There are some glaring omissions in Peter Orszag’s analysis at Bloomberg of why seniors are retiring later now than they were 20 years ago. He thinks it’s due to the changes in the Social Security formula that were made 35 years ago but I think that’s just one factor and probably not the most important one.
What he neglects to mention is that over the last 20 years practically everything these seniors may have been relying on to fund their retirements has vanished or is not what they had expected it to be. Unless you’re a government employee define benefit pensions have all but evaporated and that process has only accelerated over the last couple of decades.
Very low interest rates over a very long period mean that ordinary savings are roughly the equivalent of burying it in a whole in the ground. Maybe even digging a bit up and burning it every so often. And climbing the risk ladder in search of greater earnings necessarily means that some will lose money.
What they might have been expecting from stocks or mutual funds in 1997 probably haven’t materialized. That’s something rarely mentioned when people talk about the booming stock market. With much of the growth concentrated in a very few stocks it necessarily means that the returns are being realized by a relatively small number of people.
In much of the country property values haven’t recovered since the housing bubble popped. In most Chicago zip codes, for example, prices have not recovered. That means that seniors can’t capture as much from the sale of their homes as they might have expected.
When you add all of this up it means that maybe the reason that seniors are retiring later is that they can’t afford to retire.
That’s certainly the case with most of the boomers I know. I’ve mentioned my father-in-law here before – he was a steelworker and “retired” over a decade ago. But the LTV defined benefit pension lasted eight months before it was out of money and taken over by the PBGC. He went back to work at the plant and retired again this year.
Another factor I see is that a lot of boomers like to work and simply don’t want to retire. Life expectancy is greater as well, which I’m sure factors into people’s planning. At the least, it means people need more money to last a longer amount of time.
Others in my family simply didn’t plan or assumed everything would turn out or didn’t realize how much their Social Security would actually be. I think there’s a generational component to that as well. I look at my Dad (now deceased), born in 1925 and grew up during the Depression. He was thrifty his entire life, even when he didn’t have to be. I think we develop an expectations mindset when we are young that lasts well into adulthood.
Personally, I still remember the Social Security crisis of 35 years ago. I think it had a big impact on many in my generation – I know it did for me. From my teen years, I assumed that Social Security would either be gone or that the benefits would be further reduced by the time I reached 65. That caused me to save a lot more money than I otherwise would have.
All anecdotal to be sure.
I think you also have to factor in the whittling away of the middle class — in order to maintain the middle class lifestyle, and the fiction that they are middle class — a lot of people have been spending more and saving less.
We can blame people for living beyond their means, but when it is a huge chunk of the population, I think we have to put a large part of the blame on systemic reasons rather than the individual.
In short, I think it is mostly because they have to keep working, for reasons you and others outlined, but also because they can. Fewer jobs require heavy manual labor, and a lot the issues that prevented people from working later in life are largely resolved, like cataracts and bad lower or upper extremity arthritis. (Yes, I know. Some cases of arthritis are not.)
Steve
All of the above, although probably not the stock market reason. An index fund would preclude that narrow enjoyment of returns.
I also look at Andy’s comment. His father was thrifty, yet some in his family simply did not plan or did not allow for errors in return expectations, home or financial, or overspent. Sounds like Andy’s dad was more responsible than many. Those are choices, contra Gustopher.
I realize financial circumstances vary widely, and over a lifecycle. I have plenty of money today (and houses, nice cars, vacations etc) yet the truth is I live like someone with a quarter of my net worth. That’s a choice and personal preference. I make it because I am satisfied with my available lifestyle and prefer to hold back reserves for family, most especially a daughter who I do not think will enjoy the economic opportunities I had, and charitable causes of my choosing. (BTW – I used to have a six figure number penciled in for Wounded Warriors, but they have had a scandal. Any Vet oriented charities people know of with a good rep are welcomed). But back when I didn’t have the proverbial pot to piss in, there were crappy cars, small apartments, no eating out and no vacations. Deferred gratification. I look around at people in general and don’t see much of that these days. It makes me somewhat, but not completely, cynical about those who cannot retire. I’ve just seen too much self-inflicted damage. How did these people, some quite capable, get in this position? That’s a serious inquiry. And I guess takes me full circle to the subject of the post.
The stock market’s actually done pretty well for people who actually take the standard advice of buying broad-based index funds and riding out bear markets instead of panic selling after a crash and trying to time the market. $1000 invested an S&P 500 index fund in January 1997 would be worth about $5,700 today, for about an 8% nominal return or a 6% inflation-adjusted return.
Drew- Fisher House and Marine Scholarship Foundation are two that I like. Used to know people directly involved with both, though they have moved on. No scandals that I know about.
Steve
Lot of boomers still have adult children and their offspring at home. Don’t care to work in pain but care about family. But the truth is, age is real and there’s a point you can’t go on. Death’s the cure.
Thanks.