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Last week I was asked to present high school students with information on women in the workforce and saving for retirement. One of my major goals was to instill the value of starting early. But I had the sense, maybe because I’m not too far from high school age myself, that my slides about compound interest and Roth IRAs would be particularly boring.
Rather than watch their eyes glaze over I added a new slide: A personal story about my mother, her life course, marital history and saving behavior. I wasn’t saying anything novel but by explaining compound interest this way I kept everyone’s attention. So, I encourage you to share this with the young people in your life and reflect on what it really means to save early and save often.
(For simplicity, the interest rate at all time points is 5%. In actuality, she gained more during her earlier life and has lost a lot during the recent recession).
This figure tells us two stories. Let’s begin with the story in blue, which is what really happened. At age 21, my mom got married and started working a new job. She was so excited to finally have her own money and be able to buy all the clothes she wanted and decorate their new house. My dad, however, didn’t think this was a good plan and told her, “Save your money! We both should be saving now for our future.” Reluctantly she saved, putting $2,000 away each year for her retirement. By the time her first child was born (me!) she had saved up $20,000.
In her 30’s she had another baby and raised my sister and me. She was not working or saving at this time but her $20,000 continued to grow. By 42 her marriage was on the rocks and she became divorced. Now, all that planning for her future had to be done alone. She spent a couple years searching for a new job and struggling with the change. Even so, the savings from her 20’s continued to grow. By 45 she found a new job and started her career over. She was getting nervous about her retirement savings and started putting away $5,000 a year. The savings from her new job were added the nice nest egg she had accumulated while she wasn’t working. The final blue bar shows an optimistic future where she continues to save each year, the economy improves and hopefully she reaches over $300,000 by retirement.
What is the reality of saving? Well, you can’t always save when you want to or need to and it’s hard to predict the future. For example, my mom couldn’t predict that we’d be in an economic recession right at the time most people her age start saving for retirement. The green bars show us what this path would look like for her. Nothing in her life has changed except that she didn’t save in her 20’s. Instead she chose to ignore my dad’s suggestion and spend her money on clothes, new furniture and all the other things she wanted. The message is clear: Saving early, even if it’s just a little, makes a huge difference for your future.
I can tell you honestly that most of my mom’s friends are extremely worried about their futures. They are in their 50’s, starting to save now and having a difficult time. She knows, though she hates to admit it, my dad was right.
Employment over one’s life time is rarely with a single company. Individuals often change jobs or employers over their working years. People leave to have children, to go back to school, or to try their hand at running a business. All these changes in employment could confuse retirees trying to determine what pensions they are entitled to. And let’s be honest, who couldn’t use an extra $100 a month.
For New England residents there is a free resource that I’d love to share with you. The Pension Action Center was launched in 1999 and is based out of the University of Massachusetts Boston. Its primary program, the New England Pension Assistance Project, brings together pension experts, pension lawyers and a group of dedicated, knowledgeable volunteers to help you understand or obtain your pension benefits.
As their website states, the goals of the Center are to:
• offer individual counseling and assistance
• help you negotiate layers of bureaucracy
• help locate pension funds
• explain the benefits and rights under your pension plan
• supply referrals to attorneys if needed
• supply a listing of financial advisers if needed
The Pension Action Center complied this informative booklet in 2009 to help retirees answer a few burning pension questions. Am I entitled to a pension from my former employer or my spouse’s former employer? Where do I start looking? What documents will I need to understand my situation? What resources are available in my state? I think I have a lost pension, now what?
Employers are not required to provide a pension, so everyone’s results will be different. But now more than ever it is important to make sure you are getting all the benefits you are entitled to from your years of hard work. Check out the booklet to read more or contact the Center if you’d like to talk to someone directly. No one should be missing out on their much needed and well deserved retirement income.
The New England Pension Assistance Project
Phone: (617) 287-7307 or toll free (888) 425-6067
Fax: (617) 287-7080
Recently I’ve been working on this crazy data analysis for my professor. I say crazy because it involves 9 waves of data (different interview time points), a sample of over 22,000 Americans nearing retirement, and over 400 calculated Dow Jones scores representing changes in the stock market from 1992-2008 (That took me a better part of a week!) Our data comes largely from the Health and Retirement Study (HRS), a nationally representative, longitudinal data set that looks at people over 50 and follows them through the end of their working lives and into retirement.
This all started with an idea about the lasting effects of the 2008 stock market crash. All else being equal, whether you were interviewed by the HRS in March or December should have no bearing on your retirement plans. Unless, of course, historical time and place played a role in your decisions. By December you may have been listening to the news, watching your stocks drop, and talking to your spouse about an unanticipated future. Did the changes in 2008 influence people’s plans for retirement? Preliminary results indicate, Yes. Many people who were planning on working till 62 or 65 are now planning to work longer or are no longer sure when they can expect to retire.
So we’ve taken it a step further (enter my hundreds of stock calculations) to examine stock market fluctuations from 1992 to 2008 and see whether or not economic conditions at the time people are interviewed have any effect on individuals’ plans for retirement. I mean sure, people may be thinking and worrying about it but have they really changed their plans? The answers are yet to come!
I was recently reading a text that sparked my interested of how the cohorts of baby boomers will fare in their coming retirement years. This obviously depends on many factors, as the book pointed out, such as “the future state of the economy and capital markets, the timing and nature of labor force withdrawal, and reform initiatives.” Toward the end of chapter three, we see that the discussion of baby boomer retirement does not paint a bleak picture. The boomers seem to be doing as well or better than their parents. While there will be some form of benefit cuts or eligibility delays in the social insurance programs, researchers find that the boomers will enjoy “a higher standard of living then their parents did in retirement years, though it might fall short of their own pre-retirement standards.”
This text, however, was written before the current financial crisis began to take effect. I am interested in how the economic crisis will affect baby boomer retirement. An article in U.S. News and World Report by Emily Brandon (2008) addressed some of my questions. With any large crisis and heavy market loss time heals the wounds. The boomers, however, are the group with the least time to recover. She recognizes three ways the current crisis is negatively affecting the retirement of the boomers: stock market declines on their retirement accounts, falling home prices that are affecting their home equity, and decreasing job prospects that are reducing their chances of post-retirement labor force participation.
These three do seem valid concerns to me, but I am mostly interested in addressing the last problem of decreasing jobs available to older workers. The article encourages older workers to go back to school and increase their skill set so they have a better chance of a job after 65. While this would indeed be helpful for some, it is unrealistic for many older adults. First and foremost, finances are a huge factor in determining if someone can go back to school. Therefore, the low-income individuals who would benefit most from a “new” job in their later-life are unable to get the necessary skills. Furthermore, various health conditions are more prevalent among these age groups, making it unlikely that they are physically able to get an education and return to the workforce.
The article also discusses how many older adults “experiment with retirement” and how, if they do not enjoy their leisure or cannot afford it, the often go back to work. This, however, is becoming more challenging and the opportunities scarcer. They comment on how potential retirees need to think twice before leaving their full-time jobs because it may be difficult if their change their minds.
I have a few thought on this discussion. First, I believe the article is trying to encourage older workers to remain at their jobs and in the labor force. This seems a good idea for a few reasons. Of course, the older worker themselves will benefit from extending their participation as the article points out that one additional year on average increases a worker’s annual retirement income by 9 percent. Therefore, the longer they work, the less they will need to depend on the government and social insurance programs in general. In addition, I was thinking the increased labor force participation, especially from so large a group as the baby boomers, may help slightly to sustain Social Security and Medicare. Indeed, if more people are working, putting off retirement, and putting into the system then we initially anticipated, this may soften the blow when the baby boomers enter their retirement years.
My second though was around the articles pessimistic outlook on part-time retirement jobs during these times. While it is possible that the availability of these jobs may by drying up, I can also imagine the opposite occurring. As organizations and companies attempt to reduce costs during this time, an experienced, knowledgeable, and part-time (which often means employers not paying costly benefits and health insurance) older work may be just what they would need. Granted this may depend on the skills of the older worker, or the companies and jobs that are thriving, but if the organization can cut back costs by hiring two part-time older workers rather than one full-time relatively young employee, perhaps the way companies view older workers may change. The opportunities may not be as flexible and the jobs may not be ideal, but it is possible that depending on how companies view and utilize older workers and how older workers market themselves, they could have a leg up during this financial crisis. Just an idea.