My father served in the Navy throughout the South Pacific during World War II, and when the war ended, he returned to Homestead, Pennsylvania, and labored in the mills for 30 years. At age 65, my dad celebrated his well-deserved retirement…then went right back to work. With his pension ravaged by the collapse of the steel industry and with a family to support, he accepted a job as a security guard and reported faithfully to his 7 a.m. to 3 p.m. shift; this remained my father’s reality until well into his later seventies.
Unfortunately, my father’s fate is not an uncommon one. In fact, it is an all too familiar story for millions of senior Americans grappling with an unprecedented number of rapid and impactful changes affecting their comfort, security, and standard of living as they approach or struggle to thrive in retirement. Let’s briefly explore a few of the most typical financial challenges and money-related pitfalls facing seniors.
A long-standing retirement planning adage warns: “Don’t outlive your money, plan so that your money outlives you.” Excellent advice, and well worth heeding. Problem is, just how does one accomplish that goal? Well into the 1980s, most large American corporations, government entities, and even many smaller companies provided their employees with a traditional “defined benefit” pension. That is, based upon a formula which factored number of years worked, lifetime earnings, salary or pay rate, etc., an employee was paid a fixed monthly sum, until death, upon entering retirement. Armed with the financial protection of this recurrent benefit (coupled with the added flow of a monthly social security check), most folks budgeted in a way that afforded them a lifestyle on par with the one they enjoyed as a workforce member.
Fast forward to today when, according to the Bureau of Labor Statistics (www.BLS.gov), less than 22 percent of American workers are covered by a traditional pension plan. The trend has shifted dramatically toward contributory and somewhat self-managed retirement strategies. 401 (k) and IRA accounts are the most popular and well-known, but a wide array exist, depending upon your industry or occupation.
Unfortunately, these types of plans carry two major shortfalls when compared with pensions. First, they depend upon worker contribution. If that worker chooses not to sign up for auto withdrawals from his pay, electing instead to pay for his kids’ school clothes or to purchase a new car, or if she underfunds her account, doesn’t take full advantage of the “company matching funds” or (worst of all) decides to take early withdrawals from her account and creates steep tax and penalty consequences, that individual’s retirement profile is significantly damaged.
Second, professionally-managed contributory plans overwhelmingly invest in stocks and bonds, investment vehicles which offer healthy rates of return and robust growth on an initial investment, but which also carry significant levels of risk to the retiree’s life savings. These investments must be properly allocated, regularly monitored and wisely re-balanced to minimize undue risk to the investor. This is especially true of retirees who depend on investment income and can ill-afford radical gyrations in their portfolio’s value.
Scams are another distasteful, lurking menace to which the senior population is particularly susceptible. Many older folks adhere to and abide by well-intended attitudes and beliefs honed over a lifetime of experience: principles such as trust, respect for authority, obedience to governmental laws and institutional policies. Sadly, it is these very traits that expose the elderly to victimization. Whether launched via phone, email, internet or person-to-person, seniors must remain constant in their skepticism toward offers, incentives, promises of gifts or discounts, and pressure-laced solicitations. In short, the more innocent, official, or “too good to be true” the offer sounds, the more likely it is aimed to do harm.
Many physical (poor vision or hearing), mental (dementia, Alzheimer’s), and emotional (desire to appear competent, independent and in control of their lives) challenges complicate and exacerbate this risk. What can seniors do to protect themselves? First and foremost, appoint a trusted loved-one (child, family member or friend) to help with personal finances and money decisions. In many cases, this member need only serve as an advocate with whom the senior can comfortably discuss and then decide upon matters involving money, purchases, club memberships, etc. (More complex cases requiring powers of attorney, wills, joint accounts, etc., will be examined in a future article).
Finally, let’s say you’re now retired, and you’re fortunate enough to be living comfortably on your investments. My advice: don’t let your guard down, even when it comes to well-meaning friends or family members. Now, please don’t misinterpret my meaning. You should feel free to send your grandson that money-stuffed birthday card (a quick side note: that’s going to cost you $20 these days, rather than $5. Times have indeed changed). You should, however, respond very cautiously to those polished, well-delivered pitches from your children for funds to launch a family business, or tearful pleadings from your high-school friend Suzie to pay off her mortgage and help her remain in her home. When these requests come (and trust me, they WILL), remember this above all else: you voluntarily surrendered your ability to earn income and, should things go financially south with these ventures, you will very likely end up back in the workforce!
Furthermore, your inner circle of family and friends are the very “loved ones” who should be stepping in to bail you out in the event of an unforeseen setback. If they become indebted to you, who will be riding atop that white horse in your time of crisis? As you well know, the stark answer is NOBODY.
In short, plan, educate yourself, and remain involved in all financial decisions regarding your retirement. You’ve worked long and hard, and you deserve to do more of what you choose to do in your later years, not simply more of what you must do to survive.
By Mike Evandish