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Retirement Planning > Saving for Retirement

Detroit: A tough lesson in retirement savings

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It’s sadly ironic: Back in 1930, famed economist John Maynard Keynes predicted the American workforce would work just 15 hours a week, due mostly to technological innovations that created a world where we depended less on labor intensive, time-sucking methods of production and more on computerized machines. Julian Huxley, an evolutionary biologist, shared that same sentiment the very same year, calling a future with two-day workweeks “inevitable.”  He wrote in the New York Times on November 17, 1930: “The human being can consume so much and no more. When we reach the point when the world produces all the goods that it needs in two days, as it inevitably will, we must curtail our production of goods and turn our attention to the great problem of what to do with our new leisure.”

That seems laughable now.

Since the 2008 economic crisis, most of those that still have jobs are working longer hours and longer into their golden years just to make ends meet, never mind a cushy retirement package. But at least there are jobs to be had in some parts of this country—a land of employable beings, yet one that hovers around 7.6% unemployment.

But how can I complain, really? At least I don’t live in Detroit—a city on the last legs of life support. In addition to serious unemployment woes, the city has experienced a 35% drop in home prices during the past three years (the average cost of a house is now $40,000), along with the highest crime rate in the country. Adding salt to a long-infected and festering wound, Forbes recently awarded Detroit the number one spot on its list of America’s most miserable cities for 2013. Ouch.

By the time August rolls around (if not sooner), I predict Detroit will have declared bankruptcy, making it the largest U.S. city to ever do so. And though that filing may save them from the teeth of some creditors, it’s hard to imagine how this will truly help them in the long run.

If Detroit files, how will they ever re-enter the credit markets? Might they never? If not, there will be no funds for infrastructure—the underlying foundation of any working system or organization. And without these vital components of urban life, a city in uninhabitable. 

And let’s not forget the city’s pension crisis.

The city has a $380 million deficit and long-term debt nearing $17 billion. The city’s retirement system is responsible for a significant portion of the debt problem and is grossly underfunded by $3.5 billion. As part of Detroit’s salvage plan, Kevyn Orr, the city’s emergency fiscal manager, plans to cut pension benefits, which cover about 30,000 workers and retirees. This, understandably, has union leaders up in arms. As of this writing, there has been no decision as to what to do with the pensions, but either way the hammer falls, there will be repercussions, and there will be money lost.

As the editor-in-chief of this publication, Bill Coffin, recently stated, “Every time there is a pension crisis, I imagine another 10,000 annuities get sold.” If only that was the case.

Never count on your employer to fund your retirement; there’s no guarantee the money will be there when you’ve finished your years of 9-to-5. Though the practicality of a 2-day workweek may be unimaginable these days, the reality of saving for retirement on your own terms doesn’t have to be. 


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