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.

191073-131-0d844c57Sometimes 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.

gomez3It’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

IMG_1214If 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.

The Death/Retirement/Disability Calculation

We all have to make some hard decisions in our lives, but one of the hardest is figuring out when to stop working.

For some people, of course, there really is no choice, because they have not accumulated the savings that would give them the freedom to make a judgment.  They simply have to keep working to survive.  But if you have worked hard, and planned, and scrimped to put money away toward retirement, you ultimately will confront the issue of whether you have saved enough and can stop working, or whether, “to be on the safe side,” you should work a little bit longer and save a little bit more.

It’s a tough choice because there are no easy answers and the consequences can be profound and, in some unfortunate instances, appallingly final.  In one direction, you can retire too soon, see your nest egg take a hit in a “market correction,” and realize with a sinking feeling that you simply don’t have enough to have the kind of retirement that you hoped to have.  No one wants to be a cash-strapped retiree who becomes a burden on their kids.  But in the other direction, if you decide to keep working, you may be struck down, or left disabled by illness, and never have the opportunity to enjoy the fruits of your labors.  Add in a few more moving parts — like whether you are someone who really enjoys your job and your co-workers, or whether you have incredibly long-lived ancestors or alternatively an apparent genetic predisposition toward certain disease, or whether you have family members who could use some help, or whether you are a worrier by nature and want to try to build enough of a cushion to provide complete retirement peace of mind — and the decision becomes even harder.

It’s also a tough choice because you can’t help but be influenced by the personal stories of the people you know.  A hale and hearty former colleague who is seemingly on the cusp of retiring dies suddenly, and you remember that one of the last times you spoke to him he was laying out his plan to work just a little bit longer before hanging up his spurs, and you shake your head and feel a chill.  A new, older acquaintance explains that he had retired, went through the market downturn in 2008-09, realized with a sinking feeling that he had pulled the trigger too soon, and scrambled to go back to work and keep earning, and you shake your head and feel a chill.  And then there are friends who develop serious health problems, friends whose siblings are in serious financial distress, friends whose spouses unexpectedly need surgery.  The list of possibilities is endless, and each little personal story tugs you in one direction and then in the other.

The most uncomfortable realization of all is that there is no magic calculation, no absolute certainty, and no clearly correct answer, and the consequences are huge.

In The Blink Of An Eye

At kitchen tables all over America today, husband and wife Baby Boomers are drinking coffee and talking soberly about their retirement plans.  They’re doing so because those plans may have just changed in the blink of an eye, as the stock market has shed a big chunk of its value in the last few trading days and they have seen their nest eggs take a big hit.

IMG_20150823_083542The stock market analysts are talking about a market “correction.”  It doesn’t seem like the right word, does it?  A correction typically fixes an error.  It’s hard to think of a major drop in the stock market that causes hard-working Americans to lose a chunk of their carefully accumulated savings as fixing anything.

Why the sudden plunge and sell-off?  Is it China, or general skittishness, or a concern about American and global debt, or a belated realization that the economy still is weak, or just the backroom decision of some Wall Street titans to create some turmoil that might add to their profits?  The little guys will never know what spooked the markets, and whether we’re in for more of the wild ride this coming week.  We’ll just hold on tight and try not to panic and make things worse for ourselves.

In the meantime, we’ll all be drinking coffee, scratching figures on notepads, and talking about what this means for us.  We’ll tighten our belts and shake our heads and work a little longer and think about how this might change our little corner of the world.

What else can we do?

At The Whim Of Immense Forces Beyond Your Control

Trying to save for your eventual retirement these days can be a pretty wild ride.  Everything we read tells us that we simply cannot count on our chronically underfunded Social Security system to provide the principal source of our retirement funds, even though we have been contributing to it for decades.  So, you need to “save and invest” to provide an alternative, supplemental source of funds.  But where to invest?

Bonds and other debt instruments offer only a modest return these days, and no bank pays much in the way of interest on savings accounts anymore.  That leaves investing in the stock markets — where, unless you are an insider, for the most part you invest your savings on a wing and a prayer and often feel that your money is out there at the whim of immense forces beyond your control.  It’s not exactly a warm, confident sensation.

The last few weeks have brought this ever-present feeling up to gut-punch level.  The U.S. indexes have dropped like a stone, shedding a significant chunk of their value, and the end of trading day stories about the declines can only offer speculation about why — and whether more declines are in the offing.  Then this week China surprisingly decides to devalue its currency, which has roiled the markets even more and caused more declines in global stock values.

Why has China done this?  Who knows?  China’s regulation of its economy remains a black box, and it seems clear that, when it comes to China, geopolitical factors beyond simple market forces like the law of supply and demand are influencing its economic decisions.  When China’s stock market experienced some sharp declines recently, one news article mentioned that a sign of the underlying issues was that the stock market hadn’t increased, as expected, on the Chinese Premier’s birthday.  When trading on stock markets is expected to be influenced by politician birthdays, you know you’re not exactly operating in the kind of world conceived by Adam Smith and his invisible hand.

So, what should the non-insider individual investors do in the face of these massive forces whose inexplicable decisions threaten to slash the value of their nest eggs and crush their dreams of a warm retirement some day in the future?  In a world where there aren’t many good alternatives, you can only do what you always do when you find yourself on a wild ride — hold on tight, don’t panic, and hope that it ends sooner rather than later.  Who knows?  Maybe the Chinese antics will cause the global money interests to conclude that the regulated U.S. stock market, where politician birthdays don’t affect buy-sell decisions, is a good, safe place to invest, and thereby trigger a new bull market in the U.S. of A.

Student Loans And Shrinking Choices

We’ve all heard a lot lately about college students graduating with crushing amounts of student loan debt.  A recent Washington Post article brought home the grim and spiraling reality of student loan debt — and made me wonder what its long-term ramifications are for the families of those students and the economy as a whole.

The Post article compares consumer debt loads in 2005 to those in 2014.  Nine years is not a long time — less than a decade and only one presidential administration ago — but the changes are dramatic.  The percentage of 20-somethings with mortgage debt has fallen from 63.2 percent to 42.9 percent, and the percentage with student loan debt has almost tripled, from 12.9 percent to 36.8 percent.  In short, fewer are borrowing to buy a tangible asset and more are borrowing to acquire an intangible asset with uncertain value.

We don’t know how far up the age scale this exchange of mortgage debt for student loan debt extends, but the homeowners among us should consider what a shrinking pool of potential buyers means for the value of our property and our chances of selling it.  Banks won’t view young people who owe tens of thousands of dollars in student loans as good candidates for hefty mortgage loans, and young people who can’t find the high-paying job they need to make debt payments won’t want to be saddled with a house that might interfere with their freedom to move to where jobs are more plentiful.  The upshot is shrinking choices for debt-addled 20-somethings and shrinking options for the rest of us.

But the impact goes even farther.  The Post article shows that people in their 60s also have increased their student loan debt, and that more families in every income bracket are borrowing to pay for college.  The cost of a college education thus affects entire families, with credit-worthy senior citizens taking out loans to help their children and grandchildren pay for that diploma.  The acquisition of new debt by 60-somethings runs counter to the most fundamental rule of retirement financial planning, which is that people nearing retirement should pay off debt rather than taking on more.  How many older people are deferring retirement to pay off student loans — and in the process hanging on to jobs that might otherwise be available to those recent college graduates?

For too long we have viewed a college degree as a kind of holy grail that will inevitably produce a successful career and have geared national policy to make college more “affordable” by increasing the availability of student loans.  That approach has removed any incentive for colleges to hold down costs, and the result is sharply increased tuition costs funded by long-term consumer borrowing that affects entire families.  I’m as much of a fan of a college education as anyone, but isn’t it time to challenge our colleges and universities to figure out a way to provide that education at lower cost?