if I simply break even for the next 12 years, that I can expect that Keough plan to add another $200K by simple investment income? (it is in a stock market plan, half conservative and half mid-cap/aggressive). Will I be able to keep getting $4000 a month for the 20 years I expect to live past age 65? (I have no dependents and want to spend it all before I die). I want to relax and not work too hard for the next 12 years. Am I nuts?

Hedrick Smith: In the first place, let me congratulate you having saved up $200,000 in your Keough. That's a lot of money. In the second place, I'm not a professional financial advisor. And it sounds to me as though you would be smart to get one, because you really need somebody professional to do the actual calculations for you and work out a plan. This is not something that should be done off the top of your head, or my head, or on the back of an envelope. But you've got a great start - good luck.

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Ogden, Utah: This is the most stark demonstration of the galactic gulf between the mega-wealthy and the former middle class. While the working-age employee may be far behind his CEO now, a lifestyle of reasonable health, leisure, family support, etc. is possible. But in retirement the same folks will become the impoverished, the prematurely ill (and then dead), and ultimately completely exploited Americans no one ever expected to know.

Hedrick Smith: Certainly, one of my biggest concerns coming away from 6 months of work on this topic is the radical inequality between people who are making more than $100,000 per year and moderate-income Americans who are making $40,000-$60,000. Obviously, they start out planning for retirement from very different levels. But what is more disturbing is the evidence that when they start to run their own 401(k) plans, the gap between them grows wider and wider very rapidly. According to a 50-year pension benefit consultant like Brooks Hamilton, who has studied the numbers in detail, most of the middle-income earners will not be able to accumulate enough money to finance their retirement - unless something radical is done to strengthen the 401(k) system to give them much more help in planning and managing their investments, and unless employer contributions are significantly increased.

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Rockville, Md.: I find this whole question of when I can retire and how much money I will need impossible to figure out. If my house and car are paid off, can I just figure out what my current expenses are and use that as a guide to approximate what my expenses will be when I retire?

Hedrick Smith: What you've set out is a good starting place, especially since you have your house and car paid off - presuming you don't plan to move once you retire. But you ought to figure in a couple of other things. For one, if you live 20 years or more, the money you have now will be worth about 1/2 as much in 18-20 years due to inflation. Second, health costs are extremely high, even for people who have Medicare. Fidelity Mutual Funds recently put out a study that estimated that a couple living from age 65 to age 85 would spend $200,000 on health care on top of whatever Medicare pays for them. So my hunch is that it's probably smart for you to sit down with a financial advisor and take great care in doing the numbers.

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Washington, D.C.: Given the uncertainty in international money trading, should I be looking for an investment in something other than U.S. dollars, just in case dollar plunges in relative value to Euro, CN$ and Chinese yang(?). Any suggestions?

Hedrick Smith: Frankly, I personally make sure that some of my investments are in foreign securities or in international commodity portfolios that are independent of the US dollar. But that's a personal preference. I do not invest in currencies because it's so complicated and so risky. I would not attempt that without excellent professional help.

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Washington, D.C.: I have heard you comment that individuals do a poor job of managing their retirement funds on their own. Do you have a list or site where one can find a good money manager.? Where they are rated and evaluated.

Hedrick Smith: I wish I could give you a good answer, besides suggesting the yellow pages of the telephone book. If you have a brokerage account, or you have a lawyer, or you have a CPA who prepares your tax returns, you can ask them for several recommendations. And be sure they recommend someone other than themselves. It's like asking the front desk at a hotel where the best restaurants are and having them tell you that their own is the best.

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Princeton, N.J.: You say, "The advice of professionals is to take out no more than 5% per year and that will give you 20 years of distributions..." This is misleading. If you invest the money conservatively, you will probably make more than 5% and thus your money will last forever if you only take 5% out.

Hedrick Smith: In principle, you make a good point - that is, if you take only modest distributions of 5% per year, you have a good chance that your money will outlive you, which is the name of the game. But lots of people have invested conservatively in their 401(k)s and they have made a lot less than 5% per annum. So I don't think your numbers add up. Jack Bogle, the founder of the Vanguard Mutual Fund Group, told me that if you take the average growth in the stock market over the past 50 years and deduct the fees that you pay money managers to manage your funds, you will end up with about 5.5% growth per year over the long run - and that is not through conservative investing.

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Washington, D.C.: Great show. One point I'd like some more information on, however. Many of your experts said that the average workers, especially the poorer ones, made bad decisions regarding their 401(k) plans. But aside, from commenting about how they didn't invest enough or took out money when shifting jobs, the experts didn't really spell out what the mistakes were. Not diversified enough?... Too heavily invested in own company stocks?Could you be more precise?Thanks.

Hedrick Smith: The most common mistakes were investing in money market funds by people who were so scared at the prospect of managing their own funds that they picked the most conservative option, and their investments did not keep up with inflation. The second major mistake was being too heavily invested in their own company's stock, and buying when it was high and there was a lot of optimism about the company, and then having to sell it low when the company got in trouble. Enron of course is a classic example, but there are lots of other little Enrons out there that hurt people very badly. The main problems are insufficient diversification and the failure to pick age-appropriate strategies -- that is, more aggressive when you're younger, and more conservative when you approach retirement. But even then you have to invest for growth.

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Arlington, Va.: Good day. At what point in one's life does it make sense to obtain long-term disability/nursing home type coverage? I'm only 46, but I wonder if "getting it early" might offer some cost benefits in the same way that getting life insurance early may.

Hedrick Smith: I really don't know enough about the cost-age trade-offs in that type of coverage to know what's worthwhile. But you also have to reckon the opportunity cost of money that you put into that kind of insurance at age 46 not being available for an investment to finance the healthy years of your retirement. But you really need to talk to a specialist.

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Charlottesville, Va.: Why categorize the looming retirement crisis as one faced by baby boomers? Isn't the real crisis the one faced by children of baby boomers, who will be the ones who must support them? Children of baby boomers will be outnumbered by the baby boomers -- politically as well as demographically -- and will be saddled with supporting not just their own parents, but an entire generation.

Hedrick Smith: You make a good point. The retirement financial crisis will affect far more people than baby boomers, and certainly it will affect their children. Most of the retirees and near-retirees with whom we talked, said that they were extremely reluctant to have to depend on their children financially, or to think of moving in with their children. But the mere fact that they were discussing those issues indicates that some of them have already figured out that that is what lies ahead for them. So the children of baby boomers should take very seriously the consequences for them of the inadequate funding for them of the baby boomer generation. This is a huge economic problem for the nation, not just for individuals or individual families. Think about it for a minute - if retirees become 20% of our population and their purchasing power falls below what has been normal for retirees in the past, one important engine driving our economy will be diminished. Less money for retirees means less purchasing power means less economic growth overall. It's a big problem.

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Tyler, Tex.: My husband and I are in our early 50s and have been diligently working on saving through 401k's and IRAs, but it's difficult to determine just how much we will need at retirement given the rising health care costs and inflationary concerns. Do you have any suggestions on how to calculate (in general terms) what will be required upon retirement say in the next 10 to 15 years?

Hedrick Smith: You just asked the jackpot question: how do people figure out how much they need to support their retirement, and then how much do they need to save to build up that kind of nest egg. One way to get numbers is to contact the AARP or to go to its web site. AARP has workbooks and I believe worksheets on its web site that will help you do these calculations. You could also try contacting the Council for the Elderly and your employers. Another potential source is to contact the retirement plan manager - that is, the firm that is handling the 401(k)s for your employers. All of those sources should have basic worksheets to help you.

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Oakton, Va.: What would it take for an expert in retirement planning to become an activist in determining an optimal path to safe and secure retirement? Quite surely, it is easy to say that we need to plan, but every planner sets a different path, we are after all speaking of person A retiring and hoping to live until they are 90. Why is is it so difficult?

Hedrick Smith: One reason it's difficult is that we are all individuals and have our own individual standards and needs. Another reason is, no one knows how long you're going to live, and the amount of money you need is directly dependent on the number of years you live after you retire. So you need to work from averages in life expectancy from the year when you plan to retire, averages in health care costs for the age group of retirees, and average rates of inflation and investment growth depending on how you invest your money and where your assets are.

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Silver Spring, Md.: How do I talk to my mother about her retirement plans? She lives paycheck to paycheck and I worry that she has little set aside. Her employer offers a 401K, but I'm not sure she participates. She is 61 years old, and I don't think we will be able to retire, ever.

Hedrick Smith: I'm very sorry about your mother's predicament. If she has no 401(k) and no lifetime pension, she will be dependent solely on Social Security unless she works longer. So it's important to get her to do two things - one, persuade her to join that 401(k) right away because whatever money she puts in will be matched by her employer and that will be a financial gain for her. And two, make sure she maintains and improves her job skills because that will be the key to her continued employment. There are federally-financed programs to help train and re-train people to keep working during their retirement years. They are administered around the country by different organizations and I believe your area the organization is AARP. But you can call them. Also, try checking the web site for our program and look for appropriate links: Can You Afford to Retire?

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Dalton, Ga.: Here's a comment meant to provoke, from a very bitter 30-year-old: A 20 to 30 year retirement is a pipedream that will be achieved only by current retirees (members of the "greatest generation") and a limited number of baby boomers. The rest of us poor saps will go back to the pre-20th century bad-old-days, where people worked until close to death, then lived off savings and family support for a year or two. Why should we feel entitled to anything more?

Hedrick Smith: It's a sad society that willingly consigns its elderly to poverty, especially when other societies are doing better than that.

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Virginia: I think the biggest point to hit home was the statement when talking to the CEOs on whether they would allow their fresh faces to manage their personal 401Ks and there reaction was---"are you nuts?". that is the flaw in the system. Employers should provide professions to mange these accounts (without those annoying processing/transaction fees).

Hedrick Smith: That's precisely the point - the people who are making decisions about what benefits to offer and how to run the benefit plans do not face the same personal predicament as the employees who have to live under those conditions. Only if enough ordinary Americans speak up and demand better from both their employers and their government is the system going to get fixed. But first of all, we have to understand how serious the problem is.

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Arlington, Va.: Thank you for taking questions...I found your program to be very interesting. Since so many Americans are going to end up relying solely on social security in the future; and the program is expected to run out of money within a generation or so...what does that mean for so many? Is the New Deal dead?

Hedrick Smith: Certainly one of the strongest lessons I learned in doing six months of work on this topic was how absolutely crucial the Social Security system is for the great mass of Americans. The research of professionals and our own reporting convinced me that many millions of people are not capable of effectively managing the finances for their own retirement. It needs to be done by professionals, through pooled investments, with lots of other workers. Social Security is the foundation stone of that kind of retirement security. It not only needs to be strengthened in order to make sure it's there for younger baby boomers and Generations X and Y, but it probably needs to be strengthened and expanded because the retirement benefits now being offered by most employers are not sufficient to support middle-income Americans in their long years of retirement.

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Vienna, Va.: I'm sorry I missed the airing of the program. I desperately would like to watch it. I'm planning to retire in a small country in southeast Asia where the cost of living is a fraction of the cost of living in the U.S. Could you give some advice on that plan?

Hedrick Smith: You can find out when the program will be re-broadcast by clicking "check local listings" at the top of this page, or email Frontline at frontline@pbs.org to ask them to broadcast the program again. The program will also be streamed on our web site, Can You Afford to Retire? , starting tomorrow.

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Portland, Ore.: With an ever-aging population, what about work opportunities during retirement?

Will they be limited to professionals (like myself)? Or will all job categories see an older workforce?

Can working and earning money actually reduce other retirement benefits?

Hedrick Smith: Various organizations are starting to put considerable effort into categorizing and mining the work possibilities for people of retirement age. AARP offices in several states that we contacted have regular meetings with employers like Home Depot, local retailers, Wal-Mart, McDonalds, and various service organizations to try to link up the employers with retirees who want work, usually part-time work. It's usually much easier for people with professional skills to find work for themselves or even possibly to continue with their old employer, but on a part-time basis. Some labor economists predict that in about five years there will be a labor shortage in the United States and that demand for retirees to work part-time will grow naturally. I don't know if that's true or just wishful predicting.

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St. Charles, Mo.: You nailed it, Mr. Smith. It is a sad society that treats it's citizens the way ours does today. The irony is that the outrage isn't evident out here. We don't seem to care that CEO's feather their nests in ever increasing amounts, that they appoint their pals to boards which in turn determine their salaries, stock options, etc. I'm not happy to say that we have just the kind of government we deserve and they are truly in bed with big business.

Hedrick Smith: I appreciate your comment. You suggest, correctly I think, that it's going to take political action and perhaps a political movement, to change the situation. The issue of the pension gap has got to become visible and important to millions of people before Washington will respond seriously. Right now, everyone thinks it's his or her own problem and that individuals have to do better and save more. Of course, that is true. We all have to save more and take responsibility for our own retirement. But we have a huge social and economic problem on our hands. If the experts are right in their calculations, then we face the prospect of millions of people retiring into poverty from the American middle class in the years ahead. That has all kinds of social and economic consequences. We need to anticipate those and start tackling the problem in a constructive way, now.

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Des Moines, Iowa: Are there any good statistical resources you can recommend to show what different age groups have saved?

Hedrick Smith: You can contact the Social Security Administration, the Congressional Research Service, and the Employee Benefit Research Institute in Washington, DC and also probably the General Accounting Office. All of them have data on savings. In addition, the Federal Reserve recently published its latest report on individual savings and spending habits and results. All of them have web sites. You can probably get information on them from the web site for our program (Can You Afford to Retire?).

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washingtonpost.com: Thank you all for joining us today.

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