Friday, July 11, 2014

Facing the Retirement Crisis

Last week I painted a pretty grim picture of retirement, but it's not so bad when put into perspective.

This MoneyWatch article talks about retirement in the 1950s and begins with the statement that in comparison, most of us would feel deprived.  They had far fewer financial resources than we do today, but their expectations were appropriate to that level of resources.  

Having been raised during the depression, the retirees in 1950 knew what it was like to have little and to get by on little and to appreciate what they did have.  Necessities did not include a second car in the garage, or for that matter a garage.  "There were few TVs, no computers, no cell phones, no entertainment centers, no home gym equipment. Long-distance phone calls were expensive, so people usually communicated with distant friends and relatives via regular mail."  Houses were smaller and families were bigger.  Jeans were patched when they got holes in them, not bought that way.  Those who bought new clothes instead of mending the old ones or getting something handed down from an older sibling were considered well to do.  Also reserved for the upper echelons or special occasions was the “luxury” paying a professional to cut your hair.

In 1950 pensions were less common than they are today and our tax-deferred retirement savings tools were not invented until decades later, as were such financial instruments as reverse mortgages.  (So your house was considered a residence, not an investment.)  “In 1950, the average Social Security benefit was $29 per month. In 2012 it was $1,262. In 2012 dollars, that $29 translates to about $280, which means the average Social Security benefit in 2012 is worth about 4.5 times the average benefit in 1950.”  Part of the answer to their ability to get by on so little was the very modest cost and equally modest outcomes of healthcare at the time and the related shorter life expectancy; but also the willingness to work longer, while having much lower expectations about personal possessions and leisure activities. 

As we look back we might wonder how they got by and try to learn some lessons from our grandparents.  The strong message is one of perspective.  Compare, for example, the expectations of the 1950s to the USA Today article from earlier this week listing $130,000 per year as the price to live the "American Dream" for a family of four.  Clearly many more people can dream this than can live this, but without perspective everyone had permission to believe the marketing messages and feel bad about it.  The first article closes with:  “Instead of comparing ourselves to the Joneses, let's focus on what we really need, what we can realistically afford and what truly makes us happy.”  This is good advice for retirees and prospective retirees, but also for everyone else beginning with our children and grandchildren.

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