November 21, 2014

Retirement and The Middle Class: Still Possible?

First published three years ago, the discussion about the fate of the American middle class and the growing economic inequality in this country has not gone away, in fact it has intensified. I'd welcome your thoughtful comment on this issue.

There has been a lot written recently about the decline, if not outright disappearance, of the middle class in many countries around the world. The original premise was that hard work and perseverance would result in a comfortable lifestyle and a satisfying retirement. That vision included decent retirement funds, health care coverage at an affordable cost, a home, a car or two in the garage, and enough money to send kids to college. It assumed that each generation's standard of living will be better than the one before.

In reality, that picture began to go out of focus at least 10 years ago. The stock market crash of the late 1990's damaged the hopes and dreams of many. It exposed the true risks of betting that the stock market would always go up and making money was simple. Just as things seemed to getting back on track, the world came crashing down again in 2008. Folks who had pinned their dreams on the value in the homes found themselves upside down, or worse. 

Again, stock performance tanked taking the retirement plans with them. The average middle class person has seen a steady erosion of their financial situation. Some are referring to the past ten years as "the lost decade."  Even while the top few percent of our society are richer and more isolated from reality than ever before, the middle class, and even more so the poor and disadvantaged, have watched the dream turn into a nightmare with few promises of a fix anytime soon. The big squeeze is getting worse.

Some will argue that we are reaping what we sowed. Flipping houses, taking out loans we couldn't repay, running up credit card bills of more than our annual income, betting that stocks would only go one way....we were acting like children let loose in a candy store, assuming that "they" would be sure we were OK.

Others will say that the system has been tilted in such a way that the rich and powerful have stacked all the cards in their favor. The financial meltdown was caused by their greed and their manipulations. The "main street" middle class person has no chance to get back on top.

I believe that both those views have some validity. Each side must share part of the blame for the mess we are in. Our government has shown, at least to this point, it either has no idea how the "fix" things, or is so dysfunctional it can't.

I will also state that a satisfying retirement is still within reach of the many of us. Am I being foolish or hiding my head in the sand? I don't think so. The research I do before writing certain posts and the tremendous feedback left by readers have increased my sensitivity to the realities that way too many of our fellow citizens face. 

What I have learned in this journey is that we are in the midst of a massive and probably permanent redefinition of some of what we were brought up to believe. The concepts of employment stability and generally benevolent employers, of having protections and safeguards in place against unethical behavior that would prevent large scale damage, and of having affordable health care available to most are no longer givens. In fact, they aren't reality at this moment.

So what does my vision of a middle class retirement look like? Since there is no universal agreement on what constitutes middle class, I suggest we not get hung up on that phrase. Your satisfying retirement is determined more by how you act, react, and what you accomplish than by a textbook term or a particular income.

Having the proper retirement mindset means you are flexible. You may stop working completely at the "normal" age of 65 or you may keep working into your 70's or beyond. You may take on the challenge of starting a new business or company. You may become a consultant to your old industry. You may work part time at a local retail establishment.

You may never work another day in your life, but spend countless hours volunteering to make someone else's life just a bit brighter and less burdensome. You may take care of your grandkids all day so mom and dad can go to work. You may find yourself on a mission trip for a year to Africa. You may be the primary caregiver to your mom or dad.

Whatever shape your retirement takes, it will look very little like what retirement used to be. Relaxing and doing lots of nothing all day while slowly declining in mental and physical ability holds absolutely no appeal. You will do everything in your power to avoid that path.

At the same time, it probably won't look like you thought it would. That isn't necessarily bad, just different. A middle class retirement may still mean travel, an RV, a vacation home...or it may not include any of those things. If you like a life of travel then you will make sacrifices in some other area of your retirement to make that happen. If you are more of a homebody you will devise a budget that supports you in that decision: maybe lots of flowers in the garden, books on every flat surface, music playing all day, and an inviting place to live. It may be a 300 square foot rented apartment or a 3,000 square foot house. It shouldn't matter. It is where you feel safe and comfortable and "home." You will not let your possessions define you.

Your retirement will accept that you must take on additional responsibility for your future happiness, health, and well-being. You will not expect others to do all the heavy lifting. You will eat right, exercise, eliminate stress, see a doctor when needed, but fight aging and decline with every power you have. You will keep your mind active by constantly taking on new challenges and responsibilities.

A middle class retirement means you are in control of much of the quality of your retired life. Will there be times when you have to pinch pennies, clip coupons, bypass a wanted (or even needed) item? Probably. But, you realize that you have the greatest gift of all: more control over your time and how you spend this irreplaceable asset.

People will continue to aspire to retire (I like rhymes!), but in a way that will be unique to each of us. I can be satisfied with a lot less than I thought I'd need or want just 5 years ago. At the same time there are parts of my life I need and will fight to maintain: being close to family, volunteering to help just-released convicts, building my spiritual life, and feeling safe and comfortable inside my home. And that sounds very middle class to me.

How about you?

November 18, 2014

Is College Always The Right Choice For Our Grandchildren?

Not long ago I was contacted by a fellow who works for an Internet training company. The CEO had just posed a provocative question on their web site. The question asked was whether a college education is worth the money. Is there enough of a return on the investment of tens of thousands, maybe even hundreds of thousands of dollars for everyone who goes?

The author, Dave Dunn, cited figures that projected the costs of sending his three children to private colleges several years into the future. The totals were over $1,000,000. He used that million dollar figure to raise the issue.

Aside from the obvious fact that no one has to go to the most expensive private universities (unless on a full scholarship!), his point is still one that we, as parents and grandparents should ask. The mess that has become the college loan industry has been in the news. We are probably quite aware that the cost of a college education, even at a state run university, averages close to $40,000 for in-state students, and $100,000 for out-of-state attendees. Triple that for a top flight Ivy League or private college and there is serious money involved.

When I was in high school, it was expected that everyone who could afford to do so would go to four years of college after graduation. For those with limited means, two year junior colleges (now community colleges) were an option. Technical schools were available for those with mechanical interests. But, in my neighborhood of suburban Boston, college was simply a given.

As post high school education became increasingly expensive, folks began to ask the question: is college right and necessary for everyone? Well, for some professions like doctor or lawyer the answer was, and remains, yes. But, how about for other careers or job paths? How many require a four year degree versus shorter, specialized training and experience? 

For this post, I raise the question because grandparents are sometimes asked for help in sending a grandchild to college, or of their own volition establish a college fund for a child's child. If the money is available is college always the best option? Do we accept that a high school graduate may leave college already seriously in debt?

As the graduate of a well respected private university I will add two thoughts:

1) I have freely admitted that the money my parents spent on me was largely wasted. I had decided on my career path while barely a teenager. My chosen profession did not require a college education. During my last two years in college I worked almost full time at a radio station in town, learning my craft and improving my future prospects. My college classes were an interruption. In my case, college was somewhat wasted on the young.

2) I wish I could have gone to college when I was older. I would have possessed the maturity and intellectual curiosity to have made full use of what college is meant to do: teach one to think and learn critically and independently. 

Before anyone starts leaving nasty comments I will make it clear that I know that continuing one's education after high school is essential for the development of many of the skills for success in our technologically oriented world. High School graduates face a daunting task to survive and thrive. When used to its fullest, those extra years of schooling can be a building block to a full and satisfying life.

But, with a college education becoming something that is being priced out of reach of all but the well-to-do, we should ask if a traditional college is always the best choice. And, as grandparents, whether we pay part of the bill or not, we should ask if a four year institution is in the best interests of the young adult.

What do you think? How critical is that diploma? Is the amount of debt often required justified?

What about on-line college degrees, where most of the work is done, at home, with only limited classroom time required? Technical colleges are readily available for virtually any career choice. Community colleges have developed well past just being a feeder system for four year schools.

Is the time away at school important in one's development as an adult? Is it more than just classes and study?

Your feedback is encouraged.

November 14, 2014

When Life Shrinks Your Glass - Get A Smaller Glass

An astute reader left a comment a month or so ago on a previous post. She noted she is a glass half-full kind of person rather than one who sees the glass of her life as half-empty. Then, she added a thought that I loved: if life has suddenly become more of a struggle because of some problem, rather than switch to a pessimistic view, she simply envisions a smaller glass...which is still half full.

I have written a lot about attitude and retirement. There should be little doubt as to which side of the half glass side I am on. But, her comment gave me new insight into how to react to the inevitable stumbles and problems we will all encounter during this stage of life.

Now matter how well you have prepared, how many hours you spend in the gym, how much you exercise your mind, and how many roses you buy your spouse, you are going to go off the rails at some point. It may be a series of small detours that eventually allow you back on track. Or, the derailing may be much more serious, resulting in a change in your life that cannot be reversed.

When that happens what will you do? Will that glass start to look more empty than full? Will you become withdrawn because of your physical limitations or the loss of important relationships? Will you lash out at the world for the unfairness of it all?

Or, will you have the ability to shrink your glass? Will you look at the limitations and be able to say, "OK, I can't do what I once did. I can't live how I once could. This is what I can do now. And even though my glass is smaller, my life is still pretty good, and that glass is still at least half full."

I will readily admit my life to this point has been a rather smooth ride. There have been a few problems, but certainly nothing on the scale of what so many of you share in your life stories on these pages. I will also admit I expect my situation to change at some point. My life is not a fairy tale; it will have some chapters that I would rather not experience but must.

Then my half glass take on life with be tested. I believe my faith will provide me with the support I need to handle what is coming at some point. But, how I will react is still an unknown. When those situations arise I hope I can remember the lesson of the smaller glass.

More than any other part of retirement, be it financial, health, relationships, passions.....whatever....I firmly believe attitude spells the difference between a disappointing or unhappy retirement and one that is satisfying. Why? Because my attitude is 100% within my control. The world can throw everything against me to try and break my spirit. But, it cannot determine how I decide to react.

That is up to me. And, my glass will remain at least half full, regardless of how small a glass life decides to give me.


November 9, 2014

Does Spending Change After Retirement?

The short answer is, "Yes." But, a more important question is, "Does spending drop after retirement?" That answer is not quite so simple. I would suggest that spending can drop after retirement, and for most folks it does. But, more to the point, spending shifts. It changes from your working days. It also changes depending on what stage of retirement you are in.

During the first period of retirement (maybe lasting 10 years or so), it is quite possible that your overall expenditures may increase. Why? If you are like many retirees you suddenly allow yourself to travel to see family, jet off to Europe or New Zealand, or take a Caribbean cruise. If you are not moving right after you leave the work world, it is not uncommon to sink money into your home, to make it an oasis and more comfortable. You may decide to eat away from home more often, replace an aging car, get an RV (!), or make other discretionary purchases.

During the second phase, you will probably have gotten a lot of the travel bug out of your system and find health concerns and expenses beginning their inevitable rise. Your spending with shift more toward needs and less toward wants.

Finally, your third phase will probably consist of personal maintenance type expenses. Depending on the arrangements you have made, your expenses will shift again, with most discretionary costs gone from your budget.

The national average for retired households shows a 20% drop in spending, though because that is an average, there were many who showed an increase. Betty and I had a more substantial decline in expenses- closer to 40%. Importantly, the average expenses also showed a decline to match the income drop. For those between 65 and 75 the reduction was 19%. For those  who make it into their 90s, the spending drop was 52%.

So, where do the shifts occur?

- Work-related expenses, including gas, work clothing, and meals

- Housing expenses. Mortgages begin to be paid off, downsizing might mean lower taxes and maintenance costs.

- Health care will take an increasingly larger share of your budget as you age.

- Entertainment. As we age we are less likely to spend money on movies, plays, or concerts because declining health keeps us closer to home. But, that may be offset by more money spend on home options: Netflix, High Speed Internet, bigger TVs and so forth. Hobby costs can also rise as we spend more time at home.

- Transportation costs tend to drop as we age. The need for two cars usually disappears at some point. No commuting means lower gas and upkeep costs.

- Gifts and donations often see an increase. Money spent on grandchildren, more generous donations to religious and civic organizations are often the norm.

Occasionally I will receive a question from a reader wondering if a budget is still needed after retirement. My answer is always the same: absolutely. But, I will add the same information that is included this post: that budgeting shifts and adjusts depending upon your circumstance's and the stage of retirement you find yourself.

Is it "permissible" spend at a somewhat higher level when you first retire? I believe it is OK, if you accept that will mean a lower rate of withdrawal from your resources later on. During the first decade of our retirement, Betty and I set a withdrawal rate of between 4 and 5% of our accounts. Though not sustainable for too many years, it was appropriate for us at that stage of our journey.

Since 2013 that rate has dropped to just under 3%, or below the rate of growth of our retirement accounts as our needs and wants have undergone shifts. With proper planning and insurance coverage, I expect that rate of draw-down to be consistent for the foreseeable future. But, if not, we will adjust.

Retirement is not a static state. Move with it and your journey will be a satisfying one. 

November 7, 2014

Time To Think About the "W" Word

The following is a guest post from Arar Han and deals with an important topic at this time of year: preparing your home for winter. In addition to the comfort and financial benefits, the author reminds us that personal safety is one of the goals.  I encourage you to consider which of these steps are ones you should take.

Many of us have enjoyed the long summer, but now winter is coming. Preparing your home for the coming season is no easy task, so the time to start is now. This Winterizing Checklist will help you keep winter at bay. With these tips, you will lower energy usage, reduce the risk of home damage, and prevent dangerous slips and falls.

Staying Cozy
  1. Buy some cozy blankets and house shoes. Don't wear socks around the house - they can be slippery and cause a fall.
  2. Test your smoke alarms and carbon monoxide detectors and replace their batteries.
  3. Replace your furnace's air filter. This will increase its effectiveness and improve the air quality in your house. Moreover, this can prevent fires while reducing the energy bills.
  4. Turn the furnace on and let it run for a while before you need it. You may need a technician to come relight your pilot light if it went out during the summer. When you first start it up after a long hiatus, it is normal to smell a strong odor. This should be short-lasting. If the smell persists, shut down the furnace and call a professional.
  5. Inspect and clean your fireplace and chimney. It is important to do routine maintenance before you sit down to enjoy your crackling fire. Dangerous chemicals can build up in the chimney and flow back into the home. Stay safe by keeping the airways clean, and make sure to open the flue before starting a fire.
  6. Check the weather stripping around windows and doors and reapply caulk inside and out where necessary. Seal the outside of your home to keep the winter out and your senior cozy inside. Keep the weather outside, where it belongs!
Preventing Falls
  1. Check on your outdoor pipes, hoses, and faucets for leaks. Leaky faucets can create ice slicks all around.
  2. Turn off exterior faucets and drain water from outdoor pipes and sprinklers. You'll want to do this before the first frost arrives to guard your home from pipe bursts.
  3. Stock up on ice melt and sand for when the ground becomes slick with ice. You can sprinkle it before you as you walk, particularly when you first go outside.
  4. Apply non-slip sprays or scuff the surface to create better traction. These sprays create a hard, durable surface that creates texture so that the ground itself prevents slips.
  5. Hire someone to keep the sidewalks shoveled and de-iced. Don't wait until the winter is in full force. Prepayment sometime means that your senior will be first to get plowed when the time comes.
  6. Make sure all areas that could be slippery have well-secured handrails. You want to prevent falls before they happen, particularly on the stairs and walkways outside of your home.
Keeping Nature at Bay
  1. Cover and secure all vents and openings to prevent insects, birds, and rodents from coming in to nest.
  2. Trim overgrown branches back from the house and electrical wires. They can become heavy with ice and snow and cause damage to the home.
  3. Take care of the gutters. Clean the debris and make sure they are not loose or sagging. Ice and snow can pull gutters off the house if they are not secure. After removing the debris, rinse the gutters with a hose.
  4. Check for leaks and misaligned pipes - you want the water to funnel away from the house's foundation to prevent flooding.
Preparing For Anything
  1. Equip your car with an emergency kit. The kit should include a snow shovel, blankets, a flashlight, water, and first-aid kit.
  2. Create a power-outage survival kit. Power outages are common during the winter months, so you can never be too prepared. Include a portable battery-operated radio, blankets, a flashlight, candles and safety matches. Also include canned food with a can opener, plenty of water, and extra batteries.
  3. Make use of weather apps. Know what's coming before hand and stay well informed before winter storms come.
  4. Keep in touch with your neighbors so that you can check on each other. They are your closest resource when you need help.
  5. Keep in touch with your loved ones on a regular scheduled basis. They will love hearing from you, and you can all check in with each other to ensure everyone stays safe.
Winterizing your home now will make the transition into the colder seasons easier. Prevent problems before they happen so you can enjoy the changing seasons with no worries.

Arar Han is co-CEO of Alert-One, a personal safety technology and consulting firm headquartered in Williamsport, Pennsylvania, with offices nationwide. An NAHB Certified Aging in Place Specialist, Arar holds a dual degree from Boston College, and a Stanford MBA. Originally from Seoul, she currently lives in Palo Alto with her family.

Satisfying Retirement received no compensation for this article.