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Back-to-earth Boomers wonÕt be retiring early

As I See It

Baby Boomers planning early retirements during the stock market surge of the late 1990s are now wondering what became of their bulging portfolios, and those dreams of a few early Golden Years have slipped away, too.

Gone, with the dot-com bubble, is the 55-year-old Boomer retiree.

But the truth be told, those planning early retirement were never more than a small percentage of the workforce. Swollen stock holdings were the exception and not the rule for the vast majority of middle-aged Americans. In fact, about 40% of the people in the 55-to-64 year age bracket own no stock at all. And for those nearing retirement who do have stock, the median portfolio is just $47,000.

The assumption of retirement at 65 has been generally accepted for most workers since the 1950s. However, today that attitude is shifting toward working longer. Though the disappointment of falling stock prices is a factor, there are other factors that are equally important, if not more so.

Part of the cause is the changing pension environment in America. Up until the mid-1970s companies usually provided their employees with fixed pensions at retirement. These pensions, added to Social Security, were usually adequate to afford a modest retirement for workers who had paid off their home mortgage and expected a slight reduction in living standard at retirement.

Following the passage of the Employees Retirement Income Security Act of 1974 (ERISA), employers began to move away from fixed pensions toward profit-sharing accounts. The difference is that a pension pays a fixed retirement benefit whereas a profit-sharing account pays whatever is in the account, be it large or small. Thus financial risk has been shifted from employer to employee.

The change in pension attitudes mirrored the change in attitudes toward longevity by both employees and employers. Workers became more mobile and companies became less committed to employees. The downsizings and rightsizings of the 1980s and 1990s caused feelings of uncertainty and instability for both employers and employees. The end result is that today employees are pretty much on their own to provide for their own retirement and we have not done very well in providing for ourselves.

Baby Boomers point to factors like college costs for the kids and rising medical costs as being legitimate reasons that they have not adequately provided for retirement. The reasons are largely unimportant. The fact is that retirement has not been planned adequately.

Changing gears slightly, there is another reason for working beyond 65. People nearing traditional retirement age have not paid off their homes and thus are still facing monthly mortgage payments. This alone is enough to force delayed retirement. However, in addition to home mortgages, modern retirees do not want to lower their retirement life style below the level they enjoyed while working. The combination of mortgages and expectations of continuing spending patterns unabated are pushing many to re-evaluate their retirement plans.

There are both political and economic implications to this trend toward delayed retirement. The required changes to the Social Security system to allow solvency over the next few decades will be increasingly difficult. Retirees are worried about maintaining their standard of living now and will not be willing to sacrifice income to correct the system. Younger workers may find the ladder to the top clogged with oldsters. Retirement locations may not achieve the growth they have anticipated based on past experience.

On a positive, our country is facing a labor shortage over the next few decades and the delaying of retirement will help alleviate that situation.

Thought for the Moment

About Joe D. Jones

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