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.

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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.

Does Early Retirement = Early Death?

Kish and I turned 60 last year, and naturally the prospect of retirement seems a lot closer now than it was when we were in our 40s.  As we think about what to do on the retirement front, we’ve taken out books from the library and we try to read articles that look like they may have some relevant information.

Sometimes the articles can be a bit . . . alarming.  Like this one, which provides 12 reasons not to retire early and suggests that people who retire early often run out of money, are sick and depressed, lose the social network that they built up when they were working, and deprive themselves of a rewarding second career, which apparently involves happily picking flowers in a greenhouse.  The grim list of reasons is accentuated by even grimmer artwork of troubled seniors struggling with financial concerns and thinking longingly about the good old days at the office.  In case you’re interested, reason no. 12 cites statistics that indicate that people who work longer live longer and that there is a correlation between early retirement and early death, “even when lifestyle, health and demographic issues are considered.”  That final reason is illustrated with a nice picture of somebody placing a flower on a gravestone.  Yikes!

You kind of wonder who comes up with these lists.  Is the Social Security Administration, which would love to have people work longer for system solvency reasons, planting stories like this on websites?  Or maybe the Russians have pivoted from meddling with American elections and have now decided to meddle with the retirement decisions of hardworking Americans just for the heck of it.

Does early retirement = early death?  It’s hard for me to see how you could possibly control for all of the variables and determine that retirement was the ultimate cause of death for anybody.  And, these articles being what they are, there’s a little bit of inconsistency between reason no. 1, which says that Americans are living so long and life expectancies are growing so rapidly that people are likely to outlive their savings, and reason no. 12, which says that early retirement will produce a prompt visit from the Grim Reaper.

I know relatives, friends and former colleagues who decided to retire before 65, who decided to work until 70, and who wanted to keep working after 70 and enjoyed doing so.  They all seemed happy and reasonably satisfied with their ultimate decisions — and incidentally I’ve not noticed the early retirees keeling over, either.  Their experience teaches me that everyone just needs to make their own decisions based on their own circumstances, comfort levels, financial situations, desires, and dreams.  Scare stories don’t really advance the analysis.

 

The Dow Hits 20,000

Yesterday the Dow Jones Industrial Average reached a new high, passing the 20,000 level.  The NASDAQ index and the Standard & Poor’s 500 index also are at all-time highs.

It’s an interesting milestone, and one that is very pleasing to the millions of Americans who have money invested in stocks or mutual funds.  Investment in the stock market — especially through managed mutual funds — is one way the average American can put money away for retirement and (we hope) earn a decent return on our savings.  Over its history the Dow has been pretty dependable in that regard, overcoming periodic drops and crashes and showing significant long-term increases both in absolute terms and on an inflation-adjusted basis.  That’s why, if you’re taking a long-term view, financial planners will tell you that the stock market is the best place to put your money.

These days, of course, there aren’t many alternatives for the average folks.  The interest rates on CDs are a pittance, and the returns offered by municipal bonds and corporate bonds that used to be the bedrock of retirement planning aren’t very attractive, either.  Investing in stocks in “emerging markets” seems pretty risky, too.  Those are all forces that help to explain why the stock market has been on a prolonged bull market run that has seen the Dow triple in value since it hit its low point in the dark days of March 2009.

Unfortunately, some Americans who might have shared in the Dow’s run-up got out of the market right as it hit its low point.  Gallup has determined that, in 2016, only 52 percent of Americans adults have investments in the stock market, down from the all-time high of 65 percent in 2007.  Obviously, many of those people bolted when the market crashed in 2008 and 2009 and they’ve never come back — perhaps because they are too afraid of another crash, or perhaps because they were so hurt economically by the Great Recession that they simply aren’t in a position to invest.  Those who rode out the sub-prime storm, kept their heads, and kept their investments benefited.  It’s a classic example of why anyone who invests in the stock market can’t try to time the market and has to take a long-term view that follows a long-term plan.

20,000 is an artificial milestone, of course, and we’ll no doubt see downturns in the future — but the stock market remains an important way for the average people to build their retirements and plan for the future.  For those who are in the market, 20,000 is a welcome number indeed.

My Friend, The Sculptor

If you do go to the Columbus Arts Festival this weekend, be sure to stop by the Cultural Arts Center and vote for the terracotta bust created by my friend, the Talmudic Sculptor.  His piece — which he’s left untitled, but which I think should be called Wide-Eyed Woman — is number 308 in the exhibition.  The CAC is having a kind of “people’s choice” vote and, as the T.S. mentioned, any vote for his creation is one more vote than he would have gotten otherwise.  (That kind of subtle wisdom is why he’s got the “T” in his name.)

The T.S. story is a pretty cool one.  He came to sculpture later in life, after a very successful career in law was well underway.  He found that he really enjoyed it and he has especially taken to it after his retirement.  I think he’s got real talent, and finding a new passion in retirement is something everyone should aspire to achieve.