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 dot.com 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?

37 comments:

  1. I am middle class and the option is still good for me - even to retire at 55. I would advise the people holding the sign to put down the Iphone and Starbucks, sell their Lexus and start saving and quit complaining.

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    1. I will go along with the Starbucks elimination - what an expensive indulgence!

      You cannot become rich simply by saving, but you can keep yourself from becoming poor and that is a good thing.

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  2. Bob, this post reflects the thoughts and concerns of so many of us. We're asking ourselves big questions about retirement. Have I saved enough? Are my expenses acceptable? How long might my body/mind stay healthy? Am I living my life to it's fullest? It always brings me comfort to know that I'm not the only one thinking (worrying) about these issues. I know folks who have worked hard and saved much, but they're just as concerned about facing the future as friends who have fewer resources. One thing I know for sure, worrying does no good, but staying vigilant can help. We've decided to review our resources and expenses on a quarterly basis, then make corrections, if necessary. The financial bottom line is always changing in retirement. Thank goodness, we do have more control over other aspects of life, like our relationships, spiritual health, and mental outlook. Sometimes I go back to FDR's famous words,"The only we have to fear is fear itself." I hope that our generation will step up to the challenges facing us and commit to living our lives to the best of our abilities. I'd like to try to be a positive role model to my kids and grandkids. It's important for me to add that my faith in God is the bedrock that everything is built on, and I'm counting on it to carry me through to the end. Bob, thanks for this relevant post. You make me think!!

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    1. I think the key message in this post is emphasizing the role of personal responsibility in making one's life meaningful and fulfilling. Expecting that "they" have your back is not a wise choice.

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  3. I remember my father in law's retirement party. He received a nice pension for his ONE JOB ALL HIS LIFE at RCA. HE and Mom stayed in the house they raised the boys in and took many trips to visit us in Arizona.They continued the frugal ways that helped them save money as they raised their boys.They never had more than one car.They did not go out to eat very often.They DID go ball room dancing every Saturday night and my Mom in law sewed all her own ball gowns! They splurge don good food for family dinners and holidays.They seemed to have it all figured out! Luckily,Ken and I have SOME of their frugal ways (not all, that's for sure!) but the PENSION is a long gone memory for most of us baby boomers. We have had to tweak or lifestyle some, get clear on priorities, and accept that our savings are making less money than we had hoped back when Muni Bonds were giving us 7%!!!!! Ken and I took the plunge even though we kind of had to go to PLAN B to retire and it's all working out.We don't seem to want to travel QUITE as much as we had thought we would! I took a 1 day a week position as an RN in our little town and make some exyra spending money and keep my mind sharp. We found we enjoy FREEDOM more than ANYTHING and road trips vs. pricey airfare journeys. We're exploring our own state with plans to drive around the West/Southwest in the coming year. I think if people read really smart blogs like yours and a few others, they will find ways to tweak things and retire... the YOUNG FOLKS: NEED TO START SAVING NOW!!!!!! Thanks for your always thoughtful and well researching info Bob--you don't SCARE people about retirement, you offer do-able solutions and options and a great example!! As you know,you were somewhat of a "crutch" for Ken's and my case of retirement nerves!!!!! It takes a "village!"

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    1. Thanks, Madeline. It has been fun to watch the journey you and Ken have been on.

      My parents' retirement and mine are very different in many ways, but exactly the same in others. We share the importance of family and taking responsibility for our own actions. But, we do differ on where we want to live during the last stage of our lives. They moved happily into a retirement community - not a step Betty and I have accepted as best for us....yet.

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  4. My retirement would be a lot different if I didn't have pensions, in addition to my savings. With these, I enjoy a middle class life: enough for all the basics, affordable hobbies, and some splurges. I am concerned for those coming up, given the prevalence of student loan debt, the lack of pensions and expectation of self funding retirement via 401ks. I don't know that I could have done it, even though I lived fairly frugally, and feel I may be the end of an era in which retirement was achievable.

    A life changer for me was traveling to "third world" countries. I realized people live happy, fulfilling lives with very little. It's easy here to think luxury is the norm for everyone - an expensive car, ski vacations, spa days, etc. I feel fortunate to find a simple life suits me, rather than hunger for something more.

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    1. You make an important point: when we compare our lifestyles there is absolutely no comparison with the bulk of the developing world. Even in countries like France or Italy, their concept of what is an acceptable public toilet will never make sense to me!

      The idea that pensions are pretty much gone with the wind is probably very valid. No one I know who is in their 40s or 50s has one to look forward to, and those even younger don't know what a company pension is. I think the only career path left that has a decent pension at the end is 20 years in the military.

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  5. My in-laws had the same retirement Madeline speaks of. We had hopes of that kind of financial security, but the bottom fell out and the company screwed every one of their long term employees. Fortunately we had real estate. Someone told me long ago, invest in real estate...they're not making anymore land. I took that to heart. Our investments have gone up and down in price, and we were able to make it work for us this year, selling our primary residence and our summer beach home to buy one permanent residence. With very little income from pensions and savings, etc. we would be seriously hurting without real estate.
    I wonder what our children's retirement will be like.
    b

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    1. Will our children have an option to retire? That is a legitimate question.

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    2. That might be a good follow up post Bob.

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  6. I think that everyone's retirement will look different. LIke the other poster I am blessed to have a pension and social security together which gives me an overall middle class retirement. I enjoy working part time, probably because I was a stay at home wife for thirty years and don't have the work burn out that others do. I do think we have a certain amount of control on our attitudes.

    On those rare occasions when frustrations set in, I remind myself (as I research for two articles on my own blog next week) that between ten and fifteen of the senior population is in true poverty (often not of their own cause) and that I'm truly blessed

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    1. I would have guessed the poverty level among seniors was even higher, but whatever it is, is too high.

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  7. It looks like we're all wondering if there will be pensions for the next generation. If you know anyone who is looking for jobs, I just learned that the hiring freeze that has been in place on many federal jobs for the past few years, will be lifted as of 2015. They're talking about thousands of openings. I know that gov't jobs might not fit everyone, and they often require a degree, but we have a family full of federal employees who are blessed with decent salaries and great benefits. Worth considering if you need a job.

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    1. Good tip, Pam. I had overlooked mentioning government jobs (except the military) but you are right: usually pensions and decent benefits are part of the package.

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  8. I think that most of the readers of this blog have prepared for retirement and that they will be able to adjust to whatever life deals them and remain happy. I am not so sure about the broader populace. The bulk of the baby boomers have not retired yet and for those that have little or no savings and will be dependent solely on social security and possibly part time work, I think the future will be much grimmer. I just hope that many of these people have a strong family safety net available to them.

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    1. I had a post a week or two ago that reported an extremely low rate of savings. The most recent figure I have seen shows an average retirement savings for those over 50 at $50,000. Obviously, that is wildly insufficient. As I have noted before there is no tooth fairy for retirement.

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  9. Our son has worked for the community college school system for 16 years and loves his job.GREAT BENEFITS including State retirement! there are SOME pensions left out there! I expect his retirement will be a smoother sail than ours has been!!!!! I had a chance to work in the County hospital years ago and get the state retirement,but alas, I had other career and life goals.. but we're still doing ok.. MANY of our fellow early retirees up here in the mountains are retired educators who have the State Retirement (Arizona) which is a great safety net!!

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    1. Government jobs seem to be the answer if a pension and decent benefits are desired...as long as someone doesn't have their heart set on the post office. That used to be the gold standard for overly generous benefits and pensions, but the largesse has caught up with them in a big way.

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  10. No pension here. And I wonder: will all those people who do not enjoy pensions be able to afford to pay the taxes to support pensions for govt. workers? See Detroit? See all those retirees flocking out of NY, CA and other high-tax states? I'm afraid our kids are going to be in a real mess ... and can only hope they're smarter than we are so they can figure it out.

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    1. I don't envy my kids trying to figure out retirement in this environment, and I have no clue what will happen when it is time for our grandkids to make these decisions.

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  11. Retirement the way many envisioned was a phenomenon of the post-WWII generation. In reality that "golden era" of pensions and benefits lasted only 1+ generation, but it colored the following generations opinions regarding what to expect in retirement. Personally I never felt anyone would be handing me or Deb anything, so we planned accordingly, living below our means and saving as much as possible. The result was she retired at 55 and I did the same at 60, largely funded by my savings and her retirement medical coverage. And while no one can say what the future will bring, as of today our efforts have put us in good shape.

    Do the vast majority of Americans still have the means and ability to retirement well? Absolutely. Will the majority of Americans actually retire well? Absolutely not. I see the consumerism of Americans and the urgency to spend on things they cannot afford today, virtually guaranteeing failure on the retirement front in the future. Under those conditions my biggest fear is that our nanny state will feel compelled to take from those who did, to give those who did not. If I see that coming it will be time to pick up stakes and leave these shores for good.

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    1. I like the wisdom of your comparison between the ability to retire well and the likelihood of that occurring. It is all about choice and being able to see the big picture. But, with everyone fixated on how soon they can go shopping on Thanksgiving, clearly consumption remains the driving force of too many lives.

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    2. While we might think of that period as the golden age of retirement due to the presence of pensions with many companies. Those pensions alone did not make for a good retirement. The model of retirement in that period was one of a three legged stool. Leg 1 - Company retirement plan, Leg 2 - Social Security and Leg -3 Personal Savings. The combination of the 3 could make for a solid retirement foundation. Today people confuse 1 and 3. They think that if they contribute to their employers 401k program they don't need additional savings. Also the personal savings leg has gone from a supporting leg to a weight on that side of the stool when you remove the savings and add personal debt on top of that side of the stool.

      Today the model needs to be 1. tax deferred retirement savings (IRA, 401K, etc. 2. Social Security and 3. Personal savings outside of retirement plans. The third leg should be a measure of liquid net worth assets minus any debt.

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  12. I have been wondering how so many people can afford to the new cars I ser around town. Everyone of them must be doing pretty well or they're not saving for their retirement. I've been driving a used vehicle to save more in my retirement accounts. Am I foolish for not living the good life now, or will they be moving into their fancy and not so new cars in a few years.

    We have a cash balance pension plan which can be annuitized at retirement. I'm also saving in every account available to me. Several of my Co-workers have retired recently. I asked them what advice they'd give for those of us still working. Everyone said the same thing...save, save, save. So I've deferred my plans for most of my expensive wants, but treat myself to cheaper ones. I'm doing okay right now but I feel sorry for my 37 year old daughter and her generation. They're up against a huge wall.

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    1. Chuck made the point earlier that retirement the way we envision it is a rather recent phenomenon. If I had to predict I would have to say that retirement (at least retiring well and enjoying life) is not going to be the typical model in another generation. Younger people simply are not taking the steps to make it happen, and our employer/employee system no longer offers a clear path to retirement.

      Then, there is the massive debt and future obligations our generation is passing on to those who come after us. I don't see that going well.

      I feel quite fortunate to have been able to retire at 52 and live well, and still well below my means. My needs and wants are in alignment. I am OK driving a 11 year old car that squeaks and rattles. I an just fine using coupons to go out to dinner. I have no problem wearing a 6 year old sweatshirt on cold mornings. Compared to friends our house is small and old......and has no mortgage.

      Live is satisfying.

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    2. Bob, I resemble your statements! Hope you and Betty have a safe and happy Thanksgiving. And you are spot on - life is very satisfying for those who planned well and executed that plan.

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  13. I think of an old neighbor who lived in a small house (some would call it a shack) on his 160 acres of land (there might have been more) that he ran some cattle on, no utilities (he heated his home with a wood stove & had kerosene lamps and a well), he had more than one saddle horse. When he got his government old age pension, he didn't know what he was going to do with all that money. Haven't times changed?!

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    1. Yes, they have. Actually, I would like a place like his for weekend getaways!

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  14. In my lifetime and yours we have seen the norm for managing ones finances go from buying what you had money to buy, with the exception of maybe a car and a home (20% down, loan no more than 3 times annual income), to a time of pretty easy credit with all kinds of debt. Personal finance is now looking at cash flow (can you afford the monthly payments) instead of wealth generation. Until that is changed and people in general drop the damaging over use of credit, the ability to retire will be badly damaged.

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    1. Credit can be a very helpful tool, or a very dangerous weapon. Are we teaching the difference well enough?

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  15. I would like to recommend a book I just finished titled "Build Wealth and Spend It All" by author Stanley Riggs. It was a very refreshing and interesting read, as it takes you on a different course than the typical financial planning book. The author not only focuses on building wealth, but actually outlines plans for, and encourages, spending it! Riggs details personal experiences with what can go wrong from a life of frugal saving and very smartly teaches us what we can do about it. Check out his website here http://buildwealthandspenditall.com

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    1. Sounds interesting, Cheryl. I will take a look.

      I do read st6ries about folks with plenty of money who live in fear of running out and then have a very austere lifestyle, unnecessarily.

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  16. Bob,

    I have a comment on the issue of pensions. The pensions of old were funded by the company with money that was concidered part of your compensation. You got less in your paycheck becasue they were funding your pension. The good thing was that since you never saw that money you weren't tempted to spend it and the company took the responsiblinly of investing that money. If you made it to the point where you meet the requirements to cash in on the pension you recieved this monthly check to help retirement. The big down side to the pension was since the company had control of that pension fund money they could borrow again it or under fund it and you could end up with nothing. Also if you were let go a year before meeting the 20 or 30 year mark of service sorry you get nothing. WIth the change to the 401K the company gives you the match money instead of funding your pension and you are taking the rinsk of how to grow it. You also can control how nuch goes in by adjusting your contribution. With the vesting time down to a resonable 5 year and that only effects the matching contribution, if yo leave the company the money is still there for you to roll over into you next jobs 401K and continue to fund your pension. At retirement you can roll that final 401K balance into an annuinty and have you monthly check in retirement. The problem is now you see the money growing and think of it as a cash cow. You can borrow from it like you employer use to with the pension fund and screw yourself. It is your choice how to invest that money to grow the biggest balance at retirement. You can use a money market or stable value fund that what you put in is there with the market risk but no grow. You can put it in a target dated fund and let the managers adjust asset allocation a try to balance risk and growth. The new retirement for the yonger generation with company pensions could still be a 3 legged stool if people treated their 401K as a self guided pension and annuitized it at retirement. Then you would have SS, the annuity, and your saving in IRA and taxable accounts. I am happy that my company can't screw me out of my pension but I think they are not contribution as much as they did with the pension.

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    1. Thanks for the excellent overview. The shift of more responsibility to the employee seems like a good thing since it separates the person's future from the company's future moves. But, as you so correctly note, that responsibility comes at a cost if the individual doesn't have the knowledge or will power to not treat the pension money like a bank.

      It is not that different from our evolving health care system where the individual is more responsible for taking better care of himself to keep his out-of-pocket expenses under control.

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  17. Thanks for your blog, it has some great insight!

    As a mother and wife to a family of four I am often stressed about building my families finances and what to do with our existing savings. I was recently recommend a book that I would like to recommend here titled "Build Wealth and Spend It All" by author Stanley Riggs. Dr. Riggs experienced a life changing moment seeing his 90 year old mother in a retirement home, her money being spent by the powers that be while she was too old to enjoy it anymore. He regretted every advising her to save and invest as much as he did, and took that moment to formulate strategies and a guide to help people avoid the same mistake. This book is great because although it focusing on building a stable financial base, it also teaches us what to do with the money once we have it, which is something we dont often plan for.

    After reading I feel much more prepared for my eventual retirement, how to get there, and what to do once im there!

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    1. As the second person to mention this particular book I wonder if there is an effort to promote it. I have removed the link to the author's web site as a bit too blatant a plug. if anyone is interested, a Google search will provide more information.

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