Retirement, like the laundromat and the board game Monopoly, was an invention of the Great Depression. Jobs were scarce, and retirement was a way to free up jobs for younger people with children to support.
The Great Recession of 2008 had the opposite effect. America is now in the midst of a “retirement crisis” forcing millions of senior citizens must keep working to support themselves and avoid poverty. While many boomers thought of retirement as decades of leisure after decades of work, they arrive at retirement age only to be disillusioned.
Leisure is one myth of retirement, but it’s not alone. The notion that no work should be a goal is the first, the notion that the old should forsake work at 65 to leave room for the next generation is another.
A brief history of paid leisure
In her essay in The New York Times, Mary-Lou Weisman describes retirement as a “Darwinian sacrificial moment.”
“Retirement was a necessary adaptation and everybody knew it, but the old guys were not going quietly,” she writes. “By 1935, it became evident that the only way to get old people to stop working for pay was to pay them enough to stop working.”
An unemployed California doctor named Francis Townsend proposed that the government set a mandatory retirement age at 60 and pay pensions equivalent to the full salary of a middle-income worker.
President Franklin Delano Roosevelt, “horrified at the prospect of Townsend’s radical generosity,” drew up the Social Security Act of 1935 as an alternative, making him the first president to support federal assistance for the elderly.
The next hurdle was to make retirement seem appealing. Retired people had to figure out what to do with their time. It turned out that Americans were bad at “doing nothing,” so retirement was only palatable as a state of active leisure, filled with new interests and hobbies, activities, travel and family. Luxurious, active retirement communities cropped up around the country, often in warm locations strewn with golf courses.
While golfing lifestyles are expensive in any economy, accessible only to those who amass a hefty nest egg, the economic crisis of 2008-9 put even basic retirement out of reach for many.
The retirement crisis now
A report last year from the National Institute on Retirement Security found that retirement savings in the U.S. are “dangerously low.” More than 90 percent of working households do not meet conservative retirement savings targets for their age and income.
The median retirement account balance is $3,000 for working-age households and $12,000 for near-retirement households. Forty-five percent, or 38 million working-age households, do not have any retirement account assets at all. Furthermore, 37% of middle class Americans believe they will work until they grow ill or die.
A number of factors have brought this about. Public and private pension systems are flawed and often underfunded; the government does not support increasing social security benefits; and the “great 401k experiment of the past 30 years has been a disaster.” Millions saw their assets vanish during the housing bubble collapse, subsequent stock market crash and period of high unemployment. People are struggling to pay bills and get out of debt, which makes it difficult to save for the future.
Boomers account for 24 percent of the U.S. population, and they are now hitting retirement age, ready or not. About 250,000 turn 65 every month, and 10,000 boomers retire every day. This pattern will continue for the next 15 to 20 years.
People are also living much longer now, thanks to advances in health and nutrition. Retiring at 65 may have been reasonable when the median longevity was 70 or 75, but now people commonly live to be 85, 90, 100. Sixty-five is not the onset of old age, but the beginning of a long second act, which means retirement funds need to last for decades.
The end of retirement isn’t all bad
Most people now need to work longer, but delaying retirement is not necessarily a bad thing — at least for the elderly. To begin with, working is good for us. It provides feelings of identity, purpose and fulfillment. Working, or at least keeping your brain and body engaged, is also important for health. A report from the Institute of Economic Affairs found that after an initial boost, retirement increases the risk of clinical depression by 40 percent, and raises your chances of being diagnosed with a physical condition by 60 percent.
Organizations also benefit from keeping their experienced employees longer. Boomers still make up a substantial 31% of the workforce. They have proven to be highly reliable and dedicated workers, as well as valuable mentors for younger employees. (That said, the old problem of making room for upcoming generations presents itself again, just as it did in the Depression.)
A full spectrum of options exists between full-time employment and full-time retirement. Many people are going into partial or phased retirement, where they work fewer hours, transition into consultancy roles, or take on temporary projects. “Encore careers” are also on the rise, with an estimated 9 million Americans treating retirement as an opportunity to explore new roles, employers, or fields.
These “second acts” could be the time for a former marketing executive to write a mystery novel, a lawyer to open a firm that provides free legal advice to nonprofits, or a real estate agent to open a bakery. Approximately 7% of Peace Corps volunteers are over 50. Another option for some seniors is to spend time living and traveling in cheaper parts of the world like Panama or Malaysia, where retirement dollars go further.
Establishing a “lifestyle” business or pursuit is also a good way to maintain income. For example, an investment in residential or commercial property can generate continued cash flow from rental payments. You can also find stocks or other investment opportunities that pay regular dividends.
Saving still matters
In his controversial book “Die Broke,” Stephan Pollan went against conventional wisdom by advising people to “Quit today, pay cash, don’t retire and die broke.” To be clear, he was not telling people not to save. Rather, Pollan advocates saving well, striking a balance between retirement and work, and passing your assets on to your heirs before you die, so you can enjoy the giving.
Allocating and managing investments wisely is a key part of a comfortable retirement, whether you are 25 or 75. While people once had to rely on their own knowledge or shell out for a pricey financial planner, today there areonline services that use technology to optimize your portfolio.
A solid retirement fund doesn’t mean you have to stop working if you don’t want to — it just gives you more flexibility. Retirement isn’t a myth, but its reality is changing. Saving still is, and always will be, a part of that reality.
The views expressed represent the opinion of the author and are not intended to reflect those of FutureAdvisor or serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities.
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