The collapse of the housing market–preciptated by a bunch of greedy people who drove a speculative market over a cliff–has opened up a gasping financial wound for the vast majority of people nearing retirement. Already devoid of any real, true pensions (meaning, defined benefit pensions that guarantee a specific amount of money that a person can count on), the evaporation of trillions of dollars in housing value has made it a near-certainity that a lot of people will enter retirement with little or no savings.

   So say the reputable folks from the Center for Economic and Policy Research in a new paper:

The projections show that the vast majority of families in these age cohorts will have little or no wealth by 2009 in any of these scenarios. In the first scenario, families in the 45 to 54 age cohort in 2009, who were in the middle grouping of the wealth distribution in 2004, will have on average just $113,600 of wealth in 2009, 26.2 percent less than families in this age group in 2004. In the second scenario, families in the middle quintile will have $97,600 in wealth, 36.6 percent less than families in 2004. In the third scenario, families will have $81,500, 47.0 percent less than families in the middle quintile for this age cohort in 2004. 

 

Families in the second wealth quintile are projected to have just $35,400 in wealth in 2009 under the first scenario and $22,700 under the third scenario. Even families in the fourth wealth quintile are projected to have just $250,200 in wealth in 2009 under the second scenario. 

 

These projections show that the cohorts just approaching retirement will have very little to support themselves in retirement other than their Social Security. This means that any cuts in Social Security and Medicare below current levels are likely to impose serious hardships on all but the wealthiest families.

 

   I love the CEPR people–except when they fall back on user-friendly terms like "cohort". Can’t you just say "groups" or some other non-statistical word? Anyway, more improtant, the overriding point is: we are screwed, thanks to the speculators and financial gurus and policymakers who saw no harm in encouraging the go-go chatter about housing prices.

   Then, there is this bit of sage advice:

Workers have a limited number of years during their lifetime in which they can accumulate wealth toward retirement. If they save little or nothing during a substantial portion of these years because they expect wealth generated by a bubble to persist and grow further, then they are likely to find themselves ill-prepared for retirement when the bubble bursts. 

 

These projections should highlight the importance of policies that combat financial bubbles. The policy of the Fed during the last decade, that financial bubbles should just be left to run their course, virtually guarantees that tens of millions of people will reach retirement with little or nothing to support themselves in retirement other than their Social Security.

   And for those who want to slash Social Security and Medicare:

The other point that should be apparent from these projections is that proposals for substantially cutting back Social Security and Medicare for those approaching retirement are unrealistic given the financial situation of those near retirement.

 

   Read the rest of the report.