Hard work may not be enough

By Annys Shin
Washington Post

WASHINGTON — Pamela Ginsberg was once invited to a bar mitzvah by a customer and danced the hora in the family circle. At the grocery store where she works as a butcher, she has blanketed part of a wall behind the deli counter with photos and hand-scrawled notes from children she has treated to slices of turkey. When she serves customers, she stands beneath a flying wooden cow and pig — gifts from a man who could not get enough of her corned beef.

Pamela Ginsberg loves interacting with such regular Brookeville Market customers as Pamela Wexler and her son, Seth Kahler. But, at age 41, she realizes she's not making enough to retire comfortably. Nikki Kahn • Washington Post

"It's my life," said Ginsberg, who is the store's kosher and specialty foods buyer. "These people are my customers, but they treat me like family."

But no pension or 401(k) plan comes attached to her job. She is 41 and has $7,000 in the bank. Her annual salary of about roughly $40,000 might seem reasonable for a single person with no children, no car and no debt, but increasingly Ginsberg frets about what her finances will look like when she stops carving cutlets.

She has reason to be concerned. A review of Ginsberg's finances by three financial planners indicates that she needs to make big changes right away, cutting her few indulgences, and investing as much as possible. Even then, they say, she is likely to run out of money and be dependent on Social Security.

Since President Bush outlined his plan to partially privatize Social Security, Ginsberg said, she has followed the debate attentively, aware that she is in the age group most likely to be caught in the middle — too young to be protected from benefit cuts, too old to fully bounce back if private accounts don't generate the expected returns.

"I've read everything I can get my hands on," said Ginsberg, noting that her perceptions about retirement were shaped by seeing her mother live comfortably on Social Security and a veterans pension after her father died. "I grew up thinking I would have Social Security to live on."

According to her latest Social Security statement, if Ginsberg continues working until age 65, she can expect to receive $950 a month, just shy of today's average monthly Social Security benefit of $955. That is enough to cover the rent she currently pays for a one-bedroom apartment in Adams Morgan, but it would leave her short for food, utilities and other necessities.

Retirement planning, Ginsberg acknowledges, has suddenly become an urgent matter.

In that she is not alone. As of 2001, a federal analysis of households with at least one worker from age 21 to 64 concluded that 28 million — more than one-third of the total — did not have any retirement savings account. The study, released in 2003, relied on Census Bureau and Federal Reserve data.

From now until she retires, Ginsberg and millions of others may be asked to absorb the benefits cuts and tax increases many experts say are necessary to ensure the long-term solvency of a Social Security system projected to fall short by 2041 of money needed to pay 100 percent of expected benefits.

What do financial planners say Ginsberg can do to retire comfortably? Would Bush's proposal allowing people to invest some Social Security payroll tax in stocks and bonds help her?

Mary Malgoire, of the Family Firm in Bethesda, Md., and Stuart Ritter, of T. Rowe Price in Baltimore, came up with general advice. Alexandra Armstrong and associates at Armstrong, MacIntyre & Severns in the District ran detailed projections based on three scenarios.

All three agreed Ginsberg must make changes now if she wants to maintain her standard of living in retirement. Though they estimated she has only $7,000 in disposable income each year, after taxes, rent and utilities, they said she needs to begin saving and investing in the stock market.

She is free of debt and can eat many of her meals at work, so they advised her to tuck away at least 10 percent of her income each year. Malgoire suggested she immediately put $6,000 of her savings into a high-growth equity mutual fund.

They disagreed, though only slightly, on whether a private Social Security account would make much difference for Ginsberg.

Ritter said there are too many variables to say for sure, while Malgoire and Armstrong said it's unlikely to help much, if at all.

"Social Security, as inadequate as it may be, may be the only sure income stream for Pam at her retirement, and I would not recommend that it be subject to the risks of the market," Malgoire said. "It is just not true that every 20-year period in the markets has been a positive experience for investors. Perhaps the government would like to offer a guaranteed 4 to 5 percent return on these accounts. Then I could consider this option for Pam."

Armstrong cautioned that even if she makes sacrifices, saves steadily, and earns a good return on her money, Ginsberg may run out of cash before she reaches 81, the current life-expectancy for American women.

Even with private accounts factored in, Armstrong projected Ginsberg would run out of money between 76 and 78, leaving her to survive on her Social Security check alone.

On a recent evening, Ginsberg digested the planners' recommendations over a cocktail and a bowl of bisque at a French restaurant a few blocks from her home.

"What am I going to do about it?" she said. "I'm just one tax-paying citizen. ... I will have to think about (retirement) more than I have. I mean, hindsight is 20-20 right? All the money I've blown ..."