I work on retirement policy, so friends often want to talk about their own retirement plans and prospects. While I am happy to have these conversations, my friends usually walk away feeling worse — for good reason.
Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts. The specter of downward mobility in retirement is a looming reality for both middle- and higher-income workers. Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day.
In my ad hoc retirement talks, I repeatedly hear about the “guy.” This is a for-profit investment adviser, often described as, “I have this guy who is pretty good, he always calls, doesn’t push me into investments.” When I ask how much the “guy” costs, or if the guy has fiduciary loyalty — to the client, not the firm — or if their investments do better than a standard low-fee benchmark, they inevitably don’t know. After hearing about their magical guy, I ask about their “number.”
To maintain living standards into old age we need roughly 20 times our annual income in financial wealth. If you earn $100,000 at retirement, you need about $2 million beyond what you will receive from Social Security. If you have an income-producing partner and a paid-off house, you need less. This number is startling in light of the stone-cold fact that most people aged 50 to 64 have nothing or next to nothing in retirement accounts and thus will rely solely on Social Security.
Even for those who know their “number” and are prepared for retirement (it happens, rarely), these conversations aren’t easy. At dinner one night, a friend told me how much he has in retirement assets and said he didn’t think he had saved enough. I mentally calculated his mortality, figured he would die sooner than he predicted, and told him cheerfully that he shouldn’t worry. (“Congratulations!”) But dying early is not the basis of a retirement plan.
If we manage to accept that our investments will likely not be enough, we usually enter another fantasy world — that of working longer. After all, people hear that 70 is the new 50, and a recent report from Boston College says that if people work until age 70, they will most likely have enough to retire on. Unfortunately, this ignores the reality that unemployment rates for those over 50 are increasing faster than for any other group and that displaced older workers face a higher risk of long-term unemployment than their younger counterparts. If those workers ever do get re-hired, it’s not without taking at least a 25 percent wage cut.
But the idea is tempting; people say they don’t want to retire and feel useless. Professionals say they can keep going, “maybe do some consulting” or find some other way to generate income well into their late 60s. Others say they can always be Walmart greeters. They rarely admit that many people retire earlier than they want because they are laid off or their spouse becomes sick.
Like the nation’s wealth gap, the longevity gap has also widened. The chance to work into one’s 70s primarily belongs to the most well off. Medical technology has helped extend life, by helping older people survive longer with illnesses and by helping others stay active. The gains in longevity in the last two decades almost all went to people earning more than average. It makes perfect sense for human beings to think each of us is special and can work forever. To admit you can’t, or might not be able to, is hard, and denial and magical thinking are underrated human coping devices in response to helplessness and fear.
So it’s not surprising that denial dominates my dinner conversations, but it is irresponsible for Congress to deny that regardless of how much you throw 401(k) advertising, pension cuts, financial education and tax breaks at Americans, the retirement system simply defies human behavior. Basing a system on people’s voluntarily saving for 40 years and evaluating the relevant information for sound investment choices is like asking the family pet to dance on two legs.
Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts. The specter of downward mobility in retirement is a looming reality for both middle- and higher-income workers. Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day.
In my ad hoc retirement talks, I repeatedly hear about the “guy.” This is a for-profit investment adviser, often described as, “I have this guy who is pretty good, he always calls, doesn’t push me into investments.” When I ask how much the “guy” costs, or if the guy has fiduciary loyalty — to the client, not the firm — or if their investments do better than a standard low-fee benchmark, they inevitably don’t know. After hearing about their magical guy, I ask about their “number.”To maintain living standards into old age we need roughly 20 times our annual income in financial wealth. If you earn $100,000 at retirement, you need about $2 million beyond what you will receive from Social Security. If you have an income-producing partner and a paid-off house, you need less. This number is startling in light of the stone-cold fact that most people aged 50 to 64 have nothing or next to nothing in retirement accounts and thus will rely solely on Social Security.
Even for those who know their “number” and are prepared for retirement (it happens, rarely), these conversations aren’t easy. At dinner one night, a friend told me how much he has in retirement assets and said he didn’t think he had saved enough. I mentally calculated his mortality, figured he would die sooner than he predicted, and told him cheerfully that he shouldn’t worry. (“Congratulations!”) But dying early is not the basis of a retirement plan.
If we manage to accept that our investments will likely not be enough, we usually enter another fantasy world — that of working longer. After all, people hear that 70 is the new 50, and a recent report from Boston College says that if people work until age 70, they will most likely have enough to retire on. Unfortunately, this ignores the reality that unemployment rates for those over 50 are increasing faster than for any other group and that displaced older workers face a higher risk of long-term unemployment than their younger counterparts. If those workers ever do get re-hired, it’s not without taking at least a 25 percent wage cut.
But the idea is tempting; people say they don’t want to retire and feel useless. Professionals say they can keep going, “maybe do some consulting” or find some other way to generate income well into their late 60s. Others say they can always be Walmart greeters. They rarely admit that many people retire earlier than they want because they are laid off or their spouse becomes sick.
Like the nation’s wealth gap, the longevity gap has also widened. The chance to work into one’s 70s primarily belongs to the most well off. Medical technology has helped extend life, by helping older people survive longer with illnesses and by helping others stay active. The gains in longevity in the last two decades almost all went to people earning more than average. It makes perfect sense for human beings to think each of us is special and can work forever. To admit you can’t, or might not be able to, is hard, and denial and magical thinking are underrated human coping devices in response to helplessness and fear.
So it’s not surprising that denial dominates my dinner conversations, but it is irresponsible for Congress to deny that regardless of how much you throw 401(k) advertising, pension cuts, financial education and tax breaks at Americans, the retirement system simply defies human behavior. Basing a system on people’s voluntarily saving for 40 years and evaluating the relevant information for sound investment choices is like asking the family pet to dance on two legs.
by Theresa Ghilarducci, NY Times | Read more:
Photo: Dennis Stock/Magnum Photos
