Wednesday, December 7, 2011

The New Realities About Retirement are Slowly Sinking In

Giving credit where credit is due, the USA Today, which I admittedly have mocked over the years as "McNews," has actually been doing some decent reporting about the economy lately. Case in point was a somewhat lengthy article that appeared on Monday entitled, "Many Have Little Savings as Retirement Looms." The article starts off with a good summation of the financial pressures being placed on older Americans as they approach their retirement years:
For many Americans, the golden years are quickly taking on a tin-like hue.

After a vicious decade of no growth for the stock market, including two 401(k)-eating bear markets and persistently sky-high unemployment, more Americans are finding themselves in their 50s and 60s with practically no money saved for retirement.

"We were in our 30s, blinked, and now we're our parents' age," says Alan Tipps, a corporate jet pilot who typically earns more than $100,000 a year when he's working. But Tipps, 52, has been laid off three times during the past four years, and says that has forced him to burn through what was in his 401(k) just to "keep the lights on" in his home in Portales, N.M.

Investors of all ages have suffered. But for those close to retirement, it's been especially tough, because they're faced with taking distributions from investment portfolios that in some cases are a fraction of their peak value. Forced early retirements and the near extinction of pensions are making things worse, creating a generation of aging investors in which some have little or no plans for how they're going to pay for retirement.

It gets more ominous, given the other changes Americans are facing. Declining property values have drained home equity that many retirees might have counted on. Meanwhile, the number of people reaching retirement age is soaring as the Baby Boom generation ages.
That sounds an awful lot like the things I've been saying around here, actually. But what really struck me is some of the quotes from people interviewed for the story who are belatedly waking up to the new realities. For instance: gee, what happened to those magical 10% annual returns in my 401(k) account I was promised?
The people Redmond encounters most who are lacking sufficient retirement savings weren't necessarily delinquent or negligent. Many had money saved but were wiped out by the sour stock market in the past decade and poor investment strategies, Redmond says.

That's what happened, in part, to Robert and Connie Cabana of Tampa, who are both in their 60s. Robert built up a sizable 401(k) working as a financial executive at Verizon. Connie was a business assistant for a local irrigation supply company. Connie was laid off four years ago; Robert was let go three years ago.

But the serious hit to their retirement, which wiped out half their 401(k) savings, resulted from the stock market and an overexposure to risky stocks, they say. Now, 75% of their 401(k) is gone, and they have "very little" left, Robert says.
Here's another one: oh, you mean I can't just blow all my money like there is no tomorrow and have Social Security there to take care of me when I get old?
Baby Boomers, in contrast with their Depression- and World War II-era parents, who typically were good savers and had company pensions, have looked at savings as a downer, says Chris Olsen, 49, a financial planner with Ameriprise.

Many people now in their 50s and 60s with no savings figured they could lean on Social Security for their retirement, he says. In reality, Olsen says, Social Security payments are far from adequate to fund skyrocketing health care costs. The payments also are losing purchasing power relative to inflation, he says. Social Security, in practice, pays for only about 40% of most retirees' needs, says Paul Jarvis, financial adviser at State Bank & Trust in Fargo, N.D.

"I always made a lot of money. I always spent a lot of money. I've done whatever I wanted to do," says Paul Conlin, 53, a contractor in Liverpool, N.Y., who says he has less than $50,000 saved for retirement. "I live for the moment. When I want to do something, I do it."

But after consulting with a financial planner, Conlin, who is married and has three children, is starting to put money away for retirement. He's saving $6,000 a year in a Roth IRA, "and it's growing," he says. "I've changed my habits."
And finally: what do you mean I have to "lower my expectations?" That's un-American.
Perhaps the most likely option for many is doing an extreme makeover of their finances and slashing costs. Olsen and Jarvis have both seen retirees with little money sell their homes in costly parts of the nation and move to less expensive places. Others forgo many of the things Americans dream of doing during retirement, such as travel.

There's no guarantee that even such extreme measures in retirement will help Americans recover from a lifetime of not saving. Making such sacrifices now creates worries many Americans would rather avoid at this stage in their lives.
Nevertheless, these people have still not completely unmoored themselves from business as usual:
Connie Cabana cautions young people to learn from her predicament. "Young people need to start saving as soon as they start working," she says. "There are roadblocks you don't see when you're young. You think money will always be there," she says. "But with life, you need to make provisions."
Clearly, Ms. Cabana has no idea what it is like to be a young person these days. In order to start saving money for retirement you actually have to be able to earn decent money in the first place. As many of the millions of Occupy protesters could have told her, that is becoming nearly impossible these days.

What this article really demonstrates is how the desperation is building up out there, not just among young adults but all segments of society. My theory is that the U.S. is about one more severe market crash away from massive instability. Propping up the stock market has been the elites' way of trying to pull the wool over enough people's eyes to keep things relatively calm. It may not work for very much longer.


  1. Truly, you blink and 20 years are gone.

    We are blue collar people without pensions, nearing 60. Our personal retirement investments have netted next to nothing over the period of the last 20 years. We do not own a house. (a good thing, yes?)

    Currently every extra penny of our income is going to put our son through college, which we are paying for with earnings (no_student_loans). I have been just laid off my job for the fourth winter in a row. We do not own a car.

    We will have to retire outside of the US, not sure where. We cannot afford to stay in America. We are priced out.

    We will be a new breed of refugee--American retirees looking for haven abroad where our puny retirement will support us.

    How was I to know back in my 20's the whole world would go to hell in a handbasket just as I got old?

  2. "My theory is that the U.S. is about one more severe market crash away from massive instability." I doubt this is limited to the US.

    Meanwhile ERCOT is attempting to handle the generation shortage by increasing the number of customers paid to shut off their energy use

  3. I know so many people (my parents included) who are moaning that they "lost" so much money in the stock market. Since I've never had enough to spare to put into the stock market, I guess I was lucky. But frankly, I haven't been able to understand how you can "lose" money you never actually earned.

  4. I get a little annoyed with writers, like the one quoted here, that talk on hand about the tanking of pensions, 401ks, housing equities and on the other about the Boomer's supposed "failure" to save for retirement.

    The real story here is that most Boomers DID save and invest for their retirements, and now are left with next to nothing through no fault of their own.

    I know it's fashionable to paint Boomers as irresponsible wastrels fiddling the summer away like the grasshopper of the fable. And I'm quite sure painting that picture suits the purposes of those who have a vested interest in covering up the looting of an entire generations life work and savings.

  5. College. As if there's a return on that investment anymore for American citizens. It's sort of amusing to see the reaction to the reality of the fact that 90% of the degrees granted today are as worthless as a Greek bond from the kids who were suckered into ponying up debt to pay for their "BS" in "critical thinking," as opposed to those who's daddy and mommy paid the tab - and are now facing destitution.

  6. This really annoys me:
    "Declining property values have drained home equity that many retirees might have counted on. Meanwhile, the number of people reaching retirement age is soaring as the Baby Boom generation ages."

    The Baby Boom Generation (which could otherwise be called the Locust Generation) counted on home equity for retirement. Didn't they realize that in order for your house to be worth an extra $200k, someone would need the ability to buy it for that much more? All that generation has ever done is make it harder on the younger generations to earn a living wage. Today's kids can't even get an interview from a Baby boomer with a semi decent job opening. Forget starting a career, these kids need to come out of college with 5+ years of professional experience to even get an interview.

    So with all of these youngsters clearly pushed out of the market, where was this magical money supposed to come from? And really, how long have experts been sounding the alarm bells about Social Security? 30 years? If you don't see a train wreck coming with 30 years of advanced knowledge, don't expect me to feel sorry for you.

    You know, I get that it isn't the individual boomer who is to blame, but as a group you all got the very best of this country. You got the cheapest property, livable wages, cheap college tuition, the ability to raise a family on a small budget, pensions, the ability to work for a company for 20 years and climb the corporate ladder, etc.

    My generation can't afford real estate, paid an enormous sum for a college degree, make far less, have to put off having a family practically to the point of never being able to have children, no pensions, work full time as freelance since no company wants to pay benefits (in my case, no paid days off, holiday pay, or sick pay for full time 45+ hrs a week, in many cases working on weekends as well), are completely expendable, have no job growth potential, and might as well forget completely about getting any social security or medicare when we finally retire. Oh yeah, and in my case, I'm lucky I even have a job. For many others, they don't even have that.

    Sorry for the unbridled rage, but I'm tired of hearing Baby Boomers complain about how bad they have it. They made their own beds here. I wish we even had that opportunity.

  7. Hey Bill, BillFromPennsylvania here. I read a lot of your posts, and noticed I can now comment without logging in; I like that:)
    On topic, I can attest to how hard it is to save money. Ya gotta be able to make enough of it first before worrying about having the discipline to save some of it!
    Keep up the excellent writing!

  8. I don't quite buy the "you have to make enough money to save any". That might be true for people who don't even have enough money to pay for food and basic shelter, clothing and transportation, but anywhere above that level you can make a choice to save if you are willing to sacrifice.

    I personally know a lot of people who tell me they can't save on their income, who yet have smart phones, expensive laptops, satellite TV, newer cars, expensive clothing and furniture and who think nothing of paying $5 for a cup of coffee every day.

    Make your own coffee, dump the smart phone and gadgets, make do with hand-me-down or used furniture and clothing and you can save. Problem is, you might save only to find some market swing or bursting bubble stole it all away from you anyway.

  9. Anonymous said
    "How was I to know back in my 20's the whole world would go to hell in a handbasket just as I got old?"

    I'm a little younger but I remember Jimmy Carter warning us about oil, I remember the Club of Rome report, I remember the two great oil crisis of the 1970s. The bell rang loudly many times back in the 1970s. Most people just hit the snooze button and went back to sleep listening to the snake oil lullaby of Regan and Thatcher.

    I was poor most of my adult life because I rejected the conventional wisdom, now at 48 I live in a passive solar house, have a garden full of food, ample free firewood, work as a musician, can feed my kids with ease, have no debts and am part of a strong community where I know everyone. I work hard but I live well on very little resources and have mastered several trades that I hope will make me a useful member of the community until I die.

    I feel sorry for members of my generation who bought the Regan snake oil, but it was always stupid to imagine that you could get rich and live a life of ease on investments that didn't actually generate any real wealth. I see people of my age who imagined they could spend their old age lying on Spanish beaches, living off the accumulated increases in the "value" of their investment properties. Now many of them are broke and stuck with lifestyles they can no longer afford. Their kids are even more broke. What a mess. I think in the western world we are one more serious crisis away from serious social unrest.

    But then didn't Jimmy Carter warn us about shit like this.

  10. (I am the first Anonymous post)

    Hell, I voted for Jimmy Carter TWICE!!

    Interestingly enough, for decades I never missed an election, local or national.

    But I quit voting completely after the 2000 Bush/Gore fiasco. It became clear that elections in this country were no better than a third world farce.

  11. @Bill from PA - good to hear from you, and thanks!

  12. On the debate about the responsibility of the Boomers for their own plight, I'll actually split the (ahem) baby. Sure, plenty of Boomers acted irresponsibly, but so do many members of all generations. They are partly to blame for their own plight, but don't let the elites off the hook who set them up to fail for in the quest for maximum profit.

  13. @iwe - I'm only a couple of years younger than you and I also remember all of that stuff vividly. I was in high school when Reagan won and was appalled (my family were actually John Anderson supporters). It's been all downhill since then.

  14. Well, the problem is that you can become as "sustainable" as possible, and you can even create a Transition Town, maybe...although I doubt that will work, because of the degraded environment from pervasive pollution.

    But there are millions and billions of people who have not done so, and they are going to be rather ravenous when the various catastrophes - floods, droughts, tornados, crop crashes, food price spikes, sea level rise, permafrost melt, fresh water shortages, etc etc etc - start to pummel the world, regardless of economic status.

    I'm afraid that weaponry is going to be the currency of the future.

  15. @Gail - that kind of reminds me of what Jared Diamond says in his book, "Collapse," which I've finally gotten around to reading. We are the Easter Islanders.

  16. this past year I substantially increased the amount of money I was putting into my pension plan at work
    EVERY single investment with this particular pension plan lost money
    EVERY single one
    my "savings" for the year disappeared
    money down the drain
    now every penny is going into an IRA
    the interest is extremely low,but at least the principal should be safe

  17. Gail said
    “Well, the problem is that you can become as "sustainable" as possible, and you can even create a Transition Town, maybe...although I doubt that will work, because of the degraded environment from pervasive pollution”

    You are right the odds are stacked very heavily against us, it may all end in a huge war and there maybe no humans walking the earth very soon. But it might happen next week if a planet killing comet appears from behind the sun and kills us all.

    Nothing is certain, a plague might intervene and kill off 90% of us leaving those left behind with a much better chance of survival than we all have now. Not all parts of the world are equally prone to social chaos, there are remote places, with good natural resource bases, simple economies and strong communities that may allow people a better chance to survive. There are still people in the Amazonian rainforests living a pre agricultural life.

    The necessities of life are actually quite modest and human beings are incredibly adapatable. It ain’t over till it’s over and our species has survived many disasters in the past. Even the Easter Island collapse had its survivors.

    My problem with your philosophy is that it is a recipe for giving up. What’s the point in trying we are doomed anyway. If we take this attitude our failure is certain. We may fail anyway but I would rather fail trying than simply give up. I am not saying you are wrong, I fear you are right but I am going to go down trying my best to reach a better future, no matter how futile that may turn out to be.

    I am Irish, we have a long and very terrible history, packed with famines, genecodial wars and disasters. When I read this history, I am amazed that I came to exist at all, that my ancestors survived all this horror. How often must they have felt that going on was futile but they did and somehow they survived. It maybe futile to try this time but I’m gonna try anyway, I owe it to those who came before me and I own it to my children.

  18. (Anonymous #1 here again)

    You anonymous--with the "unbridled rage--can kiss my grits. The reason we are not able save an extra cent for our retirement is because WE are putting YOU through college, Mr. McWhiney.

    For YEARS we Boomer Parents (in my case the last 10 years)have been paying through the nose every dime we've made putting our kids through college. In fact that's why I don't have one_red_cent in my pocket this month, I had to come up with the $500 monthly payment for the son's college fees. EVERY MONTH.

    Don't you suppose, you spoiled little brat, that I would have far preferred to save/invest the $500 a month for my imminent retirement??!!

    Just think, if could sock away the six thousand dollars+ a year that I'm paying for my kids education, I could retire in style. Instead I'm going to retire dead broke in the hopes my kids will have the skills to make a living in this world.

    Puff off you bratty little twirp.

  19. " For YEARS we Boomer Parents (in my case the last 10 years)have been paying through the nose every dime we've made putting our kids through college. In fact that's why I don't have one_red_cent in my pocket this month, I had to come up with the $500 monthly payment for the son's college fees. EVERY MONTH."

    When all the kids who didn't have a daddy to pony up 6 grand year , stop paying the loan sharks. Your kid's education will be just as worthless as anyone else's. So congrats on pissing away 60 thousand for nothing , exercise in futility and thats comedy gold.

    So the boomers are all 47 years old at a minimum and still too defiantly ignorant to admit they should have listened to their parents ?
    About saving for a rainy day , boomers are the reason all my savings are tucked away where they can't get at them. I will burn everything I have saved before I will give amy boomer 1 dollar or 1 cup of rice .

  20. College = worse than useless now.

    "The fundamentals have changed". When you understand what that means, many things will become clear.

  21. To Anonymous 1 and 2 -

    Congratulations. In your race to the bottom you both won. Hopefully you got something out of it other than the unproductive generational blame-throwing.

    Sincerely, Anonymous 3

  22. @Anon #3 - awhile back I wrote a post called "Rats in a Cage" about how various groups are going to fight to the death as their share of the pie shrinks. I think we just saw that dynamic in action.

  23. Anonymous 3 said
    "Congratulations. In your race to the bottom you both won. Hopefully you got something out of it other than the unproductive generational blame-throwing."

    Well said Anonymous 3, we all have to hang together if we are going to survive the coming ordeal. The 1% would like us at each others throats, for too long we have been played off against each other. Was it Franklin who said "if we do not hang together we will surely hang apart"

  24. So the baby boomers were bad not to save enough for retirement. But how seriously can anyone recommend a 20 or 30 something save for retirement now? I mean sure they can take a bad lesson from the boomers and save more but ... stocks are a gamble, and saving cash means being wiped out by inflation. Meanwhile housing remains too expensive for many young people to even start. So one can wag a finger at boomers for not saving, but who really believes in saving anyway? Yes I save but not because I really believe in it so much as under certain scenarios the savings *might* not be worthless.

  25. Great Post Bill, Stug here to say Hi.
    The worsening situation will cause all kinds of people to blame pretty much everybody else. When I expected the Bumpy Plateau I kinda expected more bumps before the plunge but it does feel like we dont have many left. Houseprices though should tank far beyond the amounts they already have just about as soon as interest rates start to rise. Thats when it'll get very very nasty. If folks cant afford homes at near zero% rates then they sure as hell wont be able to pay up at even as low (historically) as 5%. As we've seen with Greece, Italy, and Spain et al those rates can rise over a period of just months once the shine wears off.