The end result of the retirement revolution? The number of working men age 65 and older dropped from around 78% in 1880 to less than 20 percent in 1990. When you figure in the increased life expectancy over that hundred-year period, it’s clear that we spend a much larger part of our lives not working than our forefathers could ever have dreamed. In 2010, nearly 53 million Americans collected Social Security to the tune of $703 billion.
“The retirement pattern we see today, typically involving decades of self-financed leisure, developed gradually over the last century,” says Joanna Short, professor of economics at Augustana College, Illinois, in the article “Economic History of Retirement in the United States.”
“Economic historians have shown that rising labor market and pension income largely explain the dramatic rise of retirement. Rather than being pushed out of the labor force because of increasing obsolescence, older men have increasingly chosen to use their rising income to finance an earlier exit from the labor force.” [Note: she refers only to men because historical data is not available on women.]
Why is this important?
In 2009, I moved into an adult community. Between what I have seen here and what I see in the news, I’m left wondering what happened to the “Golden Years?” The “Don’t Worry, Be Happy” crowd on Wall Street had for years touted the great wealth transfer (which was to occur when the Baby Boomers started cashing in their savings) as a source of big business for them for years to come. They knew most investors bought into the myth that stocks and home prices would just keep going up over time. They built all sorts of products in hopes of catching the inevitable transfer of wealth from one generation to another but somehow missed seeing a financial crisis that they would like to tout is over. In my opinion, however, the worst is yet to come.
So, seniors found themselves unable to secure high-yielding, safe investments and their prime assets like their homes and stock portfolios no longer simply rose in value over time. This would be bad enough but the last factor that up until now gave seniors critical comfort, affordable and high quality medical care via Medicare, is about to go the way of the first two. The inability to access the top-notch medical care that this generation has grown accustomed to will not only be the dagger that ends the Golden Years, but perhaps give seniors the biggest cause for fears.
There are other factors that, when combined with the above, make for some social, political and economical episodes that aren’t going to be pretty. Keep in mind that it was just a few years ago when, for the first time in American history, we had more Americans over the age of 65 than under 18. About 80% of the wealth in America is owned by empty-nesters and seniors who also tend to vote more than younger Americans, and in their own interest.
Don’t assume, as the financial industry did, that snow on the roof means dough in the pocket. A recent survey conducted by CESI Debt Solutions discovered that 56% of American retirees still had outstanding debts when they retired. Retirement is not supposed to be about debt. In fact, it is hard enough to try to survive on a fixed income without having to worry about debt payments. But now the majority of Americans who retire do so with debt still on the books.
Worse yet is that an increasing number of senior citizens are going bankrupt. A University of Michigan study found that Americans who are 55 years of age or older now account for 20% of all the bankruptcies in the United States. Back in 2001, they only accounted for 12% of bankruptcies. In fact, between 1991 and 2007, the number of Americans between the ages of 65 and 74 who filed for bankruptcy rose by a staggering 178%.
Needless to say, many elderly Americans are under such financial stress that they have simply decided never to retire. According to a recent AARP survey of Baby Boomers, 40% of them plan to work “until they drop.” Not because they want to. Because they have to.
Another study, titled “The Impact of Deferring Retirement Age on Retirement Income Adequacy” conducted by the Employee Benefit Research Institute shows almost all Americans will have to work longer than they had anticipated. Released in June 2011, the study says that most in the US will have to keep working well into their 70s and 80s to afford retirement.
Does that mean we are coming back around to the times of Otto Von Bismarck when all men died with their boots on? Perhaps.
Trust me, I am not the only one pondering all this. An April 2011 Gallup poll showed that 66% of Americans are very or moderately worried about not having enough money for retirement. Retirement worries have topped the charts in the annual survey on the economy and personal finance since the early 2000s, but the percentage of people who are very worried about it is significantly higher since 2008. Even the younger crowd is worked up over funding retirement. Seventy-seven percent of Americans aged 30 to 49 are very or somewhat worried. In all, the poll says roughly two thirds of all Americans at all income levels are worried about not having enough money for retirement.
And, then there is the inflation worry.
“Inflation,” you ask? “Of all things, you warn us about inflation?”
Absolutely. Journalist Robert Powell said it best in a March 7, 2011, Marketwatch article, when he called inflation “one of the most insidious risks Americans will face in retirement.” He goes on to say that even though those nearing retirement have witnessed first-hand the devastating adverse effects of inflation (remember when gas was a buck a gallon?), they just aren’t factoring inflation into retirement plans. Research published by the Society of Actuaries says, “Compared to other planning activities, only 72% of pre-retirees and 55% of retirees are calculating the effects of inflation on their retirement planning.”