"An empty man is full of himself." -- Edward Abbey

Thursday, December 5, 2013

How They Try to Scare Retirees

      I'm not saying that those of us who are retired, or near retirement, shouldn't be financially prudent, live sensible lives, and exercise and eat our vegetables. But sometimes we have to stand back, get some perspective, and ignore all the anxious advice we get about retirement, often from people trying to push a political agenda or sell us a financial product.

     Here are some of the ways, it seems to me, that people in the media (and some bloggers too) try to scare retirees.

     They shout fire in a crowded theater about Social Security. It's a big Ponzi scheme! It's running out of money! Baby Boomers will topple the system!

     Well, the facts are that Social Security has the resources to pay full benefits until the year 2033. That gives politicians 20 years to make adjustments. Some relatively simple changes, such as extending the retirement age or lifting the cap on the payroll tax, could easily solve the problem. And even in the event that nothing changes, Social Security will still be able to pay 75% of its obligations. Now, nobody wants to take a 25% pay cut. But it's not the same as going broke.

     Also, consider that when our parents took their first Social Security check, circa 1980, the average monthly benefit for a retired worker was $321. Accounting for inflation, that $321 would be worth about $900 in today's dollars. But the Social Security Administration says the average benefit for today's retired worker is $1,272. That's a lot better than what our parents got. Even if we had to take a 25% pay cutnot something I'm recommendingwe'd be better off than our parents.

     Also, everyone shakes a finger at the hapless American middle class, telling us we're not saving enough to retire. Fidelity Investments just released a study headlined: "More than half of Americans are at risk of not covering essential expenses in retirement." A report from the National Center for Retirement Research at Boston College says 50% of households will not be able to maintain their standard of living in retirement.

     The Employee Benefit Research Institute, a Washington-based think tank, puts a finer point on it, saying just 56% of Baby Boomers and Generation Xers are saving enough for retirement.

     But let's stop for a moment and look at that figure. It means 44% are not saving enough. But does that mean 44% of Americans are destined for a life of poverty in their old age? No. Many of the 44-percenters have built up some nest eggmaybe not enough for a comfortable retirement, but enough (along with Social Security) to keep them out of poverty and stave off starvation, especially if they're willing to move to an area with a lower cost of living, or share some expenses with family or friends. Furthermore, it's younger Gen Xers who are more likely to be behind on their savings. And those Gen Xerspeople in the 40shave time to catch up.

     A current report from a group of three financial associations says average pre-retirees, age 60 - 64, have $360,000 in their retirement accounts -- which doesn't include assets people have outside their retirement accounts. Now, I'm not saying there aren't some people in need, for clearly there are. But most of us are doing okay, and even if we're not, we should just start being more assiduous about our finances -- we shouldn't have a heart attack about it.

     And speaking of heart problems, as if we're not already scared enough, everyone tells us that our medical bills will bankrupt us in retirement. Fidelity published a report saying the average 65-year-old couple will spend about $230,000 on health care. But remember ... that's an average, including all the plastic surgery and Botox injections for the 1-percenters.

     It's true that Medicare does not pay for all our medical expenses. That's why it's important to purchase a supplemental insurance planat a fraction of the cost of regular health insurance. It's also true that if we become incapacitated and are forced into a nursing home, the expense can be astronomical. That's why we all should consider long-term care insurance, especially if we have assets to protect.

     Then we hear from some Cassandras that there's a 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 the Republicans want to balance the federal budget on the backs of the elderlyprivatizing 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.

     Finally, everyone tells us: Don't kid yourself, you will not spend less in retirement. You need 80% of your pre-retirement income, or even 100% of your pre-retirment income, to live a comfortable life. Well, from my experience, I can confirm that's true . . . if you have a Bucket List that includes extensive European vacations and shopping excursions to Rodeo Drive. But most of us will have lower expenses, and we also have a lot of control over our expenses.

     Remember, as retirees with lower earned income, and some investment income, we pay lower taxes. We also pay no Social Security tax. Our housing costs should go downmaybe the mortgage is paid off, and the local government likely offers a senior discount on real-estate taxes. And then we can exercise some control -- we can downsize to live in a smaller, less expensive place with lower real-estate taxes and lower utility bills. We don't have to support our kids. And we no longer have to set aside 5% to 10% of our income to save for retirement!

     Again, I'm not saying we should ignore reality. We should plan out our retirement and live within our means. But after that . . . hey, don't worry, be happy!


Anonymous said...

Excellent post, Tom. You're getting really good at writing about retirement. I catch your articles at the other media site also.
Anyway, I fall into the category you described: have $350K in retirement funds/investments and basically manage on $2500 a month in social security. I downsized and live mortgage and debt free (no car loans either) which makes the $2500 possible. Plus I do have a cash backup. If all else fails and I run out of money, I still have the home I am living in mortgage free at a value of $375K which can either be sold or I'll do a reverse mortgage.
Whomever said you need a million to retire was mistaken. I did ALL my traveling (Europe, Caribbean, including RV'ing) while I was still working. For me, it was more prudent to travel while I had a job. Now, after retirement I can see that travel is way too overpriced plus I am not adept at sleeping in hostels or cheap $59 hotels anymore. I live in a great 1000 sq ft home, easy to maintain, insure and pay taxes, electricity. All of that barely adds up to $748 a month! Oh, I do the occassional day or weekend trip, but I'm happy to be home. I live on 3+ acres. It's a very nice life.
Thanks for this great article. I feel better now. Taking a deep breath. I done good! :)

Douglas said...

Let's see... they already raised the eligibility age for SS back in the 80's. Which is why you and I and all who were born after 1937 could not get full benefits at age 65. Odd that I still see that age 65 bandied about. The Republicans did not "want to do away with SS altogether", that's more of the "scare retirees" hoopla. They want to change it and those changes would affect only those age 55 (or is it 50?) or younger. Same with Medicare; any changes would not take effect for 10 or 15 years and would not affect anyone already on it. If nothing is done, expect that 25% cut in benefits. And ask yourself what political party is even willing to make changes?

Otherwise, great post!

Elaine said...

What a refreshing change of pace to read this! I admit I've been caught up in "the sky is falling!!" hoopla and am so afraid to retire. My husband took the leap in January 2013 and he is truly enjoying himself. He's still learning how to live on a slightly reduced budget, but he's trying hard :-)

Thank you so much!!

Hortensia Whitworth @ TereoWealth.com said...

“Again, I'm not saying we should ignore reality. We should plan out our retirement and live within our means. But after that . . . hey, don't worry, be happy!” - I totally agree! We should plan our retirement and still save some funds for it. Our insurances will be one of our investments, as well as bank accounts, if possible. We might have some part time incomes, but then it's best to just enjoy the discounts and special privileges. :)

stephen Hayes said...

Thanks for shedding some light on all this fear mongering. A refreshing change from what I've been reading.

Robyn said...

Yes, we do seem to live in fear in this country. It's what gets everyone excited. I try and take a pragmatic approach to life and this outlook has helped me for many years. Growing older isn't for the faint of heart. I have recently discovered an inspiring book called, "Rich in Years" by author Johann Christoph Arnold. http://www.richinyears.com Stories of real people who have overcome loneliness, dementia, disability and the fear of death can inspire me to do the same. I will be sharing this book with my sister. It's lovely.

Dick Klade said...

You are spot on with this bit of holiday cheer. The home mortgage seems to be a big factor in a financially secure retirement. We paid ours off more than 20 years ago, and have had no money woes during a lengthy retirement. Friends who retired with a mortgage have experienced some fairly serious budget struggles. Those who paid it off did not.

Anonymous said...

Good post Tom. I agree with Douglas. The problem is not SS it is Medicare that is on the verge of bankruptcy and will collapse without changes.

Given the ineptitude of the current administration regarding the ACA, I just hope they don't completely screw up senior health care.

Changes will come. We will either see them happen the smart way or the dumb way. Progress was made in the past with bi-partisan agreement, like the changes to SS under Reagan who worked with Tip O'Neill to get things done. Something Obama doesn't get but Bill Clinton understood when he warned the Democrat party to eschew partisanship.

When the average SS check is $900 per month, $2500 seems obscene.

Bob Lowry said...
This comment has been removed by the author.
Bob Lowry said...

I have written several times about this very subject. Retirement is being portrayed as an impossible dream or one fraught with disaster at every turn, and that is just not true.

Some folks will not be able to retire, but then that has always been true. For those who can, it is a liberating and highly satisfying time of life.

BTW, kudos to Robyn (comment above). She has managed to get a plug for the book she mentions on several retirement blogs this week. I guess we call that smart marketing.

Linda Myers said...

Great post! We have been retired for three years and I am confident we are fine. We think about what we spend.

We're in Hawaii for a couple of weeks, in a timeshare condo. We have eaten only one meal out and make our coffee every morning instead of going to an espresso stand like we do at home. We read and swim and walk. Even away from home, we pay attention to what we buy. It works for us.

Rita said...

In the two blogs I write for baby boomers, I've covered this topic lots of time -- preparing for retirement.

You're right. You need to think about retirement and plan, but also enjoy yourself.

I tell you one thing for sure -- it's sure great to get that mortgage paid off. I did mine in 18 years, not 30. I made extra payments in my high income years. I'm really proud of that.


Anonymous said...

Where would financial columns be without fear. Who cares anyway? Is this what all those watershed moments in the sixties and seventies has brought us to: little old people with tight greedy little paws who may be lining up with GOP? Go to Mexico, Thailand, Malaysia, a lazy beach anywhere, but all this financial manuvering is just pathetic. You're dying and soon.

Anonymous said...

I'm not retired yet, and don't know all the rules about social security. But isn't most of it taxable? (I somehow got the impression that 85% of it was taxable.)

Anonymous said...

We have been retired for many years and the one thing that helped us enjoy the freedom we have now is paying off all debt. That way we can live on what comes in and plan (if we can) what goes out. My husband has a great pension and we both take SS. We have savings and retirement accounts that we barely need. Life is good.

Lancaster, PA retirement homes said...

Friends who retired with a mortgage have experienced some fairly serious budget struggles.

Lancaster, PA nursing homes said...

Thanks for shedding some light on all this fear on mongering. A refreshing change from what I've been reading on other sources.

Lancaster, PA retirement homes said...

Yes after retirement one had to manage his budget.