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Retirement’s unraveling safety net

For newer generations in America, there is less faith in the idea of retirement security.
/ Source: a href="" linktype="External" resizable="true" status="true" scrollbars="true">The Washington Post</a

If it's a clear morning, you can count on seeing 80-year-old Junior K. Paugh strolling streets that tell his life story: Propeller Drive, Fuselage Avenue, Cockpit Street, Compass Road. He's been here more than 60 years, ever since aviation pioneer Glenn L. Martin put him to work making seaplanes and bombers at the defense plant down the road. Franklin D. Roosevelt was president and Martin himself walked the factory floor, urging on workers as the nation went to war.

Out of that perilous time came Paugh's now predictable world. He never is short of money, thanks to Social Security and his company pension that will last as long as he does. Health care costs him next to nothing, thanks to Medicare and retiree health insurance. His Baltimore County home is long paid for, thanks in part to a below-market price of $4,400, a result of wartime subsidies for defense-related housing construction.

"I feel completely secure," says Paugh, no small triumph for the third of 13 children born to farmers in Depression-era Appalachia. The triumph is not only his but also the country's -- the fulfillment of a New Deal vision of cradle-to-grave security, underwritten by the federal government and large industrial employers.

That vision is being supplanted by one President Bush calls the Ownership Society, in which the burdens of economic security -- and, the president hopes, the rewards -- shift back to individuals. Social Security is only one aspect of the shift. The safety net big companies wove for Paugh's generation -- long-term employment, pension security, retiree health insurance -- has been giving way for so long that its unraveling is mere background accompaniment to Washington's noisy debate over Social Security. But in the lives of most middle-class families, it stays in the foreground, inseparable from the Social Security discussion.

This becomes clear in the company of Junior Paugh, his three children, all in their fifties, and five grandchildren, ages 18 to 35. Their three-generation journey has taken them from Appalachia to suburbia, from government relief to an assembly line to a management track at Sears. Yet, despite the apparent progress, their expectations are sinking: The grandchildren, all three generations agree, have it worse than their parents and grandparents -- most dramatically in their prospects for retirement, when all gains and losses come home to roost.

Until now, financial planners have likened retirement security to a three-legged stool: employee pensions, personal savings and Social Security.

For the Paugh grandchildren, the savings leg is effectively gone, reflecting a plunging personal savings rate nationally. In place of Junior Paugh's pension, they have 401(k) plans, under which they -- not employers -- bear the risk and responsibility of investing enough for retirement. And under Bush's Social Security proposal, their promised benefit could drop significantly.

This is a new order with new givens. Paugh and his co-workers came of age as Democrats who felt protected by their union, their party and their government. His grandchildren are all registered Republicans who feel largely on their own in a world full of risks and responsibilities, and no guarantees. They are willing to give Bush's Ownership Society a try, saying they have no hope that government or employers can or will protect them.

The president is counting on the Ownership Society to do for the Republican Party what the New Deal did for the Democrats -- that is, make it the nation's majority party. For now, it is easier to measure what has been lost in security than has been gained in opportunity. But the grandchildren's story is only beginning.

The war generation
If childhood in Western Maryland's Deer Park community during the Depression exposed Paugh early and often to life's hardships, adulthood became one encounter after another with protections government and businesses were erecting against risks his parents had battled on their own.

Paugh got his first job through Uncle Sam, driving a truck for the Civilian Conservation Corps, the New Deal agency that put unemployed people to work preserving natural resources. By the time he went to Glenn L. Martin Co. in 1942, wartime wage controls had led most industrial employers to provide pensions and health insurance -- in part to secure their workers' loyalty in an exceptionally tight labor market.

Paugh's job even came with a home. The entrepreneur built whole communities to house his burgeoning workforce, which topped 52,000 in 1942 as military orders soared during World War II. The government subsidized the construction as part of the war effort, and Martin passed on the savings in cheap rent and later, low sales prices.

Initially, Paugh paid $19 a month -- including water and electricity -- for the house where he still lives at 108 Glider Dr. in Aero Acres, a subdivision built on a former strawberry field. Martin named every street for an airplane part (Left Wing and Right Wing drives had no larger connotation), and everyone lived in an identical 24-by-48-foot bungalow with a hallway, two bedrooms, a bathroom and a spacious living room.

Paugh went off to war in 1943, returning with a Purple Heart for shrapnel wounds in the Battle of Okinawa. He remained faithful to Martin, spurning other offers, including one from the Baltimore Orioles in the 1950s. A lanky lefty, Paugh was a star pitcher for the Martin Bombers, the company's standout industrial league team, but professional baseball had nothing on a factory job in his day. "No security," he explained.

Pitching for the Bombers was its own form of security. Martin was famously fanatical about baseball -- he built a verdant field on Eastern Avenue and Wilson Point Road, watching Bombers practices from the wing of a strategically parked airplane. When layoffs began after the Korean War, the Bombers' entire roster was exempt.

In return for this security, Paugh traded away some flexibility. In his days as a "CCC Boy," as he still calls himself, he got $5 of his $30-a-month salary, and the CCC sent the rest home for his parents and 12 siblings.

And he would have received only a small fraction of his $920 monthly pension had he not spent his entire career, 41 years, with one employer -- an arrangement dubbed the "invisible handshake." The pension is 40 percent of his retirement income; Social Security pays him $1,373.

Nor would Paugh have retired with lifetime health insurance, under which he pays only $2 for prescription drugs. Because of rising health care costs, retirement experts say, employers now pay as much or more for retiree health insurance -- which supplements Medicare -- as for pensions.

Another important feature of Junior Paugh's retirement security is his thrift, which was bred into him. "We saved and saved and saved," he said of himself and his wife, who died 10 years ago. Paugh is what his family calls "tight," and proud of it. He does not turn on lights until the afternoon sun all but disappears. "Hey, I'm paying for that," he cracked one day when son Doug stopped by after work and flipped on the living room light. He'd rather sweat than use air conditioning, turning it on only when his children and grandchildren visit. ("It was 110 degrees in the South Pacific and we still won the war," he said.)

In Paugh's day, only the wealthy invested in the stock market; Paugh put his trust in Uncle Sam through the "bond a week" savings plan. He also opened an individual retirement account in the early 1980s, with bank interest rates at 15 percent. Last year, the rate fell below 1 percent. His disappointment with IRAs makes him dubious of young people's faith in the stock market -- what goes up, he warns, can come down.

At a recent monthly meeting of the Retirees Association of Martin Marietta, Paugh sat with seven former co-workers whose life experiences were almost identical to his: All 80 or older, all sitting pretty on three-legged retirement stools, and all worried about how their children and grandchildren will get by in old age.

"They spend their money before they make it," Ed Dorsey, 82, said of his children. "I say, 'What do you have for retirement?' They say it's a long way away. But they're all in their fifties!"

All said they regard Social Security as indispensable, and all said they know it cannot sustain their descendants in its current form.

"We're the generation that beat the system," said Elmer Sanders, 83. "Social Security didn't count on us living this long. I tell my wife if I have a stroke, and they put me on life supports, just don't unplug me. If I'm still breathing, the checks keep coming."

The boomers
For the children of Junior Paugh -- Kay, 56, Doug, 54, and Dan, 50 -- the Social Security debate is only the latest reminder that nowadays few things keep coming.

Doug and Dan followed their father into the Martin company, which became part of Martin Marietta and then Lockheed Martin until their division of about 700 workers was sold to General Electric Co. several years ago. Now named Middle River Aircraft Systems, still housed in the hangar where Junior Paugh worked, it manufactures thrust-reversers for commercial airplane engines. Dan is a senior buyer; Doug is a painter.

Unlike many who started out with them, the brothers have survived all the reorganizations, and still have the prospect of retiring with full pensions and lifetime health insurance, like their father. Typical of companies that still provide these plans, theirs conditions full benefits, which include health insurance for life, on more than 25 years of service -- a tenure common in their father's generation, an anachronism in theirs.

"I know we're the fortunate ones," Doug said. "My kids definitely won't get anything like this."

It is not certain that they will either; they know of others who got caught short. Dan had a counterpart in purchasing at the Boeing Co. who had 20 years of service when her division recently was sold to a Canadian company. Her pension benefit was frozen, a 33 percent reduction from the full benefit, and she became ineligible for retiree health insurance. Dan's wife, Joyce, took the same hit in 2001 when her job at Lockheed Martin was eliminated after 21 years. She has since found work at a machine shop, but without a comfortable pension, she said, "It feels like I'll have to work till I die." Last week's news that United Airlines can terminate its pension plans in the largest corporate default in U.S. history sounded to them like more of the same.

So Social Security is hardly the biggest worry.

"As I understand it, people my age could end up getting less than we expect from Social Security, but not too much less, so I feel that it will be there in some form for me. It's not like the government will sell you out," Dan Paugh said. "But a company could. As a middle-class person, this scares the daylights out of me."

Their dream, the brothers say, was to do as well as their father: a good job, good wages, a nice-enough house, a family trip now and then. And so far they have. They may even have a similarly secure retirement, buoyed in part by their ballooning home values. Dan's house in Essex has more than tripled in 20 years; Doug's in Cecil County has doubled in five.

Although they and their wives have been contributing to 401(k) plans for 20 years, the brothers say they would not have enough for a comfortable retirement if not for their homes. They may sell them and downsize.

They face a major savings challenge that Junior Paugh didn't: providing for grown-up children. While Junior had 15 years of peak earnings with no child-rearing expenses, Doug has three children, ages 18 to 24, still at home, along with one 4-year-old grandchild. And Junior's daughter, Kay Cody, at 56, is raising her 15-year-old grandson for her daughter, Pamela Cody, 35, a supervisor for a Towson answering service who says she barely can pay her own expenses.

Kay Cody knows the ownership society well, ever since her pension was converted to a 401(k) in the 1990s, forcing her to learn to manage her own retirement savings.

"Growing up, we didn't focus on stocks and mutual funds," she said. "But when they explained the 401(k) to me, I thought, 'That's a darned good idea.' I made sure I understood and kept track of it. Since then, I've taken finance classes, and now I'm on our committee here that monitors how we invest our funds."

In 1996, she suffered a much bigger blow to her security when her husband, a union construction contractor, died of Lou Gehrig's disease. In the process, Cody has learned to tolerate significantly more risk than her father had to. The 2001 stock market plunge following the Sept. 11 terrorist attacks posed no threat to Junior Paugh's pension check, for example, but it savaged his daughter's 401(k) balance. While her funds have mostly recovered, Cody said, "my biggest fear is what if we're hit again and go into another slide?"

Always frugal, she became even more so after her husband's death. Her home in Essex paid for, she put herself on a budget, with a goal of accumulating $5,000 in savings, "in case the washer broke, in case I needed new tires." She created a separate bank account, paying into it from each paycheck, even before buying groceries. When she reached $5,000, she said, $10,000 sounded safer. She passed that, and is still going. She also invested her husband's death benefit and insurance in mutual funds, and invests in a growth fund for her grandson. But she said that her 401(k) and savings amount to $114,000 -- far short of the $400,000 a financial adviser told her she will need to support herself in retirement.

Her job as an administrator in a medical practice reminds her daily of other risks. Unlike her brothers and her father, she has no expectation of retiring with lifetime health insurance. "I'd like to be like my father and never be sick or have medical needs, but if I'm not, I see every day that Medicare doesn't begin to pay for what health care costs," she said. Her father-in-law, a Bethlehem Steel Co. retiree, lost his retirement health insurance when the company declared bankruptcy, and he had to pay thousands of dollars when he needed a pacemaker, she said.

Amid these rough waters, Social Security represents an island of stability. At 56, Cody is not likely to face benefit reductions, since every proposal so far exempts people 55 and older. But while she supports Bush's call for private accounts, she said she worries more about the system's long-term solvency.

"It does give me huge peace of mind to know I won't have to think about what I have to live off when I'm a certain age," she said. "But of course I worry what will be there for my children and grandchildren. Sometimes I think things look as bleak for them as before Roosevelt started all this."

The grandchildren
One measure of the unraveling of old-fashioned retirement security is that the younger generation of Paughs does not even expect to find it. "Security to me is about having options in case something happens," says Jessica Paugh, 29, an assistant manager at Sears in the Harford Mall in Bel Air.

Daughter of Dan and Joyce, she says she lost confidence in the old order when her mother lost her job of 21 years. "It was heartbreaking," said Jessica, who is now a convert to the Ownership Society. "Now, every day a company is buying another company. So I figure if this works out, great! I love my job, but it could change, and I'll adapt."

Indeed, the Ownership Society looks much like a Sellership Society from the younger Paughs' encounters with it. Sears was sold last spring to Kmart, with potential implications for Jessica. Her cousin Pamela Cody took a cut in benefits when the locally owned answering service where she worked was sold to a national chain. And Jessica's father and uncle know only too well that GE could sell their division, just as Lockheed Martin sold it in the 1990s. Dan Paugh recalls the response of a Lockheed Martin official to workers' surprise about that sale: "For the right price, my best hunting dog is for sale."

In Junior Paugh's day, when experience was valued on the production line, cradle-to-grave security and loyalty to one employer made sense for companies and workers. But for the younger Paughs, who have watched jobs, capital and products cross borders ("Our payroll operation is in India!" Doug exclaimed), the invisible handshake can seem like handcuffs.

Doug's daughter Lindsay, 21, recently left a job as a bank teller to work for a rival bank that offered a raise and promotion, but she forfeited three years toward a pension. The pension was not a factor, she said, because if she hadn't left now, she was certain to leave later. This remark led her mother, Melanie Paugh, who has worked 13 years for BMW, to close her eyes momentarily, as if to steady her spinning head.

"Today, if kids see a $10 raise, they jump," she said. "We were raised to stay put."

Jessica accompanies Junior Paugh to Martin retirees' gatherings sometimes, and loves meeting his former co-workers, but cannot believe that all these years later these men still talk about their old company. "They still care about what goes on there -- it's just really hard to imagine," she said. "For me, a job is where you work."

Retirement experts say the three-legged stool has only two legs for Paugh's grandchildren's generation: Social Security and 401(k)s, which are like a merger of pensions and savings. Jessica's position at Sears comes with a 401(k) into which she tried to put 7 percent of her paycheck, although she said she recently cut back to 3 percent because she couldn't pay her expenses. "If I didn't use my credit card, I wouldn't have eaten some weeks," she said.

Jessica is the only descendant of Junior Paugh to go to college so far. Her parents didn't give her a choice. "They raised me to see college as inevitable, part of being prepared," she said. "Skills are the key. It's in the job description for my position -- you need a college degree." Yet another child-rearing expense Junior Paugh did not face.

If Jessica's career goes well and the stock-market cooperates, she could end up as secure as her grandfather is in old age. But for now, even with her recent promotion to assistant manager (salary: $26,000), she and her parents are not counting on it. Her 401(k), now with a balance of $6,000, could reach $308,000 by retirement, according to a calculation provided by the plan, but this is well short of what economists say she would need. She said she hopes to invest more and see more gains.

"I check my balance online every other week," she said. "I have half the money in safe investments. With the rest I'm taking risks, just saying, 'Go! Go! Go!' "

Jessica said she believes firmly she never will be able to afford a house. Her cousin Pamela, who rents an apartment with her husband in Harford County, says the same. And her three younger cousins -- Doug's children -- have yet to move out on their own. As their parents see it, this is another wobble in the next generation's retirement security stool.

"We did as well and in some ways better than our parents," Melanie said. "I don't see how our kids will."

But Jessica and Lindsay, for their parts, are too optimistic to imagine things won't ultimately go their way, and too young to imagine ever being old.

"In my mind, right now, retirement is a myth. It may exist, but I can't see that far. I have my 401(k), so I'm preparing," Jessica said.

Pamela, the answering service supervisor, sees it differently. On a recent day, when Pamela's 11-year-old Ford Probe broke down, Junior Paugh made the hour-long drive to pick her up and take her to work. A starker contrast in two people's relationship to their government and employers would be hard to conjure.

Here was Junior Paugh at the wheel of his silver Buick LeSabre, having moved out of poverty, into the middle class, and now a secure retirement, with the help of one employer and his government. And here, only two generations behind him, sat Pamela Cody, feeling abandoned by everything her grandfather valued.

"I see how my grandparents were able to get by, but my husband and I just struggle from paycheck to paycheck," she said. "I don't have a pension and I'm not expecting Social Security to hold up long enough for me. Where is all the government's money going? Who is it benefiting? Nothing is benefiting me."