Retirement Training

There’s a secret issue lurking deep within the many layers of this coronavirus episode and the “work from home” restrictions imposed by governmental entities, like Ohio, in response to the pandemic.  It’s a delicate, explosive, almost taboo subject that isn’t really being addressed by the people who are directly affected.

The secret issue is this:  in “boomer” households where one spouse works outside the home and the other doesn’t, the forced “shelter in place” requirements are seen as a kind of trial run for the retirement period that is coming down the road in the near future.  And neither spouse really knows, for sure, how it’s going to work when the one spouse stops trotting off to work on weekdays and ends up hanging around the house with the other spouse all day.  To be sure, they hope that the retirement years will be the golden period of bike-riding and pottery-making togetherness that the commercials depict, but they wonder if the reality is going to be more difficult . . . and darker.

To put it plainly:  is constant togetherness, without the “down time” created when one spouse is off at work, going to drive the stay-at-home spouse nuts?  And is the mere presence of the working spouse during the daytime period going to noticeably interfere with the habits and routines of the spouse who is used to having the run of the home, to do whatever s/he wants, without having the still-working spouse getting in the way or following him/her around like a lost puppy or a bored child who demands attention every waking hour of the freaking day?

Of course, this stay-at-home period isn’t a true trial run for retirement, because the working spouses are supposed to be working from home and, therefore, presumably have things to do that will occupy their time and command their attention.  Still, the need for adjustment is the same.  You might call this shutdown period a kind of partial dry run.  And, in a sense, that makes the situation even more delicate — because if the presence of the working spouse is getting on the stay-at-home spouse’s last nerve even under these circumstances, what’s it going to be like when true retirement comes and there is no work to serve as a distraction?

In households across America, spouses are walking on eggshells.  And if they aren’t, perhaps they should be.

Wild Seniors And Urban Myths

The other day I was having dinner with friends.  For some reason the conversation turned to The Villages, an enormous, sprawling, planned retirement community in central Florida, between Orlando and Gainesville, where tens of thousands of seniors live and residents ride around in souped-up and tricked-out golf carts.  And one of my friends mentioned that The Villages is known for something else:  it has apparently got an unusually high rate of sexually transmitted diseases (STDs) — higher than in surrounding, non-retiree communities.

I decided to check that out, and learned two things.  First, The Villages is so big it has its own newspaper, at Villages-News.com.  And second, the newspaper views the STD story as sufficiently serious to warrant a recent news story — one that treats the tales of wild sex and rampant STDs at The Villages to be an “urban myth,” attributable to an ill-advised comment by a Villages gynecologist in 2006 and a later book and news stories about individual seniors and their sexual escapades.  The article notes that statistics indicate that there hasn’t been a surge in STD rates in The Villages, points out that in a community so massive — the article says The Villages now is home to 125,000 people, almost all of whom are 55+ and retired — some are going to want to drink and get frisky, and concludes:  “So like any town in the country, it’s going to have a certain number residents who sleep around and acquire STDs.”

Well, okay then!  I’m not sure that the Villages-News.com story fully debunks the STD story, but mostly I had this reaction as I read the story:  who would have thought there is a place in central Florida where 125,000 seniors live together and drive around in cutesy golf carts, and that 125,000 people would view that as the ideal setting for their retirement?

 

Old, And Still Working

America’s elderly are working at levels not seen in decades.  Is that a good thing, or a bad thing?

This year, the participation rate in the labor force of retirement-age workers — that is, workers aged 65 and older — has cracked the 20 percent mark.  That’s the highest participation rate in 57 years, and twice as high as the low mark participation rate in 1985.  Since 1985, the rate of participation has steadily moved upward, with a significant increase in recent years.

The Bloomberg article linked above suggests that many of these working elderly are doing so because they have no choice:  “Rickety social safety nets, inadequate retirement savings plans and sky high health-care costs are all conspiring to make the concept of leaving the workforce something to be more feared than desired.”  But the statistics indicate that at least some of the people who are working longer are doing so by choice, rather than by desperate need.   The share of all employees age 65 or older with at least an undergraduate degree is now 53 percent, up from 25 percent in 1985, and the inflation-adjusted income of those workers has increased to an average of $78,000, 63 percent higher than the $48,000 older folks brought home in 1985.  The increase in wages of the working elderly is better than the increase for workers below 65 during that same time period.

So why are people working longer than they used to?  To be sure, some may be doing so because they’ve got no choice — America’s retirement savings statistics are dismal.  But if that is the root cause for some significant percentage of the working elderly, why is that a bad thing?  If people haven’t saved, working longer in order to build up your retirement nest egg, and cut down on the number of years in which you’ll be living on that nest egg, is just the responsible thing to do.  We shouldn’t feel sorry for them, we should be applauding them for recognizing that, when it comes to retirement planning and saving, it’s better late than never.

The more interesting and deeper trend is that the economy is welcoming these older workers and rewarding them with increasing salaries.   In short, it’s not like all of these older workers are serving as friendly, red-vested greeters at Wal-Mart.  The salary statistics indicate that the job creation in the current economy is strong, and that companies are holding on to experienced older workers rather than incentivizing them to retire.  They are recognizing that older workers have value, and still have something to contribute.  If you are an older person who likes working and wants to continue to work, that’s a very encouraging trend.

 

Old, And In Debt

One of the most basic rules of retirement planning is that retirees should be debt free.  The idea, of course, is that when you are living on a fixed income, you don’t want a significant portion of that fixed income to go to paying old debt — and paying interest on that old debt.

Increasingly, however, older Americans are breaking that very basic rule.  It’s part of a growing and worrying trend of accumulating credit card debt, and delinquency, by Americans.

According to the Federal Reserve Board, at the end of 2018 Americans had amassed $870 billion in credit card debt, which is a new record.  That debt was created on more than 480 million credit cards in circulation.  Credit card debt is the fourth largest form of consumer debt, trailing mortgage, student loan, and auto debt, but is the fastest growing category of debt.

And what is especially concerning is that older Americans are holding more credit card debt than ever.   The New York Federal Reserve Bank says 18 percent of all credit card debt is held by people between 60 and 69, and an additional 12 percent is held by people over 70.  Even worse, according to the American Banker article linked above, “by age group, older Americans are seeing their credit card debt transition into the delinquency category at an increasing pace. In particular, those in their 50s have seen the most rapid change and could be considered the most vulnerable should a change occur in their employment.”

Americans already aren’t all that great at saving for their retirements.  If people are heading into the “Golden Years” saddled with lots of old credit card debt, it’s just going to make the problem worse.  When Grandma and Grandpa need to use the Social Security checks to pay off their credit cards, they’re not going to have much of a retirement — or even any retirement at all.

40 Years Of 401(k)

Last year, 401(k) employee retirement savings plans hit a venerable milestone — the 40th anniversary of their creation.  401(k) plans were born during the Carter presidency, with the passage of the Revenue Act of 1978, which established Section 401 of the Internal Revenue Code.

The language of the statute is the dense, definition-filled content that tax lawyers love, but the concept of the 401(k) is simple:  workers can salt pre-tax money away in protected funds and invest it, thereby enjoying some tax savings and having a vehicle to save for retirement.  Many employers offer 401(k) plans as a part of their benefit package and facilitate the program through payroll deductions.  According to the Investment Company Institute, in 2016 there were almost 555,000 401(k) plans in the U.S. and more than 55 million Americans were active participants.  The ICI also reports that, as of the end of the third quarter of 2018, 401(k) plans held $5.6 trillion in assets — up from $2.2 trillion in 2008 — and represented 19 percent of the total amount of U.S. retirement assets.

Some people raise questions about the 401(k) option, arguing that its availability has helped to produce the virtual disappearance of employer-funded pension plans, in which the employer totally funded the plan and, in many instance, provided the employee with a guaranteed retirement benefit.  I think that’s wishful thinking.  Even at the time the 1978 legislation was passed, many American companies were looking to cut costs, and guaranteed pension plans were disappearing into the mists of history.  Most of us have never worked for an employer that offered a true pension plan.  To be sure, 401(k) plans are based primarily on employee contributions, not employer largesse — although in many cases employers offer some kind of match to employee contributions.

Unless you’re an investment advisor who pines for the long-lost days of funded pension plans, though, you’re probably grateful that Congress was far-sighted enough to create the 401(k) option 40 years ago.  And it’s not hard to argue that 401(k) plans are, in some respects, superior to pension plans.  The 401(k) option gets the worker directly involved in her own retirement planning; employees have to elect to participate in the plan, after all, determine how their contributions will be invested, and then have their contribution withheld from their paychecks.  The 401(k) mechanism makes that as painless, relatively speaking, as withholding for federal and state taxes and Social Security contributions — because it comes out automatically, most people don’t notice it.  And then, after a few years, workers realize that they’ve actually made progress in starting to save for retirement, and for many people that realization opens the door to additional efforts to save, invest, and get ready for the retirement years.  The 401(k) option has made many Americans take personal responsibility for their own financial affairs, rather than relying on a company pension plan to do the trick.

And you can argue that 401(k)s have had a broader benefit, too.  So much automatic saving has to be invested somewhere — principally in the U.S. stock market.  In 1978 the Dow was well below 1,000; now it stands above 25,000.  No one would argue that 401(k) plans have been solely responsible for that run up, but there is no doubt that they have contributed to buy-side pressure that has helped to move the stock market averages upward, which has the incidental benefit of helping all of those 401(k) participants who’ve put their retirement savings into the market in the first place.

Happy anniversary, 401(k)!  Beneath that Tax Code jargon lurks an idea that has been helpful to millions of Americans.  I’d say we need to give credit where credit is due:  the 401(k) is one time when Congress did the job right.

“Discordant Retirement”

After you turn 60, you start getting a lot more retirement-related communications — just like you begin to notice that you’re getting a lot more spam mailings and internet ads about things like cheaper prescription drugs and various devices that help the enfeebled perform daily chores.  And it all starts, really, when you get that AARP application in the mail that is the official acknowledgement that you are old.

Most of the retirement materials you receive are just a variation on the kind of stuff you’ve probably received for years, that talk up some great investment opportunity that is so bullet-proof you’d be a fool not to put your money in, or promise to take great care of your savings and lead you to the retirement of your dreams.  For me, those kind of “cold call” communications get moused into the trashcan.  But sometimes you see something that’s actually interesting — like this piece on “discordant retirement.”

What’s “discordant retirement,” you say?  That’s the name retirement planners have given to married couples that effectively retire at different times — where the wife keeps working after the husband stops, or vice versa.  It’s a cultural phenomenon of sorts, because it’s obviously a reflection of the prevalence of two wage-earner couples, rather than the ’50s sitcom model of working husband and wife on the home front, where the husband’s eventual retirement would be the decisive, unilaterally defining retirement event.

And it’s also interesting in that it illustrates something else about the concept of working:  people react differently to it.  Some people tire of working and decide that once they’ve reached a certain financial point they just won’t take it anymore, while others find work empowering, or important to their self image, or a significant part of their social life that they just aren’t quite ready to give up.  The article notes that “retirement” isn’t always easily defined, and often a “retired” person has just decided to do something else, like work for a charitable entity.  There are many reasons to “retire” — however you define that notion — and an equal number of reasons to keep working, and everyone is going to approach the issue somewhat differently.  In a sense, the notion of discordant retirement shows just how far we’ve come, with each half of a couple making their own individual decisions about when and how they want to retire.

After reading the article I thought about couples we know and how many of them are illustrations of “discordant retirement.”  So, what are potential “discordant retirees” supposed to do?  Well, obviously, it’s something that couples need to talk about, just as any successful married couples need to talk through and reach agreement on many issues in their lives.  And discordant retirement offers opportunities, and challenges, as couples try to figure out when and how to pull the trigger on things like Social Security payments, Medicare coverage, and other consequential retirement-related decisions.

“Discordant retirement” sounds bad, like it’s a cause for bickering — and perhaps, for some couples, it is.  But it’s actually the result of people exercising their basic individual freedoms and working through their desires and needs in the context of a partnership.  The retirement planners need to come up with a better name for it.

Uncle Involved

Aunt Corinne passed along a recent news article about Uncle Mack, who has been volunteering to help out the Savannah prosecutor’s office, which is staggering under a crushing case load.  Although Uncle Mack’s legal career, pre-retirement at least, was entirely in the civil arena, he’s thrown himself into the project, studying criminal law and helping out the prosecutors wherever he can.  You can see the article here.

Uncle Mack is one of those people who has always been “involved.”  When he lived in Reston, Virginia, he was active in leadership positions with community organizations and was featured in a full-page news article.  (The article referred to Uncle Mack as a man in “triple focus,” because of his many activities, and had a three-exposure picture of him.  It was a very nice article, but the “triple-focus” description cracked me up and has always stuck with me.  Now, whenever I see UM, I try to work in a gratuitous “triple-focus” comment just for the heck of it.  Now I’ve been able to work it into this blog post, too.)

The desire to be “involved” has, if anything, seemingly intensified after Uncle Mack retired from a long and successful career as an intellectual property lawyer.  I’m not sure I’m even aware of all of his activities, but I know he’s been working on playing the sax in a jazz combo, he’s taken acting classes and acted in a few independent, locally produced films, and now he’s helping out the prosecutor’s office.  It’s impressive, and Grandma Webner would be proud.

The experts say that a key element of any successful retirement is having interests to pursue, so you stay mentally engaged and physically active.  Uncle Mack is a living demonstration of that concept.