Politics and Policy Involuntary Retirement (May 15, 2006) We all dream of “early retirement”. Hearing about those Microsoft or Amazon.com techies retiring in the thirties just makes us green with envy. Or how about the neighbor who just happened to hit it big in the stock market, and retires in his early 50’s to a life of golf, travel, and relaxation? But I just read a news story in the L.A. Times about the scary number of Americans retiring early, due to health, family illness, or losing their jobs involuntarily. The facts are a bit sobering. Many Forced to Retire Early We have to realize that the final years on the job are expected to be the most profitable in terms of future retirement. A worker in their 50’s and 60’s is expected to be at the peak of their earning potential, and with their children out of the home and college costs already handled, their expenses are lower. These are the years when retirement planners tell us to take these new-found discretionary funds to “bulk up” the retirement savings. Some save as much as half their earnings over a ten or fifteen-year period. The plan is that when they finally retire around age 65, they can cash in the equity in their house, downsize to a condo in their dream retirement community (with little or no mortgage), and be able to live comfortably off their combined social security, pension, 401(k)’s, and IRA plans indefinitely. But the studies indicate a growing number of older Americans are finding that plan is being cut out from under them at their knees. The first cut is from employment. More and more “white-collar middle managers” or “senior blue-collar supervisors” are being laid off in corporate restructuring, mergers, out-sourcing, or other methods to shed workers. Despite age-discrimination laws, few of these over-55 workers are able to get back into the career path, and instead have to settle for occasional “consulting work” with no benefits, part-time or temporary employment at jobs which are below their skill levels, or going back to school for re-training they will never be able to use, just to keep their unemployment benefits active. In the meantime the clock on their COBRA benefits is running, and many cannot afford the COBRA premiums for medical insurance in any event on their reduced income. This is at the same time that their health condition is reaching the point where they need health insurance the most. Few people over 55 can check “no” to an insurance questionnaire which asks if they have ever been diagnosed with or sought treatment for a multitude of symptoms ranging from diabetes to weight change to dizziness. Of course, checking “yes” to any of those boxes shuffles them into the “higher risk” category, and the premiums threaten to take up half of their reduced income. I know two gentlemen who found themselves in this situation. One was a 56 year-old mid-level engineer in an oil company who found his office eliminated when his region was consolidated into another one. He tried consulting work for a couple of years, but it never took off. In the meantime he was caring for his father who had Alzheimer’s, but he had to put him in a full-care facility, which used up much of his retirement savings. He sold his home, cashed out the equity, and relocated where the costs of living were lower and continued to search for a job. I don’t know if he ever found one – I understand he is now “fully retired”, but I don’t know what that means to him. The other gentleman was an office-supply salesman who as also laid off in his mid-50’s. His company just couldn’t compete with the warehouse stores – Costco, Office Depot, etc., and his brand of personal door-to-door service to businesses was out of vogue. So he spent a couple of years looking for new jobs, entered a job-retraining program and ended up working for a couple of years off-and-on, and is now “retired” but working part-time at a wood-working shop. In the meantime he cared for his father, and later his mother-in-law in his home. He enjoys the work he does now, but I doubt he gets any benefits to go along with the job, and he lost his prime earning years for saving for retirement. But another problem becomes apparent for older blue-collar workers. Because workers are living longer, we are extending the date for qualifying for social security benefits to 67 or 68. Before long, that may be extended to age 70. This may be fine for us office-types who only need to sit at a desk and work on a computer all day. But it is a nightmare scenario for anyone who uses their body to work all day. Consider the auto mechanic, carpenter, or other skilled laborer. He (or she) has spent years of accumulating experience on the job. But after 25 years or so in the job, as he (or she) is in their mid-40’s, the body starts to give out. It gets harder and harder to get down on the roller and scoot in and out of the car, or to move lumber around the jobsite. Eventually, they will try to move something a little too heavy, or be in just the wrong position while they try to do something they have done a million times before, and they then feel the “snap” in their lower back, the loss of all strength, and the pain shooting from their legs to the base of their neck. They will be off work for months, covered by workmen’s comp insurance we propose, but eventually the state will say they are cured (or “stable”), cut off time-loss benefits, and expect them to get back to work. They will try, but every day becomes torture for them, as they cannot do what they used to do, but they will try anyway. Imagine such a person working in such conditions from age 45 to age 55, and then to age 60, and then learning that they will have to work to age 70 before they can collect benefits? Thirty years of coming home every day from work, lying on the couch, taking medication and alcohol to try to manage the pain, being “short”, cranky, or even abusive with the wife and kids, and not being able to retire for another twenty years? Remember that these are just the people who are unlikely to receive much in the way of retirement benefits on the job, unless they are among the few who belong to a union. So personal savings and social security are all they can look forward to in retirement. You may ask why, if it hurts so much, they don’t change occupations? Many do. But remember that: (1) these people chose occupations where they work with their hands for a reason – they don’t consider themselves suited for office work, for a variety of reasons. (2) This means they are re-starting a career from the ground floor, often in their mid-40’s. This is difficult enough by itself, but it means that they never reach the highest peak of their earning capacity in their career. (3) Because they are often being re-trained by the state, their re-training is not a guarantee of a successful career. I remember in the mid-1980’s that Washington State was re-training large numbers of workers – from back-injured construction workers to unemployed loggers – as VCR repairmen! By 1990 there were not jobs in that field, the price of VCR’s having plummeted to the point that it was cheaper to throw them away and buy a new one than to repair one. (4) because they are being trained at professions they would not originally have aspired to, many do not do well in the new jobs, and find themselves changing careers multiple times over the next couple of decades. Finally, consider that if many Americans are unable to save for retirement after they reach age their mid-50’s, then they must rely upon the Social Security safety net. But that fund is only as dependable as the willingness and ability of future generations to support it. We have been unable to really save any money in the fund because most of the “surplus” in the social security fund is being invested in U.S. Treasury Bonds – in other words, to be paid by our children and grandchildren. If the budget deficit is manageable, that’s not much of a problem. But as the budget deficit sends our total national debt into the stratosphere, it makes social security a fool’s bet toward retirement. Posted by RHP6033        Copyright 2006-2007 - Brookridge Associates Inc. 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