The sweet spot in retirement occurs when we have sufficient financial resources to live our desired lifestyle. It commences when we leave the workforce and starts to fade with the onset of health issues. If you make it to this spot, you have won the race. The wealthy have always been able to enjoy a financially secure retirement, but the floodgates opened when baby boomers started to retire. Armed with defined benefit pension plans and beautiful mortgage-free homes, they are riding into the sunset with more wealth than any previous generation. However, the gateway is closing for many families. In the next few decades, a new elite – the upper-middle class will be the primary entrants into the sweet spot of retirement. Unfortunately, for a large part of our population, retirement will be a period of too little income and a place where dreams go to die.
The number of families that are members of a pension plan continues to decline. Employment in the manufacturing sector has shrunk and jobs have moved overseas. The number of men between the age of twenty-five and fifty-five having full-time employment is at record lows while the number of seniors in the workforce is at an all-time high. Disability insurance has become a primary source of income for many families. The concept of cradle to grave employment is either dead or dying. According to labor participation statistics, less than 70% of working age adults participate in the workforce and the number falls to under 60% for white working-class males. Combine this group with those who work but have no pension and minimal savings and we are facing a retirement crisis. Families must take every step possible to ensure they do not endure a thirty-year retirement with government pensions as their primary source of income. It is very challenging for many working families to save for retirement when their income is used to fund living expenses. Paying for a home, raising children and dealing with the ongoing expenses of having a life, often puts saving for retirement on the back burner.
The increased inequality between those who can and cannot afford retirement will result in significant issues for our country. The cost to the government to provide pensions, subsidize nursing home costs and deliver the necessary health care to the flood of baby boomers hitting retirement homes will be enormous. Much of this cost will be passed on to a middle class that already feels overtaxed.
The ability to avoid retirement hell depends on an individual’s current situation. A fifty-year-old unemployed factory worker, with no savings and a large mortgage, will face significant challenges in retirement. Whereas, a young woman entering her first year of college has a lifetime to achieve financial success and save for retirement. Unlike the era of her parents, success will not just happen. She needs a plan and to be lucky enough to avoid the various curve balls that life can throw her way.
One of the biggest obstacles facing many families is indifference. Too many people lack a plan for the future, rather they just let life happen. This book will lay out strategies to avoid retirement hell, but families need to determine their potential financial situation in retirement and address these issues while they are working and time is still on their side.
Three Tributaries to Retirement
Our country can be divided into three streams as we approach retirement:
The New Elite
It consists of the wealthy and those at the upper echelon of the middle class. They have the financial resources to make retirement an enjoyable phase of life.
They have a legitimate shot at a financially secure retirement, but they live on a slippery slope. Success depends upon retaining their jobs until retirement, avoiding economic bad luck and saving sufficient money to supplement their government and private pension income.
Low-Income Minimal Pensions (LIMP)
These families have income levels that make it impossible to save for retirement. Their income will be primarily government pensions which will fund a modest lifestyle. If government pensions are their primary source of income, it will be a challenge to enjoy retirement while living in poverty. On the bright side, this group is just one major lottery win away from financial security.
My work experience has been in the areas of taxation, pensions and retirement planning. My peers who obtained a degree and worked for large companies appear to be enjoying a phenomenal retirement, yet they share a concern whether their children can be as fortunate. Most of my generation made more money than their parents, but it appears that trend is reversing. Much of our success resulted from being a member of the baby boomers who were the luckiest generation in history. We were provided with opportunities that with minimal effort could be transformed into some level of financial success.
This book paints a portrait of retirement hell and lays out various strategies that families can utilize to avoid poverty in their final years. The ideas presented are based on old-school philosophies, such as spend less money than you earn, initiate a savings plan, invest in education, purchase a home and approach life with a moral compass. It works best when family members help each other, but to some, these strategies are relics of a bygone era. We shall review the impact of ethics on retirement as appropriate behavior and strong character will maximize an individual’s chances of success. A government committed to ethics and ridding society of corruption will increase our prosperity and quality of life. The key to our future is a strong middle class, but it is currently under siege. I believe with all my heart that ethics matter, but as I watch the world unfold around me, this belief is being severely challenged.
The level of poverty in retirement will become a humanitarian crisis, yet as a society, we are not addressing these challenges. To appreciate the magnitude of the problem, consider the 1/3 rule. Over 1/3 of families will be dependent upon government support to pay their bills and that period will approximate 1/3 of their life. When health care is added to the equation, our overextended government may lack the financial resources to eradicate or significantly mitigate poverty among seniors.
An unexpected job loss, divorce, or major illness can deliver a painful economic blow that may kill the retirement dreams that have been built up over a lifetime. Even if a middle-class family can fund their retirement, they fear that their children may not be able to afford that luxury.
Economic restructuring has resulted in many families living one financial crisis short of being unable to pay the bills. Upon retirement, families have to finance a retirement that may last more than thirty years. With minimal savings and inadequate pensions, many families will require government pensions to support their lifestyle.
An increasing number of families require government assistance at a time when government debt is out of control. Defined benefit pension plans are being eliminated in the private sector and governments do not appear to have a plan to pay the healthcare and retirement costs of a demographic spike known as the baby boomers. These factors have created a perfect storm that will create havoc in the life of many families. This is retirement hell.