DURING THE 1990s, I subscribed for several years to Worth, a financial magazine that targets high-net-worth individuals. I enjoyed reading articles that were, for the most part, geared toward folks in a far loftier tax bracket.
One article, in particular, stayed with me: “The Rise and Fall of Retirement” by Stephen M. Pollan and Mark Levine, which appeared in the December-January 1995 edition. Pollan died in 2018. His daughter is Tracy Pollan, the wife of actor Michael J. Fox. But I digress.
I’ve read the article probably a dozen times over the years. I actually tore it out of the magazine and have it filed away. Its premises and arguments became part of the fabric of my financial thinking. The summary blurb under the headline reads: “Scared you won’t be able to retire? Give thanks instead. Retirement is a weird social experiment, a historical blip. Its collapse will be a triumph of common sense.”
After an interesting review of the history of retirement—a quite recent development in the course of human history—the article goes on to argue that retirement is not only obsolete, but also unaffordable. It examined the future of five income streams that the average retiree lives on: government assistance, personal wealth, pension income, wage earnings, and other sources such as inheritances.
The first three sources of retirement income are headed downward, the article contended. We all know about the funding challenges facing Social Security and Medicare. The article’s argument regarding personal wealth is a bit dated, but it was based on the premise that the outsized investment and real estate gains that the Greatest Generation enjoyed would not continue for the baby boomers. Meanwhile, as the authors predicted, pensions—at least in the private sector—have become significantly less common than they were at the time the article was written.
With respect to inheritances, the authors said that even if boomers were to receive bigger inheritances, it would not be a silver bullet. The average inheritance was a bit over $70,000 at the time of the article, not nearly enough to guarantee a comfortable retirement. And so, wage earnings were left as the final source of retiree income, and the one that must be embraced for most older folks to stay afloat.
The authors’ conclusion: “Add up the numbers. The top three sources of retirement income are headed downward; only the smallest source (inheritances) has any chance of rising. For many people, that leaves a big gap to be closed by wages. Short of something unforeseen—the dawn of fusion power, huge mineral discoveries—there will be only two options. Work longer. Or live on less. That’s the end of retirement as we know it. It’s not bad news, though. Just the passing of a bad idea.”
Why a bad idea? Doesn’t everyone dream of a leisure-filled, stress-free retirement? Here’s some more from the authors: “More broadly, the idea of a discrete move from work to leisure must change. Work is not a cliff we scale and then get tossed off at age 65. Rather, it’s a hill over which we should plot our own course. Most people will begin descending the hill at some stage, but they’ll likely choose a gently sloping path. Many won’t reach the valley of complete leisure before they die—they won’t want to. What’s needed is a return to the kind of environment that predated industrialization, one in which older people are seen a resource rather than a drain.”
The authors advocated for flexible work schedules, telecommuting, job-sharing, more opportunities for part-time work for retirees, and eliminating the ultimatum of retirement, “the false choice between fulltime and no time.” In the years since the article was written, these formerly rare options have indeed proliferated, making it considerably easier for older folks to continue making workplace contributions.
Another thought-provoking quote: “The marketing of retirement has produced a society that’s ill at ease and full of contradictions. Think about it. Isn’t there something wrong when we kvetch that people with limited skills collect welfare rather than work—but ask our most valuable contributors to spend their days on a golf course?”
Many of my retired friends, most in their early 60s, seem quite content with their lives and have no desire to return to the workforce. Been there, done that. Yet, as the article states, “However it is defined, work is an integral part of human life.” Even after retiring from our primary career, we need activities that provide meaning and, for many of us, I suspect fulltime leisure doesn’t cut it.
Some of the happiest retirees I know are those who are actively involved in the lives of their grandchildren. Others are finding meaning doing significant work in their churches, volunteering in the community or working part-time in jobs where they can truly serve people. What about me? As my career winds down, I’ve been identifying meaningful activities for my retirement years.
Ken Cutler lives in Lancaster, Pennsylvania, and has worked as an electrical engineer in the nuclear power industry for more than 38 years. There, he has become an informal financial advisor for many of his coworkers. Ken is involved in his church, enjoys traveling and hiking with his wife Lisa, is a shortwave radio hobbyist, and has a soft spot for cats and dogs. Check out Ken’s earlier articles.
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I notice that all the retired commentators here, have pensions..
that goes to support Pollan’s point. All the retired people I know have pensions. I don’t, and expect to keep working until the end. Of course I won’t be able to do the software engineering job I do now, due to cognitive decline. The question of meaning does not arise as the question of survival is rather more pressing.
I do not have a pension. Most of my friends don’t as well. A lot of them had a pension option, but took the cash for an IRA because the cash values were much higher due to very low interest rates. After over 20 years of retirement my retirement fund has tripled despite 5 years when the stock market went down. It takes a strong heart to watch values go up and down. I have a number of friends who were software engineers, and were thrifty even though they had high incomes. Most do not have a pension.
The majority of private sector workers do not have a pension and never did. I live in an upscale 55+ condo community and majority of those folks do not have pensions, many ran their own businesses.
If it’s a pension that’s the key to retirement, why not use your savings to buy yourself one — by purchasing an immediate-fixed annuity? That’s what I plan to do:
https://humbledollar.com/2020/08/risking-my-life/
The higher current interest rates are, the greater the monthly annuity amount that one can buy. In the last year as interest rates have risen so has the monthly annuity payment. I remember looking a couple of years ago at immediateannuities.com and seeing about $500 a month per $100,000. This for someone over 70. Today this amount is up 50% to the $750 area. If interest rates go back down, you will have a difficult decision.
Remember, if interest rates go down, bond yields will also fall, so immediate annuities will retain a similar relative appeal. I’ve been advocating immediate fixed annuities for more than two decades. Go back 20 years and the payments from annuities were notably higher — and folks still wouldn’t bite. In my experience, either folks appreciate longevity risk and they find immediate annuities appealing, or they want nothing to do with them and come up with endless reasons not to annuitize.
The longevity risk is real. Just as the risk of needing long term care is real. For long term care, with a large enough portfolio you can assume the risk yourself. I think the same is true for longevity. If you can live with a 2% draw down rate, you will never run out of money. For those who need 4 or higher withdrawal rate, an annuity for at least a portion of one’s funds is a good option.
I agree with your guidelines. But here’s one additional thought: If you annuitize a portion of your nest egg, even if your required withdrawal rate is well below 4%, that could potentially free you up to invest even more in stocks — and that could mean greater wealth down the road.
My concern with annuities is the same it has always been – inflation. If I had bought a SPIA three years ago, the income stream would be worth a good bit less today. That’s why Social Security is such a good deal and why I waited until 70 to take mine.
Yes, Social Security is a great deal, and it’s why I plan to wait until 70 to get the largest possible check. But the inflation risk with immediate-fixed annuities is the same risk that’s faced by those with fixed-interest bonds and most pensions.
But my fixed income funds should generate a lot more interest, and the NAV should eventually recover, as the composition of the bonds changes, right? The fact that my pension has no COLA is a big reason why I don’t want to add more of the same risk.
(Actually, my pension is now an annuity, my ex-employer finally got completely out of the pension business and bought us annuities last year. From good companies, but my state protections are much worse than the PBGC.)
Exactly ‼️
I agree with stelea99 that this is a problem of the privileged and affluent.
Most people in America are not concerned about “meaningful” work. They are concerned about paying next month’s rent, about whether they will be fired if they stay home because they or their child are sick, whether next week’s schedule will mess up their child care arrangements, etc. etc.
Perhaps it’s because I grew up in an England with a good social safety net, and from which the Puritans were long gone, but I have never been concerned about “meaningful” work, which seems to be an offspring of the Protestant work ethic. I’m not even sure I know what it means. For most of human history (at least since the arguably problematic Agricultural Revolution) people worked until they died both because they died very young, and because otherwise they and their dependents starved. It was a triumph of the 20th century, at least in parts of the world, that life expectancy rose and government pensions were provided. America now seems to be going in the opposite direction.
As I wrote recently, I was able to retire at 53 with a pension and retiree medical. I spent the next 15 years planning travel, traveling, and writing about travel for my blog and on the Fodors forums. I take it that that was not meaningful work, but I enjoyed it very much. During Covid I was immuno-compromised and mostly home alone, but I still enjoyed myself. I have recently been volunteering at the CCRC I will enter in October, perhaps that counts as meaningful. I have not been bored.
“ I spent the next 15 years planning travel, traveling, and writing about travel for my blog and on the Fodors forums. I take it that that was not meaningful work”—yes, that is meaningful work. It satisfied something in you beyond the money it brought in (or didn’t).
Meaningful work should be meaningful to you, not to others. If your work gives you a reason to get out of bed in the morning, I’d say it’s meaningful.
I think the key thing to think about when you read this type of article is to think of the source of the ideas. In this case it comes from a magazine which was pointed at high net worth individuals. So, when the author of that article (Pollan) speaks about Most People, he is thinking about wealthy people. Most average Americans are not wealthy, with the median HHold income in the very low $70k range. Given the cost of living today, retirement ant college expenses are out of reach with most people living paycheck to paycheck. Many will never retire, or stop working until forced to do so by health issues.
Average income people are not self-actualizing; worrying about how to find a meaningful life in retirement. And as for those of us who are in a comfortable retirement situation, most of the people I know are pretty happy. Many of us worked very hard in stressful occupations, and don’t miss the world of work AT ALL. Some still dabble with various part-time money generating activities, but they do this by choice. Working folks worry about what they will do to keep busy, while the retired don’t have enough time to do all that they want.
You have a point, but on the other hand lifestyle and spending priorities have more to do with financial security than we seem to consider. There are middle class people who do very well living within or below their means because they are prudent and have long term goals.
I have written before about the spending issue and will again. Look around at the scores of businesses providing non-necessary products and services. It’s not the 1% or even 10% keeping them in business.
I agree. My wife and I just barely. cleared 100K each of the last 10 years we worked yet still managed to top a six figure retirement account. We also raised two children, helped with their college expenses and paid off the house before retiring.
I’m now starting on my ninth year of full retirement.
Luckily, besides SS and Medicare, my wife and I both have COLA’ed pensions. Our normal retirement expenses work out to about 85% of our income.
Travel, paying cash for a new car, and now “downsizing” (living space size) to a Condominium with a higher value than our old house were paid from our savings.
I spend myti e spoiling my grandkids. Or reading. Or solving puzzles. Or playing games. Or exercising.
Or correcting people on the internet 🤪
Not bored at all. Just with reading for pure enjoyment alone I have way more books I want to read than my likely future time.
Don’t seem to have any time for TV shows or movies. Do have time to watch sports on the TV.
We have SS, my pension with survivor benefit, and our savings. We are 78 and 80. I retired at age 66. My pension does not have automatic COLA, so it has lost 30% of purchasing power since retirement. However, we are doing fine and hope to leave a good inheritance to our 2 children.
For me, the greater risk of retirement was to have a purpose/meaning to my life post retirement. What shall I do after breakfast everyday? That is a serious question for those who enjoyed their work and want to continue to do meaningful work. I enjoy leisure activities such as golf, but I do not want to do them everyday. I am not cut out for a life of leisure.
I serve on the boards of two retiree associations, one which has 60k members. I am involved in my church and have done volunteer work with mission organizations. Our 50 year old house sits on 2 acres of wooded land. I can stay busy just keeping up with that.
I think all of us seniors should try to give back to our communities in ways that we can. We have a lot to offer because of our life experiences.
Jerry, it sounds as if you faced the issue directly and have found a successful mix of activities to give you purpose and meaning in retirement. Thanks for sharing.
I have a pension, a good pension and I wouldn’t trade it for anything and without it my entire life would be very different. Not only does it allow a good retirement, but I was not under stress to save while working.
While we lament the demise of the private sector pension, the fact is not even 50% of workers had a pension, ever. I wonder what Americans did before IRAs, 401k, etc.? The short answer is they died, that is more or less work till you drop which was a shorter lifespan. Or, as my parents did, they lived in a muilti-generational family. My grandparents lived modestly, did nothing in retirement and died in their sixties.
I maintain in todays economy a pension sounds good, but in reality a pension provides very little value unless there is long job tenure. My pension is based on nearly 50 years with one employer. That is rare and becoming less so. Actually long job tenure was never a fact except in certain industries and heavily unionized jobs.
I’ve given up on the idea that most Americans have the discipline to save adequately for retirement and make better short-term spending choices.
That seems to me we are left with two choices. Greatly expand Social Security and the taxes to fund it or come up with a new private retirement scheme that includes both defined benefit and defined contribution elements and that is universal among all employers so tenure with any employer doesn’t matter.
As far as keeping busy and engaged in retirement goes, after 13 years I look forward to a day with nothing to do. It just seemed to happen, no planning involved although I did have 18 months of phased retirement to get used to the idea after years of being dedicated to my job.
Writing for HumbleDollar and my blog keeps me engaged as does being administrator for a FB 1600 person group of people from my old employer.
Loved Pollan and his book “Die Broke.” I haven not heard his name in a while and often wondered what happened to him. At 60, I’m “reconciling” some of the very issues you’re talking about here and agree, for the most part, that retirement as we once knew it is not the retirment of tomorrow. We need that balance that purpose gives us and something more than sitting on the beach…