Tuesday, October 23, 2012

No Reason to Panic

     I make a habit of reading the news and trolling through retirement sites and perusing the financial pages, and I have to admit, sometimes they get me pretty discouraged. Actually, to be perfectly honest, sometimes they send me into a panic. Social Security is going broke. You're not saving enough to retire. Your medical bills will bankrupt you in retirement.

     But then I pause and realize it's time for me to stand back and try to gain some perspective. A lot of the advice we get about retirement comes from people trying to push a political agenda, or sell us a financial product -- two sources that we should take with a large grain of salt.

     I'm not saying we shouldn't live prudently and save for retirement. To paraphrase one comment I saw recently:  If you spend all your money while you're working, and save nothing for retirement, that's exactly what you'll have when you retire -- nothing.

     But too much anxious advice about retirement can be enervating and counterproductive. Because often what you see just isn't true, or it may pose a problem down the road but is nothing to panic about now.

     For example, some of our budget hawks in Washington run around telling us the sky is falling on Social Security. But Social Security has the resources to pay full benefits through the year 2032. That gives politicians 20 years to make some adjustments.

     Even if you believe (as I do) that politicians are more concerned with their own careers than they are about the future of our country, this still gives them plenty of time to argue out the issues, agree on a few compromises, and pass some laws amending the program. But even if politicians do nothing for 20 years, Social Security will be able to pay 75 percent of its obligations. Now, nobody wants to take a 25 percent pay cut. But that's not the same thing as going broke.

     Meanwhile, financial experts from banks and investment firms keep telling us we're not saving enough for retirement. According to a report from LIMRA, an association of insurance and financial companies, some 49 percent of Americans aren't saving for retirement. But that figure includes people in their 20s, who certainly have higher priorities.

     Another survey from the Employee Benefit Research Institute found that 44 percent of Baby Boomers and Generation Xers are not saving enough for retirement. But that doesn't mean 44 percent of Americans are destined for a life of poverty in their old age. Many of the 44 percenters have built up some nest egg -- just not enough to satisfy the experts. Maybe they won’t have enough to live the dream retirement lifestyle, but they probably will have enough to stave off starvation and keep a roof over their heads. Furthermore, it's younger Gen Xers who are more likely to be behind on their savings than Baby Boomers. And those Gen Xers—people in their 40s—have time to catch up.

     How about the War on Seniors? Ben Bernanke has allegedly declared war on seniors by keeping interest rates low. President Obama has supposedly declared war on seniors by raiding Medicare to pay for his health plan. And a Romney economic adviser callously joked that outsourcing seniors to Third World countries might lower Social Security costs.

     A proposed Republican budget plan aims to balance the federal budget on the backs of the elderly—privatizing Medicare and getting rid of Social Security entirely. But remember 2005? A re-elected President Bush went on a tear with his idea to replace a part of Social Security with individual retirement accounts. He got nowhere fast. Of course, seniors should be watchful of politicians trying to target retirees for major cuts in benefits. But the idea that there is an organized war on seniors is the product of politics and paranoia.

     And finally, some so-called experts warn us that we're fools to think we will spend less in retirement. But while I think maybe that's true if you have a bucket list that includes extensive European vacations and shopping excursions to Rodeo Drive, it's not true for typical retirees. For example, as retirees with lower earned income and some investment income, we pay lower taxes. Our housing costs go down, especially if our mortgage is paid off. Our local government likely offers a senior discount on real-estate taxes. And many of us downsize our family home to live in a smaller, less expensive area. Also, presumably we will not be supporting our kids. And don't forget: We no longer have to set aside 5 to 10 percent of our income to save for retirement.

     Of course, I'm relatively new at this. I've been semi-retired for a while now, basking in the afterglow of my final college tuition payment. Do you think I'm living in a fool's paradise? Do you think I should be biting my nails and developing an ulcer and . . . paying more attention to the news?



Anonymous said...

Glad to hear your thoughts on this. My 401(k) is maxed out and I have a government pension coming. Every time I do the calculations, I think YES I can retire after the mortgage is paid off in 2 years. But every time I read one of THOSE articles I begin to doubt myself.

Bob Lowry said...

I absolutely concur, Tom, that a lot of what we read is hype. My living expenses were always moderate compared to my income, but they are ceratinly less for the past 11 years of retirement.

The only categories that are up are health care premiums and travel. One I can do nothing about and the other is my choice. Everything else is lower than during my working years, some by over 50%.

Galen Pearl said...

I agree, too. Especially once our kids are grown (congratulations on that last college payment!), we have a lot of control over our lifestyle and expenditures. Besides, worrying isn't going to change anything. Hope for the best, plan for the worst, and then release the outcome.

Dr. Kathy McCoy said...

You're absolutely right, Tom: we hear altogether too much from the political and financial sectors who have something to gain from instilling fear.

My husband and I have been retired for two-and-a-half years and so far, so good. We live on Social Security and a tiny pension that I have which all adds up to about one-third of what we used to make. But we have no mortgage or any other debts. And that makes a huge difference. We do have our 401K savings but try to take as little as possible out of that because who knows what's down the road?

I'm thoroughly alarmed by what I'm hearing from and about the GOP and equally so by the lack of awareness I see in so many of the retirees around me in their eagerness to vote for Romney/Ryan. It just doesn't make sense to me to vote so against one's best interests, but, then, so many rely on Fox News for their information.

Thanks for a thoughtful, non-hysterical look at where we are now and what's ahead, Tom. I hope it will be helpful to many out there who are fearful or who are still undecided about voting. It has been helpful to me for sure!

Stephen Hayes said...

Political pandering to scare seniors for political gain. Shameful.,

Heidrun Khokhar, KleinsteMotte said...

I am thinking th math is out there to get more money into investment plans. I see plenty of people working and I think maybe we need less committees and studies to cut the spending. That's a huge waste as are election campaigns!

Linda Myers said...

We've been living on our retirement income for a couple of years. Our lifestyle is about the same as when we were working, but since we're not saving a bunch every month for retirement, or driving to work, we're good. The biggest unexpected stuff is dental work, since it's impossible to get good independent dental coverage.

I worried for years, but don't now.

Bag Lady in Waiting

Tom Sightings said...

Thanks, Galen. For me, the last tuition payment was a bigger deal than the last mortgage payment.

I'm glad to see that a lot of us are doing okay, but I can second Linda's point about dental work. I spent thousands late last year on dental work . . . for one lousy tooth! I also agree with you, Linda, about the worrying. I, too, worried a lot more before I retired than after.

SmitoniusAndSonata said...

Just retired , I've made the Public library and the soup pot my best friends !
Of course , we should have saved more for our retirement and organised a better pension . And yes , I wish the contributions to our health plan weren't so high .... but at least we do actually have both pension and health care .
And I'm just so glad we didn't begin to worry about getting old before we'd taken the time to be young . I treasure the memories of every journey and adventure .

schmidleysscribblins,wordpress.com said...

We live as frugally as we always have. What is enough? We have always lived below our means and never owed more than we can repay. The only thing we have to fear is fear itself.

BTW I mentioned your prowess with the leaf blower today in my blog.

Early Retiree Tamara said...

We are new to the dual retirement arena - just six months in at this point, but so far so good financially speaking. We are under in every category other than Travel. Travel was always intended to be spent at 100% though, so no problem there.

The difference between how we approached spending during our dual working years vs. now, is we are much more conscious and deliberate in making our decisions now. We do so many wonderful things each day that are either free or almost free (being outdoors, hiking, running, biking, attending courses at our college, working in the yard, visiting the library) that we simply have no inclination to destress at the mall, or at an expensive restaurant. I think that paradigm shift is what many still-working folk are unaware of as one of the financially beneficial aspects of retirement.

Douglas said...

If you weren't smart about money in your working years, the odds are good that you won't be smart about it in your retirement years.

Congrats on paying off those student loans. I remember the joy in my father's eyes when he told me he had finally paid off his mortgage. He was in his 70's. He thought he had finally reached financial independence.

Dick Klade said...

Like you and others who commented, we've always been careful to live within our means. We never earned big money, but have been enjoying pleasant retirement years (18 of them) with no mortgage or other debts.

Success or failure in retirement, I think, is a matter of lifestyle and knowing the difference between wants and needs.

Wealth Effect Blogger said...

I agree with you that the media spins headlines to make them look much scarier than they really are such as your point of people not saving enough vs. lots of people are saving something. I have a related post "are low interest rates just a tax on the wealthy" on my site www.yourwealtheffect.com and hope you can stop by.

George E. said...

I went to pre-retirement seminar a few years ago where the presenter said the best thing to do about SSA running out of money was to do . . .nothing. The problem was paying out benefits to Baby Boomers. In 2034, the last of the boomers will be 70, and despite medical advances, a whole lot of them will be gone, and with them the need for a big trust fund. Granted it was a bit tongue in cheek, but things usually aren't as bleak as some say. . .