Critical Stuff: Retirement in the manner many people think of it is an outdated concept. We live too long.
In This Chapter: A little reality about pensions. Planning for 30 years of unemployment.
This first section of this book is primarily about the nuts and bolts of retirement, and the only serious financial element is the second chapter, which is a quick and dirty overview of all the basic financial issues you face in retirement.
If you get nothing else of value from this book, understand this: Any advice you get on your retirement and your financial well being is at least partly wrong and sometimes it’s simply bullshit–including my advice. At the very least it will never have your unique situation and perspective in mind, but beyond that, it might be simply wrong and often it will be self-serving.
Pass everything you see and hear about these issues with a huge grain of salt and keep your bullshit detector cranked up to eleven. I’m going to try to help you ask the right questions, but your well-being is your responsibility.
Will you really retire?
Many people in their fifties, having gone through the recent financial market disasters, watching their home slowly come out from underwater, and looking at devastated retirement savings accounts and perhaps being drained by some continuing family support that they thought would be long over with, toss their hands in the air and say “I’ll never retire.” Sounds like a rational response, but statistics don’t bear that idea out. The current average retirement age is 62. More than 50 percent of current retirees say they were forced to retire early by some event outside their control.
For the people who were forced back into the job market by layoffs, or because they couldn’t manage the physical requirements of their work, the employment prospects are dim. It’s illegal to discriminate on the basis of age, but that doesn’t mean it doesn’t happen every day. Taking a new job at greatly reduced pay when you’re 60 might really suck, but it’s an element of retirement that you have to recognize, consider, and plan for.
If your skills are mostly technical, you face the accelerated change in most fields. I dabble in electronics and embedded systems coding, and can’t imagine trying to keep up at a professional level. Most of the people I know in their 50’s have been bypassed by technological and social change. Jumping back onto that fast moving train is a huge challenge. The exception is people with “trade” jobs. If you are an electrician, a plumber, a roofer, or work in any job similar to those, you probably already know you could work until you drop. There’s very few folks in the pipeline to replace you. It might well be the biggest threat to our economy–that there are a broad set of basic skill jobs with few people to fill them. So you can work as long as you can, or as long as you choose to, and you can probably get part-time work that pays well. But is that what you want? And again, you are in a small minority. Most retirees are forced to retire–one way or another.
So yes, you will probably retire. You need to plan for it. If you haven’t really started, start now.
What would your savings look like if you spent the last 30 years unemployed? I know mine would be very zen–like the sound of one hand clapping. And yet that’s what you’re planning to do as you consider retirement. If you retire at 65 it’s not out of the question that you’ll live to 95 or even 100. More likely that you’ll live to 85, but do you really want to be scrambling for bucks at 90? The simple reality is that retirement is a concept rooted in the turn of the last century, codified in the USA by the social security act in 1935–when the average life expectancy was 61.7 years. You were supposed to save for retirement, with a pension from the big manufacturing company you worked for all your life, sweetened by savings and a little social security to help anyone that fell through the cracks. Then die shortly after leaving the workforce. In fact more than half of the prospective retirees were supposed to die in the traces, a couple of years before they retired at 65.
Retirement was a rare thing when I was a kid in 1950. A golden promise that kept people working hard, and struggling to move up. The big companies and government jobs that promised pensions were structured around a necessity of industry–that people who could no longer perform due to age would make way for people who could. With people dying like clockwork just prior to the payout it was usually a benefit for widows. A stipend that perhaps kept them comfortable, depending on how generous the survivorship benefits were.
The situation has changed completely. There’s simply no way that saving at the typical rate for Americans working at a typical middle class job can support that person in retired splendor, walking with their elegantly aged, active, slender, vibrantly healthy wife on a secluded beach for 30 years. First, most of us would go nuts staring at waves and gulls for very long, but worse yet, for most Americans, retirement means scaling back on activity, accepting the “limitations” of aging, and eating junk while staring at the boob tube. The dirty trick of an extended lifetime for most people is that it’s just a lot longer time to be old and sick. It doesn’t have to be that way.
Here’s two more doses of reality. Lots of people blame Uncle Sam for social security “not working”. It provides too little money, and it’s going to fail. Yes, it does, and yes, it probably will. But the problem is not that Uncle Sugar stole your money. The problem is that it was never intended to do what we’re asking it to do, and what we’re asking it to do is impossible.
And lots of people fault the big companies for trying to wiggle out of their pension requirements. Again–not designed for today’s reality. There hasn’t been enough money going into those funds for them to support people living to age 85. They were supposed to die, and they didn’t.
So lets accept the premise that retirement is not really going to work the way the financial company advertisements portray it for many people. How are you going to avoid the trap that confronts a huge number of people?
Keep working? For a lot of people that’s not an option. They either have jobs with a mandatory retirement age or they work in a job with physical requirements that get harder to meet as they age. As mentioned previously, most people say they plan to retire at age 66, but the average retirement age in the USA is 62. About 50 percent of retirees say they left their jobs earlier than they planned, either because of illness, caregiver responsibilities, layoff, or other work related issue. Age discrimination in hiring is illegal, but it’s more difficult to find a high-paying job after age 55.
Save more? Well, that’s a good start, but as many people discovered in 2009, saving in the way that most people do, by stuffing the limited amount of money the feds permit into an IRA or 401K, can be pretty disappointing.
Spend less? Another good start, but some of the biggest expenses you have are hard to avoid.
Work at something else? It’s very likely that anything else you do is going to pay less than what you do now. Going from a position based on the expertise you spent 30 years acquiring to something new is not a recipe for instant success. For the people who were forced back into the job market by layoffs, or because they couldn’t manage the physical requirements of their work, the employment prospects are dim. Taking a new job at greatly reduced pay when you’re 60 might really suck, but it’s an element of retirement that you have to recognize, consider, and plan for.
If your skills are mostly technical, you face the accelerated change in most fields. Many of the people I know in their 50’s have been bypassed by technological and social change.
This paints a grim picture, but your reality doesn’t have to be unpleasant simply because it may not be everything some bullshit advertising claims your life needs to be. I think the key to retirement success is to plan as best you can for it, be very realistic about every decision you make, and react prudently and quickly to changes in your situation. Look at everything–income, expense, activity, interests, where you live, how you save, how long you will work–with a clear understanding that you are looking at 30 years of a very different kind of life than you are living now. That’s the crucial piece–don’t look at how things will be next week or next month, any calculations you make have to consider at least twenty years of retirement and conservatively, thirty. That probably seems impossible, but it’s not. We’ll help you.
And most importantly, get fit and stay healthy. We’ll cover that in detail. You’ve GOT to do it–to the very best of your ability. Old, sick and broke is the alternative.
Each chapter will include some recommended assignments and a follow-up to what you should have done after the previous chapter. This chapter is a piece of cake.
The plan I want to help you develop is a physical thing–a notebook that’s going to have the fundamental elements you need to create, verify, and monitor your progress toward a successful retirement, Go out and buy 1″ spine ring binder and some tabbed dividers. You’ll also need a few dozen sheets of paper for notes, but most of the stuff that goes in your notebook will be printed pages, statements, and checklists.
Label your notebook “Retirement Plan”. On the first page, write your current age, the age you will be when you want or expect to retire and the number 65. Then calculate two simple numbers:
Subtract your current age from your planned retirement age.
Subtract 65 from the age you expect to kick the bucket.
Circle both numbers. You’ve just done more retirement planning than most of your peers. The first number tells you how long you have to get your life in shape to manage the last number with some sort of grace. We’ll fill the rest of the notebook as we go.
But seriously, get the notebook. You’re going to need it.
Follow-up for Previous Chapter
Even easier. there is no prior chapter to follow up on.