I’m a Boomer or close enough, born in December 1945. My parents, who grew up during the Great Depression, told me that financial security, especially in retirement, was the most important goal of my working years. I listened.
And so, though I’m not rich or famous, as a retired California state worker I’m reasonably secure. I get a modest but safe state pension which, coupled with Social Security and a veteran’s disability check, gives me about 70 percent of what I made while working. That keeps food on the table and the wolves away from my door. I also get good health care coverage through a comprehensive Kaiser Medicare Advantage plan coupled with state paid supplemental benefits.
Today, over 23 million Americans who are 60 and older are economically insecure, living at or below 250 percent of the federal poverty level.
You may have heard that the retirement costs of workers like me are a fiscal problem for the state and the country. They are not. The real problem is the opposite: I’m becoming a rarity.
Fewer and fewer workers can expect or aspire to the modest retirement I have. The number of people receiving secure pensions has been in decline for at least 30 years; the number of pension plans of any sort today is just a quarter of what the number was in 1984.
Retirement security declined sharply in the Great Recession, in 2008 and just after, when Americans on the verge of retirement—ages 55 to 64—lost a third of their net worth. Younger boomers lost even more. Today, over 23 million Americans who are 60 and older are economically insecure, living at or below 250 percent of the federal poverty level. Five years ago, only one in five private sector workers enjoyed the sort of traditional defined benefit pension plan that supported our parents and grandparents for as long as they lived. Today, as companies eliminate such plans even more rapidly, the number is down to one in seven.
The outlook for the future is even bleaker. Back in 1991, half of all American workers planned to retire before they reached the age of 65. Today, that number is 23 percent.
In 2008, the US Government Accountability office reported that half of all companies that still have the old, secure defined benefit pension plans are freezing them and forcing newer employees into much less secure defined contribution plans. The GAO predicted that the remaining secure private sector pensions would be gone within a few years. And then there’s Social Security, which makes up about 38 percent of total income for the elderly, and for 1 in 3 retirees, it is their only income source.
Moreover, the Social Security fund will be exhausted within decades. After that time, contemporaneous money paid into the fund will be enough to pay only about 75 percent of benefits. As Social Security’s most recent annual report warns, the window for making changes to stabilize the fund is small and closing soon. All this spells a cold, hard old age for our children and grandchildren.
The reality of that cataclysm hit home to me not long ago when I was waited on at a fast food place by a sweet old lady maybe ten years older than I am. I imagine her pay was not much above minimum wage, say $8 an hour. (Maybe I’m wrong and she owned the franchise, but she looked frail and arthritic and hardly appeared to be the boss.) Those are poverty line wages and I would shudder to think that my fellow Boomer retirees are headed for a similar existence.
Public employees have not been spared from the attack on retirement security. The pensions of those of us who served the public are increasingly at risk. Recent polls show that here in my state of California, many people, alarmed by supposedly common $100,000 pensions, now believe that public pensions are too large and that those pensions threaten the solvency of state government.
In reality, 98 percent of public retirees barely get by on modest pensions. Half get less than $1,500 a month and many—teachers and public safety workers among them – do not even receive Social Security.
One would think that private sector workers, having seen their own pensions trashed, would stand at the barricades along with public workers to protect public pensions, if only to rebuild support for secure pensions as a whole. Instead, antipathy toward public workers seems on the rise.
Who’s hurt? Minorities, for one. African Americans are 30 percent more likely to be public employees than any other race. So, let public pensions shrink and African Americans will be disproportionately affected. The same will almost certainly be true for Latinos, whose retirement savings are about half those of non-Latino whites.
Finally comes the issue of OPEB, Other Post-Employment Benefits, principally health care. Here is where my own greatest concern lies. While my pension is secure for the foreseeable future, my health care coverage could be revoked at any time. It is at the mercy of our elected leaders and the voters. Like most public employers in the US, California does not set aside money in advance to cover health care for its retirees. It is pay as you go. The state budget has recovered from the awful effects of the Great Recession, but nothing says that we won’t face another similar fiscal mess. If so, non-guaranteed costs like retiree health benefits could be among the first things tossed overboard. National estimates of unfunded public retiree health costs run from $1.2 trillion to $2 trillion.
This January, in a unanimous decision, the US Supreme Court threw out previous dicta guaranteeing vested lifetime health benefits for retirees and sent the issue back to a lower court to determine how or even if such a lifetime guarantee should apply. Few private employers provide such coverage and the decision is likely to end even that. Public sector workers may fare little better. Here in California some state workers with sufficient service credit at retirement now receive full employer paid health coverage. Because of the Supreme Court’s action, such continued coverage is likely to be a significant bargaining issue in future contract negotiations.
A piece in the San Francisco Chronicle notes that the Affordable Care Act may be the savior of retiree health benefits. Governments could simply eliminate their retirees’ health benefits and instead give them a subsidy to buy health coverage under Obamacare, thus turning a program to ensure all Americans have health coverage into a bailout for strapped or fiscally irresponsible governments. Detroit, as part of its bankruptcy plan, will stop providing health care to retirees not yet eligible for Medicare, the Chronicle noted, and instead give them each a stipend to buy insurance in the Obamacare exchange. Other cash-poor governments will likely follow suit.
My own pension is probably not at risk. The California Public Employees Retirement fund is solvent and well-managed. I’m old enough for Medicare and the small additional amount the state pays for my Medicare supplement is affordable for it. But I fear greatly for those coming after me. I certainly do not want, in my senior years, to have to see oldsters from Gen X and beyond (my kids included) flipping burgers to supplement their meager retirement savings. Or worse, facing what Shakespeare described: mere oblivion, sans teeth, sans eyes, sans taste, sans everything. And, he might have added, sans health care and pension, too.
Most major life-changing events, such as marriage or divorce, involve an ongoing process of emotional adjustment. Retirement is no exception. But while marriage, divorce and other family-related issues have been the focus of decades of research and analysis by both clinical therapists and religious institutions, the emotional and psychological frontier of retirement has remained virtually unexplored until recently.
“Helping clients answer real post-retirement planning ‘lifestyle’ questions ends up being an important aspect of full retirement financial planning. A few of the questions I ask to help clients explore their post-retirement identity are: How do you plan to spend your time? What are your hobbies? What activities will fill your days? Are people in your social circle already retired?” says financial plannerJane Nowak, CFP®, with Wealth and Pension Services Group in Smyrna, Ga. “Not surprisingly to me, more than a few clients, when asked these questions, realized that even though they might have been financially ready, they had not thought through some important non-financial aspects of creating their happy retirement. These folks opted to postpone their retirement by months or years.”
While research on this subject has barely begun, it is clear that the psychological process of retirement follows a pattern similar in nature to the emotional phases accompanying other phases of life.
Retirement: The Final Frontier
Retirees must face what is essentially the last transition in their lives. The first transition comes when we leave the security of home to begin our school life, leaving us the later afternoon and evening to ourselves. Another major transition comes when we join the working world; now we work all week but still have the weekend to ourselves. Then finally comes retirement, a time when careers are done – and we have the rest of our lives to themselves.
“We all think that shucking a routine, especially one that may only marginally make us happy, will be easy. Think again. This routine probably began in kindergarten – 60-plus years of the same thing. Get up. Get dressed. Get lunch. Go out. Come home. Eat. Go to bed. Repeat,” says financial advisor Diane M. Manuel, CFP®, CRPC, with Urban Wealth Management in El Segundo, Calif. “My recommendation to my clients is this: As you plan for retirement, think about what it looks like. Talk to your friends. Write about it. Create a storyboard. Be imaginative. Your financial plans and your day-to-day retirement plan should go hand in hand. This is your retirement identity.”
Let's take a closer look at each of the six phases of retirement.
1. Pre-retirement – Planning Time
During the working years, retirement can appear to be both an oncoming burden and a distant paradise. Workers know that this stage of their lives is coming, and do everything they can to save for it, but often give little thought to what they will actually do once they reach the goal – the current demands that are placed upon them leave them little time to ponder this issue.
Many people face retirement like a running back on the football field who dodges or plows through one defender after another until reaching the end zone. It's hard for many workers to think seriously about what their lives will be like in 20 or 30 years when they are trying to stay on top of their mortgage, put their kids through college and have a little fun in the meantime. They want to reach the end zone, but other issues will tackle them long before then if they don't take immediate action. (See: Retirement Investment Strategies by Age, The Complete Guide to Retirement Planning for 30-Somethings and The Complete Guide to Retirement Planning for 40-Somethings.)
“Life is not measured by the number in your bank account, but the memories you create. Therefore, focus on how your finances can maximize your life, not the other way around,” says Cooper Mitchell, financial advisor, Dane Financial, LLC, in Springfield, Mo.
2. The Big Day – Smiles, Handshakes, Farewells
By far the shortest stage in the retirement process is the actual cessation of employment itself. This is often marked by some sort of dinner, party or other celebration and has become a rite of passage for many, especially for those with distinguished careers. In some respects, this event is comparable to the ceremony that marks the beginning of a marriage.
3. Honeymoon Phase – I'm Free!
Of course, honeymoons follow more than just weddings. Once the retirement celebrations are over, a period often follows when retirees get to do all the things that they wanted to do once they stopped working, such as travel, indulge in hobbies, visit relatives and so forth. This phase has no set time frame and will vary depending upon how much honeymoon activity the retiree has planned.
4. Disenchantment – So This Is It?
This phase parallels the stage in marriage when the emotional high of the wedding has worn off and the couple now has to get down to the business of building a life together. After looking forward to this stage for so long, many retirees must deal with a feeling of letdown, similar to that of newlyweds once the honeymoon is over. Retirement isn't a permanent vacation after all; it also can bring loneliness, boredom, feelings of uselessness and disillusionment.
“The toughest transition most of my clients make is the one from working and saving to retirement and spending. It can be emotionally and financially harder than they ever expected. If they are younger retirees, and they have friends and family still working, it can also be very lonely, especially if they don’t have a plan,” says Shanna Tingom, co-founder of Heritage Financial Strategies in Gilbert, Az. “A proper retirement plan includes three things: a financial plan, a budget and a FUN plan! The fun plan includes things that they want to do, places that they want to visit and how much money is included in the budget for those things.”
5. Reorientation – Building a New Identity
Fortunately, the letdown phase of retirement doesn't last forever. Just as married couples eventually learn how to live together, retirees begin to familiarize themselves with the landscape of their new circumstances and navigate their lives accordingly. This is easily the most difficult stage in the emotional retirement process and takes both time and conscious effort to accomplish.
Perhaps the most difficult aspects of this stage to manage are the inevitable self-examination questions that must be answered once again, such as “Who am I, now?” “What is my purpose at this point?” and “Am I still useful in some capacity?” New – and satisfying – answers to these questions must be found if the retiree is to feel a sense of closure from his or her working days. But many retirees cannot achieve this and never truly escape this stage – make sure you do.
6. Routine – Moving On
Finally, a new daily schedule is created, new marital ground rules for time together versus time alone are established and a new identity has been at least partially created. Eventually, the new landscape becomes familiar territory, and retirees can enjoy this phase of their lives with a new sense of purpose.
“When you are newly retired, it can seem like you are riding on a roller coaster. Peaks and valleys require attention and patience to manage. In time, the new norm will be your new reality,” says Kimberly Howard, CFP®, founder of KJH Financial Services, Newton, Mass.
The Bottom Line
Life planning is an important key to successful retirement. Workers who have given serious time and thought to what they will do after they retire will generally experience a smoother transition than those who haven't. Dreams and goals that cannot be achieved with a single trip or project may translate into long-term, part-time employment or volunteer work. But it is never too soon to begin mapping out the course of the rest of your life.
As with all emotional processes that can be broken down into separate phases, it is not necessary to completely achieve one phase before beginning another (except, of course, for the actual cessation of employment). But virtually all retirees will experience some form of this process after they stop working. Their ability to navigate these uncharted waters will ultimately determine how they live the last phase of their lives.
For a sense of how these phases might affect you financially, see Three Stages of Retirement: A How to Guide to Plan for Them.