Remember how You once thought of Old?

Boomers have no problem with admitting they are getting old. They may not want to face the realities of age but the facts are there - if only in the reflection staring back from the mirror.

Remember when old was anything just a generation ahead of you. If you were ten, anyone in their thirties, more often than not, your parents and their friends, your teachers and coaches, were all old to you. It seems that as you got older, the definition of what old was was pushed back further. By the time you were 30, old was fifty. Why do we place such importance on this bookmarkers of passing time? Because each "old" has its own problems, not just health-wise as our bodies age, but financially as well.


Everyone has an answer to the conundrum of age. When it comes to money, the issues seems to double in size and complication and as a result, weigh much more on what our next stage of old will be like. You are told to invest in your retirement early and often even as the only word financial word you have any real acquaintance with is debt. In your early to late twenties, it manifests as college debt and the high cost of flying on your own for the first time. You invest little for retirement and pass up the financial golden ring to pay-as-you-go because you will never be old.

And then, a decade or so later, you are older faced with mortgages and kids and schools, saving for college, insurances and taxes and simply keeping pace with your family. You have begun to invest but in a piecemeal way. You may be auto-enrolled in your company's 401(k) if your workplace has one. If not, you probably haven't done much, at least regularly with investing for old when left to your own devices. You may have lumped summed it, which is bette than having done nothing, by dropping tax returns or bonuses in some IRA. But old costs more than you might have and debt, that first word you learned upon getting your diploma, is probably still a very real participant in your day-to-day decisions.

Forty is better and older but you now feel the bruden, mostly in the form of guilt at having underinvested. Now you struggle with older kids, college realities and aging parents. You probably have refinanced you home and if you are like many Americans, still paying for a vacation you took a couple years back all the while planning on the next. If you are like most, you haven't increased your payroll deduction in your 401(k) since you enrolled and probably haven't done much in the way of rebalancing or choosing the best age-appropriate investments.

Fifty, the real old, hits you like a ton of bricks. You may have some or all of the same problems you did at 30 (I hope not) and at 40 (kids are failing to launch, parents are a real concern) but now you grasp them to their fullest. And with a gasp and a moan, you realize that you will have to work until you are 70. the oldest person alive when you were 10.
Here are five basic things to do if you realized you are old. Or 50.

1. Get your head around any and all debt. Nothing will bring a future to its knees faster than paying interest on borrowed money.
2. Get out a calculator. Not just the physical kind but the online kind as well. As much as I dislike these tools, because one allows this input while another doesn't, just take the raw data: how much is currently in your retirement accounts, estimating that they will grow until you decide to retire at a modest 4% (this accounts for mistakes you can't know about like inflation and taxes) with a modest 4% withdrawal if asked to enter this as well and hit enter. Now take that number, usually expressed as a annual income, divide it by twelve and ask yourself, can you live on this?
3. Ask yourself is this enough? If it is 75% of what you currently need to live on, you aren't just old you're wise too. It its less than that, you will need to rethink your cost of shelter, the amount of money you spend each month and in doing so, channel every available cent to the plan you have in place. It might seem like a huge hurdle and it is. But you are running out of time. It means budget, budget, budget.

Of course, it goes without saying that starting early is best. And it also goes without saying the every age has its own setbacks financially. But every age has its potential for success and as you age, the potential doesn't go away, it simply becomes a little more challenging. Worrying about money as many surveys suggest we do, will not fix the problem. Why? Because worrying is the purview of someone who has no control over a situation happening. This one is all yours and well within your ability to control.

Paul Petillo is the managing editor of Target2025.com/BlueCollarDollar.com and a fellow Boomer

Baby Boomers: Are Your Denying a Time when You will be "Old Old"?

Baby Boomers face all sorts of challenges when it comes to retirement. Are we ignoring the most obvious of those challenges when we refuse to think that we will one day be old - not just older, but old old.

It is a relatively well known phenomenon amongst the soon-to-be retired. You are jettisoned from your 401(k) with a large chunk of money, a lifetimes' worth of hard earned cash. You are forced to make a decision about what to do with it. Kept in its present form would require you pay taxes on it as it is. Rolled into an IRA allows you to hold off on distributions, possibly until you are 70 or begin to take money out. But some folks fall into the annuity trap.

This choice, the annuity, in whatever flavor you are sold by the insurance company is often picked when the newly retired person does so in the midst of what would be a bear market.

For those not versed in that term, this a period of lower stock prices; the reverse of which would be a bull market. Most folks fall back on the same logic, perhaps not fully tested or vetted, that retiring in a down market is hardest on your retirement account because you have far less than you might have has had you retired when the market was on the upswing.

On paper it might look bad. But the bear market might be your friend, especially if you are the counterintuitive type not prone to believe the conventional wisdom. What is the conventional wisdom? To be upfront, something I disagree with in most cases in large part, because I don't think pat formulas work. We evolve and so does our thinking. Why, if that is true of us and we are the markets, do we insist on being harnessed by stringent parameters?

Because they provide comfort, a point of reference, a goal. No matter what name you assign them, they are prevalent and with so many personal finance and retirement "gurus" saying the same thing, you tend to fall lockstep into the same thinking. Withdraw 4% you chant and you will never run out of money.

I've disputed this notion in the past as not very wise or thoughtful. Two things helped me arrive at this conclusion. Long before Susan Jacoby wrote her new book about old age (Never Say Die: The Myth and Marketing of the New Old Age, Pantheon Books), which provides a no-hold-barred look at the distinct, perhaps inevitable slide the human body takes on its path to death, I was suggesting that we might live longer but what will living longer mean. Oh, we may live to 85, but our arrival signals the end of cognitive independence for more than half of us.

She blames the baby boomer, the reinventor of what life is as the culprit in this thinking. We may have changed the way our youth unfolded and we may have upset the norm throughout our working careers. But when it comes to old age, it doesn't matter whether you have some sort of can-do attitude, you won't be able to change what is going to happen to you. You may envision a life of vigor and vitality, volunteerism and travel. We all need something to keep us moving forward. But Jacoby says we are ignoring the hard facts of life. We'll still get old. And with age comes the maladies of that time. Still there and still the same unsolvable mysteries.

So we will reach a point somewhere in the future - and the odds are in favor of this thinking - when you will no longer be the person you are right now. The years that you believed would be full and vital are now gone and you are collecting in the form of equal - possibly inflation adjusted - income that you can't spend. You scrimped in the early years of your retirement, downsized, even counted every penny. And then later in life, it doesn't matter. My suggestion was to start out big and taper back. Perhaps gradually easing back from a 6-7% withdrawal rate in the first ten years of retirement to a paltry 2-3% by the time you are 80 years old.

The result would be more or less the same with you using the money in the early years to do what you thought you could do and scaling back as your new sedentary lifestyle takes hold, an inevitability we can't avoid. "Young old" is easy to imagine. "Old old", not so much.

But the choices we make right at the moment of retirement may have a greater impact on how well that retirement is financed than we may have previously thought. Those bear market retirees, the ones who graviate towards annuities more so than their cohorts who retire in the midst of a bull market, may end up doing better over a longer period than their more optimistic cohorts.

I am of course referring to the studies done by Wade Pfau, an associate professor at the National Graduate Institute for Policy Studies in Tokyo who has suggested that retiring during a bear market is actually the best case scenario. His thinking is that a bear market provides more upside potential than a bull market would. On this point, he may be right. Our penchant to follow the herd during a bull market gives the impression that markets will always go up.

And there is some proof that for a time, they will. There is also proof that if you retire during a robust bull market, you will be more inclined to believe that you possess some sort of powerful ability to manage your money better. But bull markets fall and this causes confusion among those who may have deluded themselves into thinking they were more skilled than they were.

Professor Pfau thinks that a 60/40 stock split is optimal and if you invest over the course of 30 years at a rate that is close to 17% of your pre-tax income, you will be able to have 50% of your pre-retirement income, inflation adjusted, throughout your retirement. Staring earlier will mean less needed to get to the same mark. And of course this excludes any other money you might receive in retirement.

You are probably saying to yourself, 'that's a lot of income to sock away' and you'd be right. But this is one thing that hasn't changed: if you think you haven't been putting enough away, you are probably right. If you think old age is something that will resemble the first day of retirement for the next 30 years, you would be wrong.

Baby Boomers should be thinking about spending more when they are healthiest. Because 'old old' doesn't give you the chance to revise your planned 'young old' retirement.

Paul Petillo is the managing editor of Target2025.com/BlueCollarDollar.com and a fellow Boomer

Workers giving retirement the boot

Workers giving retirement the boot
By Jonathan Peterson, Times Staff Writer
May 30, 2007

Every morning, a trusty alarm in his own head wakes up John Feyk before 5. Less than an hour later, he is stepping into the white commuter van that drives him 20 miles to Aerospace Corp. in El Segundo.

He has worked there for almost half a century.

"It does get to be more of a strain getting up at 5 in the morning," said Feyk, 79. But retirement, he added, is something he has given little thought to over the years.

"I didn't decide not to retire at 65," said Feyk, a chemical engineer who lives in Rancho Palos Verdes. "You have to decide to retire."

A growing portion of the U.S. workforce seems to agree. After falling for more than 100 years, the retirement age chosen by working Americans is edging up once again, and the trend could have broad consequences for households and the economy.

In the mid-1980s, just 18% of people in their late 60s still had jobs, the Bureau of Labor Statistics said. That figure is now up to 29%, and experts believe the level will continue to rise as people confront the prospect of a lengthy and expensive old age with limited retirement benefits. More than 1 in 4 baby boomers — the huge generation born from 1946 to 1964 — plan never to retire, a recent survey by the National Assn. of Realtors shows.

Many will not achieve that goal. Health problems and workplace pressures such as cutbacks force many workers into retirement earlier than they expect. And employers that have a choice often prefer the young, viewing older workers as costly and resistant to new technologies.

Despite that, more older Americans are pulling paychecks, a shift that is increasingly noticeable among people in their late 60s.

The trend "is really quite dramatic, considering what was going on for so long before that," said Sara Rix, a strategic policy advisor at the AARP Public Policy Institute.

For many years, society made it increasingly easy to stop working. Social Security retirement benefits were repeatedly enhanced after World War II. The advent of Medicare in 1965 helped pay the medical bills. Large employers typically offered pensions that guaranteed set payments for life.

Today's workers face a more hazardous landscape. Traditional pensions are increasingly rare. Companies are cutting back retiree healthcare benefits.

Even the bulwark of Social Security is quietly retrenching. The traditional age of 65 to qualify for full retirement benefits is gradually moving upward — workers born in 1960 and after will have to wait until they are 67 to get their full amount. In the coming years, more Social Security benefits will be subject to income tax, and higher premiums for Medicare Part B (which covers certain medical services) will further erode benefits.

These growing financial pressures may hit baby boomers particularly hard. As much as 80% of this group expects to work during what would normally be their retirement years, according to polling by AARP. Meanwhile, legal barriers to work for older people are largely a thing of the past. In 1986, the government outlawed mandatory retirement for most jobs.

"I'm not sure when I would want to retire at this point," said Claudine Welsh, 60, a Corona resident who works for a benefits administrator. She is thinking about taking on a second job and expects to work for at least seven more years. "Basically, it's because of money."

Welsh, who is single, has no private pension, and her 401(k) balance is $10,000. Home equity is key to her future economic security — she co-owns two houses with relatives. Beyond that, she views work as an important part of life and talks about one day opening up a coffee shop with her older sister.

Otherwise, "what are you going to do with all that time?" she asked.

And there could be a lot of that. For a married couple of 65-year-olds, the odds are 83.7% that at least one spouse will survive to age 85, according to the Society of Actuaries. Chances that one will live to 90 are 63%, and chances that one will reach 95 are 35.7%.

Ten years ago, the typical age of retirement for all U.S. workers was 60, according to the Employee Benefit Research Institute. Recently, it has risen to 62 overall, a shift that researchers believe may be partly tied to the increasing reliance on 401(k) plans and the decline of traditional pensions that guaranteed monthly payments for life.

The trend could potentially have a big effect on society, putting more money in the pockets of the elderly and even giving the economy a boost, as more workers continue paying income taxes in their golden years. Research by analysts at the Urban Institute suggests that if all workers added one year to their careers, it could markedly reduce the projected shortfall in Social Security.

"It's a direction we have to go in," said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. "You can let your 401(k) plan build up some more. You can reduce the period that you have to live off your assets."

The economy's long-term shift toward knowledge-based jobs and away from physical labor is another force that might be increasing the rolls of older workers. Already, older employees with higher levels of education seem to be playing a major role in the trend, and some say the psychological rewards rather than money are what motivate them.

"It's interesting work," said Feyk, who has worked at Aerospace Corp. for most of the last 45 years. "It's new challenges."

Feyk helps oversee classified work of contractors on military space and missile systems. "The things that we do, the projects that we look at, have never been done before." Still, it is unclear how far the trend toward working later in life will go. Society is much richer than the days when people worked almost until death, and early retirement continues to hold some of its allure.

Older employees can find themselves scrambling between different jobs, as companies rise and fall and long-term relationships between employer and employee become rarer.

When Jules Lippert's business of selling prebuilt homes went bust in the 1980s, he loaded a van with antiques and spent the next 16 years selling his wares at trade shows around the United States.

Finally wearying of the road, he tried to shift his business to EBay. A couple of years ago, he took up his neighbor's offer to train interviewers for market research.

Now 76, Lippert still works as many as 35 hours a week: "As long as I'm in good health, I see no reason to retire," said the suburban Philadelphia resident. "I would sit around and vegetate."

At the same time, money "is important," said the grandfather of seven. "My wife and I could exist on our combined Social Security plus our IRA, but it would not leave a lot of room for extras."

Employers will play a big role in deciding whether baby boomers' visions of an industrious old age turn out to be fantasy.

Some companies rely on the institutional memory and experience of longtime employees.

"We encourage people to stay with the company," Aerospace spokesman David L. Jonta said. "We have a lot of people that do, and we value that expertise."

Hospitals and other employers struggling with labor shortages are also known to court older employees by offering flexible schedules and extra leeway for time off.

Still, such companies "quite frankly are ahead of the curve," said Deborah R. Russell, director of workforce issues at AARP.

After interviewing 400 employers, researchers at Boston College recently concluded that many companies were only "lukewarm" about accommodating older workers who might be willing to stay on the job a few extra years.

Which doesn't make a lot of sense to Feyk.

"Somehow we're going to have to get people over 65 into productive work, because there aren't going to be enough of the young people to support them," he said.

He is not the only member of his family who feels that way. Feyk's wife, he noted, recently got a job as a church organist in San Pedro. "She's getting her W-2 right now," he said, adding: "She's just a young thing. She's only 75."

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jonathan.peterson@latimes.com

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(INFOBOX BELOW)

Staying on the payroll

The trend: Americans are now typically retiring at age 62, compared with age 60 in 1997, reversing decades of decline in the retirement age.

What's behind it: As employers scale back pensions and health benefits for retirees, many people cannot afford to retire. Others simply choose to work, saying they would be bored otherwise.

The consequences: By staying in the workforce, older employees generate more spendable income — buoying the economy and contributing additional income taxes. Social Security could also be helped as workers pay into the system for additional years.

Los Angeles Times


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