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Traditional retirement expectations are being rewritten
on a daily basis now. But the message is clear, lifestyle expectations
for many in their "golden" years are turning into copper and other forms
of scrap.
According to Marketwatch.com's retirement guru Robert Powell "If you're a baby
boomer, the odds are high you'll exhaust your retirement savings after 10 or
20 years of retirement, according to the latest Retirement Readiness Rating report
released this week by the Employee Benefit Research Institute." That means that
expectations and reality may need a new level of synchronicity for a large number
of people, whose expectations may be pegged to 1980 reality.
Here are the stark numbers: "Nearly half of older boomers -- those now aged 56
to 62 -- and some 44% of younger boomers -- aged 46 to 55 now -- are at risk
of not having sufficient income to pay for basic retirement expenses and uninsured
medical expenses, according to the study." And "The study, which assumed that
boomers would retire at age 65, also found that lower-income retirees are most
likely to run out of money after 10 and certainly 20 years of retirement, while
higher-income retirees are least likely to run out of money."
Finally: "41% of those in those lowest income quartile are likely to run short
of money after 10 years of retirement, and 57% after 20 years. Meanwhile, just
5% of those in the highest income quartile will run out of money after 10 years,
and 13% after 20 years."
Powell thinks there's some nuance here, noting: "In reality, most Americans don't
run out of money, they run out of lifestyle. As they age and spend down their
assets, they typically reduce their living standard." That means that people
eventually realize their situation and make changes to accomodate reality. But,
of course, when enough people make the same decision you get trends, such as
decreased consumerism, less travel, more bargain hunting at food outlets and
warehouses, etc. The overall effect is that of an overall downsizing in retail,
services, and perhaps a perpetuation of the high unemployment situation as companies
continue to keep hiring low in order to maximize profits.
According to Powell: "Other research finds a high likelihood that Americans will
be forced to spend less. After factoring in health-care and long-term-care costs,
the National Retirement Risk Index, or NRRI, produced by Boston College's Center
for Retirement Research, finds that some 65% of American households are at risk
of not having enough money to maintain their living standard in retirement, according
to the NRRI."
Whats' more likely is that people will spend less, and those that age will attempt
to extend their working years. Citing data from Sun Life Financial's Unretirement
Index, Powell reports: "the portion of Americans who plan to work past age 67
is higher than ever: a record 55% plan to work full- or part-time, up from 52%
one year ago. And the percentage planning to work full-time past age 67 reached
a new high of 28%, up from 19% one year ago. There was also a sharp rise in workers
who said they will need to work longer than planned because of the economic crisis,
according to Sun Life. Sixty-five percent said they will have to work more than
one year longer, compared to 54% in the last index. And 27% said they will have
to work more than five years longer, compared to 24% in the last Index." And
the major reason for working longer, according to the report is to maintain their
current standard of living.
Powell notes that this dynamic is well under way now as "many Americans are already
working longer, be it to maintain their standard of living, stay mentally engaged
or for the health-care benefits. Americans aged 65 and older in the upper income
quintile now get about 40% of their income from working."
Which, of course, means that the trend is well under way, and that the economic
implications are already visible.
Conclusion
People are living longer, and are now having to work longer to enjoy some of
the fruits of their labor. That makes little sense unless you're living the story
yourself, as many are. Longer working hours, holding more than one job, and saving
more are not foreign to this scribe, who holds a full time medical practice and
moonlights as a market analyst and freelance writer.
But, as time passes as the squeeze from the general trends in life as we know
it increases, more of us will be in the same boat.
The bottom line, according to Powell, and which is a sensible bit of advice: "Earn
lots of money now and save as much as you can. Because the odds are against you
otherwise."
In other words, retirement has gone from a golden challis to a copper bowl. Just
be glad that you've got an opportunity to cut back some as you age.
We'll be on Twitter
some time today before the market closes with some updated comments.
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Goldman Sachs (NYSE: GS) admitted that it should have
known better in the way it conducted its subprime
business deals and paid the SEC $550 million. So
does that mean it's over?
Chart Courtesy of StockCharts.com
Is Goldman out of the dog house? If it is, then we
should see some gains in the stock. After the announcement
yesterday, the stock rallied above 150, and that's
where it was trading this morning in pre-market.
How Goldman performs is important, if the stock is still a bellwether. And that's
really what's being decided by the market. Now that it's settled with the SEC,
can the company put all this behind it and regain its role as a major market
bellwether.
The easy way to find out is to see what the shared do, and what the market does.
If Goldman rallies and the market follows, that's a positive. If the course of
the two entities diverge, we'll have to see.
The bottom line is that we are now in an important testing phase of Goldman's
relationship to the market as a bellwether.
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