Our On-Going Retirement Crisis

It seems like another life. At the height of his corporate career, Tom Palome was pulling in a salary in the low six-figures and flying first class on business trips to Europe.

Today, the 77-year-old former vice president of marketing for Oral-B juggles two part-time jobs: one as a $10-an-hour food demonstrator at Sam’s Club, the other flipping burgers and serving drinks at a golf club grill for slightly more than minimum wage.

While Palome worked hard his entire career, paid off his mortgage and put his kids through college, like most Americans he didn’t save enough for retirement. Even many affluent baby boomers who are approaching the end of their careers haven’t come close to saving the 10 to 20 times their annual working income that investment experts say they’ll need to maintain their standard of living in old age.

The U.S. is facing a retirement crisis with too many Americans who will be hitting their retirement years without very much money saved up: “59 percent of households headed by people 65 and older currently have no retirement account assets, according to Federal Reserve data analyzed by the National Institute on Retirement Security,” reports Bloomberg. Nearly 7.2 million Americans over 65 were still working last year.

The Bloomberg story features a 77-year-old former executive named Tom Palome as an example of one of the many Americans out there who should be settling into retirement, but has continued working. Palome could probably scrape by without working: He receives $1,200 a month from Social Security and is fortunate enough to have $600 a month from a pension from a corporate job he had—that’s $21,600 a year to live on. But Palome says he sees too many seniors who are unable to leave their homes to do anything because they don’t have any money beyond what they use to cover their living expenses, so to maintain his independence (he has declined offers from his children to live with them) and pay for things like plane tickets to visit his children and grandchildren and travel for vacation, he has taken two part-time jobs to add an additional $1,400 a month to his income.

Palome’s story is a cautionary tale—how a former executive earning six figures ended up without enough money to live on for retirement—but I would not say that he’s 100 percent to blame for his circumstances. When his kids were 14 and 16, his life turned upside down after his wife was tragically killed in a car accident, and he went from an executive who traveled a lot for business to a single father who tried to hold everything together. The money he did have for retirement—about $90,000—was decimated during the financial crisis after he stopped working. Young people have the luxury of allowing the markets and their accounts to recover before they retire. They have the luxury of time to provide them with a rebound. Those who retired in the recession were extremely unlucky.

And yes, Palome also made other choices instead of diligently putting away money into a retirement fund: He funded his children’s college education (folks, please fund your own retirement accounts before putting away money in a 529 college savings plan or another kind of savings plan for your children—they would rather have you be able to retire comfortably than working at 77). When he downgraded to a much cheaper home in Tampa, Fla., he sold his house in New Jersey, divided the money from the sale, and gave it to his children as a form of inheritance. He also provided financial help to his elderly parents. Palome was very generous to others, and not enough to himself. Even so, he could not have foreseen the financial crisis. It was bad luck and timing.

In any case, the retirement crisis is bad news for all of us. More older Americans staying in the workforce means fewer jobs to go around. And with fewer jobs to go around, we’ll never start earning enough money to sock away for retirement.

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36 Comments / Post A Comment

garli (#4,150)

Woah, is this a real thing: Even many affluent baby boomers who are approaching the end of their careers haven’t come close to saving the 10 to 20 times their annual working income that investment experts say they’ll need to maintain their standard of living in old age.

10-20 times? Holy crap that sounds unpossible.

Mike Dang (#2)

@garli Yeah, it’s pretty much in line. We’re constantly told that even saving $1 million may not be enough for retirement, and if your annual salary is around $80,000, that’s more than 10 times.

Blondsak (#2,299)

@garli

Well, if someone retires at 65, it is expected they will live at least another 10-15 years, based on average life expectancy. So, retiring with somewhere between 10-20 years of your average yearly income in order to maintain your current lifestyle, would be about right.

readyornot (#816)

@Blondsak It would be about right EXCEPT they will also receive Social Security in retirement (these boomers will, anyway), they will have a reduced tax burden, and they don’t have to be saving 15-20% of their income from working to live off of in retirement…because they’re retired. I don’t know what the right figure is, and I’m not suggesting there’s not a real problem in our country around retirement resource preparedness, but 10-20 times could be too high. Such a high number also might have the perverse effect of discouraging someone who sees 5-6 as more achievable.

garli (#4,150)

@Mike Dang Does that include real estate as an investment? In theory (as in if I don’t re-fi my mortgage ever) I’ll have my house paid off before I hit retirement age. That’s a huge chunk of my monthly expenses – not having to pay for housing (and the ability to sell it) is totally part of my retirement plan.

In that case it’s less of a big deal assuming that my/my husband’s retirement accounts don’t blow up too close to when we’re planning on retiring.

garli (#4,150)

@Blondsak That’s simultaneously reasonable and terrifying. :)

WayDownSouth (#3,431)

@Mike Dang our accountant advised us to try to get up to $2m (not including the house that we’re living in, provided that it’s paid off (which it is)). He said that we need to allow for inflation, so $2m is saver than $1m.

WayDownSouth (#3,431)

@garli it’s certainly not impossible to have 10-20 times your yearly income in savings. However, you have to work at it from an early age. That’s why it’s frustrating to read posts from people who say that their 20s don’t count. In fact, they count very much.

karenb (#2,685)

@garli i just realised that nearly all of my grandparents lived into their 90s, so my number is going to be more like 30x my income, oi. that or i never stop working, which actually looks more reasonable from here.

garli (#4,150)

@karenb You could take up smoking?

No just kidding.

swirrlygrrl (#2,398)

@readyornot but then there are new expenses, often related to health/home assistance/long-term care.

Trilby (#191)

@Mike Dang — But here’s the thing: if you earned $80K a year while working, do you really need $80K a year after you retire? Who says you have to have the same standard of living that you enjoyed when you worked and made $80K a year? Your expenses will be less (wardrobe, transportation, other things). Plus, if your salary was $80K, you actually lived on substantially less than that because of taxes.

@ swirrlygrrl
Yeah, the costs of long-term care are pretty terrifying:
http://longtermcare.gov/costs-how-to-pay/costs-of-care/

dude (#5,879)

@WayDownSouth — your early years count, but they don’t count nearly as much as your savings rate. The key for most people — and the hardest thing to do if you look around at people’s consumption habits — is to NOT let lifstyle inflation take hold, i.e., keeping up with the Joneses. There are millions of people out there, not all of them high earners, who are doing just fine and will be fine in retirement, because they actually realized the importance of living a frugal lifestyle and saving for the future. And by frugal I don’t mean deprived or austere, I mean “not wasteful.”

dude (#5,879)

@swirrlygrrl — many of which are PREVENTABLE! Eating well, exercising, good oral hygiene, and avoiding stress — these habits can pay off huge dividends in old age. Sure, there will be unfortunate circumstances for many that can’t be prevented. But look around at your fellow Americans and tell me that a vast chunk of those problems aren’t self-inflicted.

Derbel McDillet (#1,241)

And here I am super-stoked to have finally hit the $10k mark in my 401k. Blurg.

Allison (#4,509)

@Derbel McDillet compound interest! $10K is a great landmark!

garli (#4,150)

@Derbel McDillet You should be stoked. 10k is way better than 0k.

swirrlygrrl (#2,398)

@Derbel McDillet It’s a great start!! I remember hitting $10K (I was 31?), and it was this amazing feeling. Now I’m working towards $100K (I’m very lucky, but am hoping I’ll make it by 40, while still buying a house).

Sloane (#675)

I feel bad for this guy – all the stars aligned against him. Even if the recession hadn’t struck, his savings (which was apparently not an IRA or other retirement account, so he hadn’t taken advantage of tax planning) would have provided him with a lot less than he is earning now. Like he said – he didn’t plan to live to 77.

But the loss in his retirement account (~$40K) would not have made up for giving his kids their inheritance (~$160K) instead of taking the profit to provide for himself. I’m all for generosity and
everything, but no need to impoverish yourself in order to give.

EM (#1,012)

@Sloane Yeah, I wonder if his kids feel like assholes for taking his money now that he has to work two jobs to come visit them.

jquick (#3,730)

@Sloane I don’t feel sorry for him. He made one poor financial decision after another, and is now reaping the outcome of those decisions.

WayDownSouth (#3,431)

It’s a very unfortunate story. His wife’s death was shattering for the family and the repercussions are being felt even today. Very sad.

This is exactly the point of having a social safety net. Outside shocks — like the death of your wife in an accident, or a massive financial crisis — can upend ANYONE. If we all chip in a little bit, it’s like insurance for our whole society.

swirrlygrrl (#2,398)

@stuffisthings Yes! I am so grateful to live in Canada (health care! The Canada Pension Plan, and Old Age Security and the Guaranteed Income Supplement!), and also plan to cling to my government job and pension plan no matter what.

WayDownSouth (#3,431)

@stuffisthings given the US demographics, people will have to chip in much more than a little bit. Even though this person is old enough to receive social security, it’s not enough to support him.

SterlingCooper05 (#2,529)

@stuffisthings This is why people with children buy life insurance…for about $40 a month right now, I can get $1M in term coverage. The article did not mention if any life insurance was in place at the time. Sad story…

Eric18 (#4,486)

@stuffisthings Except we already “chip in” ALOT of money to government programs that end up being mismanaged horribly. Yes, in a utopia, a social safety net for all would be nice. The problem is it can spiral out of control real fast (within a couple generations) and then future generations are screwed. Just look at many European countries as an example.

And we are also not a tiny, homogenous Scandinavian country of 6 million people so let’s not go down that path.

@Eric18 I’d love to know which ones you think are “horribly mismanaged” (Social Security’s <2% overhead?) but I’m rather more interested in how homogeneity affects the performance of social programs…

marklosangeles (#4,825)

@Eric18 You chip in barely anything compared to Europe, Canada or Australasia, the difference being no-one pauses to call an ambulance in those places, or worries what a long-term disease would cost. Trust me: social pensions at a decent level and free/reasonable health care make being old a lot easier. You sound immature, poorly informed, and possibly a bigot (as noted above). Hoo-ra!

WayDownSouth (#3,431)

@marklosangeles I haven’t lived in Europe or Canada, but I have lived in Australia for quite a few years. Your rather utopian descriptions are incorrect for Australia.

People do hesitate to call an ambulance because they can cost hundreds or thousands of dollars unless it’s covered by their private health insurance. The public hospitals are overwhelmed and people can spend months on the waiting list for non-emergency treatment. (This happened to a friend of mine who had to wait over a hear for non-emergency heart treatment.)

Health care is not free. In fact, the government mandates that all working age citizens must have private health insurance or pay a tax penalty. Social pensions are not at a decent level — that’s one reason why the government emphasises the need for voluntary and company-funded superannuation.

I didn’t read anything Eric18 wrote which qualifies as immature or bigoted. If you are going to state that someone else is poorly informed, I suggest that you get your own facts in order before doing so.

Eric18 (#4,486)

@stuffisthings I was commenting on people who complain, “why can’t we be more like Sweden!! Wahhh!!

Not surprised it went over your head. That seems to be a habit with your comments.

And as for government programs, how about the pensions of many local and state governments. Think the ones in California and Detroit have been greatly managed. I’d love to hear your defense of that.

Eric18 (#4,486)

@marklosangeles And what exactly about my comments were bigoted? Or immature or poorly informed? And what is your master plan to PAY for all of this?

loren smith (#2,300)

@marklosangeles sadly this Canadian thinks twice about calling for an ambulance – that shit costs real money here too. And there have been times when the government mandated monthly health care premium bill has been crippling for me. Not complaining, but it’s not a utopia up here.

pissy elliott (#844)

@Eric18 I realize “California” is some kind of right-wing codeword for left-wing dystopia/the Land of Fruits and Nuts, but I am pleased to inform you that CalPERS and CalSTRS are two of the largest, and most successfully managed provident funds in the world.

sarrible (#1,545)

Yeah, this basically gave me a small panic attack last night and made me stare morosely at all my bank balances and my IRA. I had this weird moment of “maybe if I cancel my Hulu subscription I’ll be able to retire before I’m 75?”

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