Retirement At The End Of A Rope

Submitted by Doug French via Mises Canada blog,

“They were people with great dignity,” Ivo Costamagna said of his neighbors who committed suicide in 2013. Romeo Dionisi, 62, and Anna Maria Sopranzi, 68, hanged themselves after Ms. Sopranzi’s pension evaporated.


“People like Romeo would not accept charity or social service aid,” Costamagna told CNN. “Romeo just wanted a job.” But no jobs were available in the dismal Italian economy.

In what may be another case of research confirming common sense, a new study by Lancet Psychiatry links suicide to unemployment. Carlos Nordt, Ingeborg Warnke, Erich Seifritz, and Wolfram Kawohl crunched data from all over the world and concluded, “Suicides associated with unemployment totaled a nine-fold higher number of deaths than excess suicides attributed to the most recent economic crisis.”

In all four regions of the world studied “unemployment was related to an increased relative risk of suicide by 20-30%.  However the effect of suicide is stronger in countries with lower rates of rates of unemployment prior to the crisis.  The researchers found “in countries where unemployment is uncommon, an expected increase in the unemployment rate might trigger greater fears and insecurity than in countries with higher precrisis unemployment rates.”


In the U.S., while the headline numbers reflect an improving employment picture, the dismal recovery has millions of people giving up. Gallup CEO Jim Clifton penned a piece for his company’s website entitled “The Big Lie: 5.6% Unemployment” where he points out, “Right now, as many as 30 million Americans are either out of work or severely underemployed. Trust me, the vast majority of them aren’t throwing parties to toast ‘falling’ unemployment.”

Clifton explains that if you’ve given up in frustration and stopped looking for employment you’re not counted in the 5.6%. If you’re working part-time while wishing you were employed full-time you’re not counted and “If you perform a minimum of one hour of work in a week and are paid at least $20 — maybe someone pays you to mow their lawn — you’re not officially counted as unemployed in the much-reported 5.6%,” writes Clifton.

Clifton says only 44% of jobs in America are “good,” meaning employment offering 30+ hours of steady work a week. He writes, “We need that to be 50% and a bare minimum of 10 million new, good jobs to replenish America’s middle class.”

What makes all of this important is highlighted in the book Falling Short: The Coming Retirement Crisis and What to Do About it.  The average 401k and IRA for individuals nearing retirement only holds $111,000 according to the book’s authors.Charles D. Ellis, Alicia H. Munnell, and Andrew D. Eschtruth.  This amount will only contribute $400 a month to a retiree’s living expenses beyond what social security will provide.

The authors say we have three choices, accept that we’ll be poor in old age, save more now, or work longer. A generation of people who have been generally well off will have a hard time accepting poverty. The same generation is accustomed to borrowing to live the lifestyle they desire, while saving rates have dropped over the past few decades.  Working longer is really the only option–for those who can find work.

Retirement is recent development. The authors explain that until the end of the 19th century most people worked as farmers or shopkeepers until they could no longer manage it. “Well into the nineteenth century, about half of all 80-year-old men in America still worked.” If they did stop working it was because of poor health and they didn’t live long after retiring.  My father is a good example, self-employed as a barber until the day he died.

However, few people are their own bosses anymore in this industrialized and urbanized world. Plus, a tiny percentage of the population has accumulated wealth through the family farm. Rank-and-file employees have no equipment and land to sell to finance their golden years. “Retirement saving did not seem necessary because penalties for not saving were not obvious.”

It was private business that began offering pensions in the 1930’s and then the federal government started social security. Industrial and union pensions took the form of defined benefit plans, which are lifetime annuities. Employees didn’t contribute and didn’t have to make investment decisions. Whatever percentage of final salary the plan called for is what the retiree received.

The Great Depression depleted many of these plans and they were nationalized. Along with wiping out pension plans, the Depression “undermined Americans’ confidence in the historic tradition of self-reliance and the virtue of individual thrift.”

While social security began with a resemblance to private insurance, in 1939 amendments were made transforming the program “into a family-based economic security program and significantly weakened the link between lifetime contributions and benefits.”

The authors of Falling Short say those who retired in the 1980’s and 1990’s enjoyed a “golden age” in retirement programs. Half of private sector workers had defined benefit programs and Social Security replaced 40% of pre-retirement income with full benefits available at age 65.


Now defined benefit plans, existing mostly in the government sector, are severely underfunded and going broke. The city of Detroit being a good example. Most workers have to save through a 401k plan or an IRA, absorbing the costs of investment management, while become money managers themselves whether they know anything about investments, or have the emotional discipline to manage money. Employees “have almost complete discretion over investment and savings choices, bear all the market risks, and face the risk of either overspending and outliving their retirement savings or spending too cautiously and consuming too little.”

It’s now estimated Social Security will replace an average of 36% of earnings (less for higher earners) with the fund only able to pay full benefits through 2033.  After that payroll taxes will cover only 75% of commitments.  It’s likely benefits will be reduced further.

At the same time people are living longer, healthcare costs are increasing, medicaid is only funded until 2030, while risk-free interest rates are nearly zero due to central bank policies.  The average American only has $12,500 in financial assets outside of retirement plans with most wealth held in home equity.  And an unfeeling taxman intends to take more from Social Security benefits in the future. “Today, about 37 percent of households pay taxes on their benefits, and by 2030 that will increase to more than 50 percent.”

Ivo Costamagna said he had no doubt his neighbors took their own lives because of their economic difficulties.  Adding to the tragedy, Ms. Sopranzi’s brother killed himself by leaping into the Adriatic Sea after receiving the news about his sister.

Central bank interventions, which keep economies from properly healing, elongate recessions and high unemployment (whether measured by government statistics or not). While the tragic consequences of ZIRP, bailouts, and multiple QEs have so far been ignored, a tsunami of suicides are coming as the under-saved American baby boom generation faces the stark reality of having to work until they die to survive.

For the living, with no job and no savings, the only solution is, as Dionisi and Sopranzi demonstrated, a rope and the guts to use it.