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American fairy tale
Give the heave-ho to the idea of early retirement
By Robert Powell, CBS MarketWatch.com
Last Update: 8:46 PM ET June 16, 2004
BOSTON (CBS.MW) -- On paper, it sounds great.
Plan for the retirement you envision with Retirement Weekly
Baby boomers -- as the theory goes -- will move in and out of the work force as they age. They will retire early to go back to school, or to spend time with family and friends or to pursue the good life. And then they will return to work, only to repeat the cycle at some point in the future. In and out of the work force. In and out of life's other offerings.
The reality, however, seems quite different. At present, there are only two types of people who retire early: those who have health problems -- the majority -- and those who have the financial wherewithal, thanks to savings or early retirement incentives, to kick back, to pursue the good life and then return to work -- the minority.
And the net result, at least from this vantage point, is that early retirement -- and the notion of weaving in and out of the work force -- is nothing more than yet another American fairy tale.
Yes, there are some Americans who are leaving and re-entering the work force today. Women have been doing it for years. Unfortunately, doing so costs them a great deal. They lose 5 percent in earning potential for every year out of the work force, says one study. And C-suite executives do it all the time.
David D'Alessandro, 53, announced last week that he's calling it quits later this year as president and chief executive of John Hancock Financial Services to spend the next 12 months writing and thinking about his next move. His $16.5 million severance will no doubt take some of the pressure off searching for the next new thing.
Retiring early is one thing. Re-entering the work force is another. Richard Burkahauser, a Cornell University professor, says there are two kinds of workers most likely to leave and re-enter the work force. The first are folks with small Social Security pensions and no private employer pension who take low-wage jobs to make ends meet, such as phone sales, hotel reservations, and the like.
Indeed, those who retire early, either permanently or for a spell, don't necessarily enjoy the good life. Most Americans who retired early, between the ages of 51 and 59, said they were less well-off financially than workers the same age, a 2000 National Academy on Aging Society study showed. The median family income of those who retired early was $24,000 vs. $41,000 for those still working.
Burkahauser says the other type of early retiree who returns to the labor force is a highly skilled white-collar worker, an accountant or manager for instance, with a good combination of Social Security and private pension who wants to stay active. That type either does general consulting or returns to a previous firm during periods of peak demand, he says.
"The notion of a lifetime of moving in and out of labor can only work when worker's skills are easily transferable from employer to employer, ageism is dead and people don't become chronically ill or functionally dependent on others," says Robert Friedlander, head of Georgetown University's Center on an Aging Society.
In fact, Friedlander says most people who are out of the labor force in there 50s are out because either they or a spouse are in poor health or they have been discouraged from remaining in the labor force.
"Yes they might have changed jobs, they did so to collect their pension, but then they found that other employers were not as interested in them [as] their former employer and eventually they decided that it was not worth it to take a physically demanding job at such a relatively low wage," he says. "There are relatively few people who voluntarily leave the labor force in their mid-50s because they have saved enough to do so."
So what will the future hold? For his part, Longino says the economy in America will play a dominant role with whether boomers will cycle in and out of retirement. "I have a gut feeling that (boomers moving and out of the labor force) will be documented as trends and will increase as the baby boom retires," he says. "But the general economic cycle is a strong overlay that tends to mold other trends. In good times, early retirement creeps up and [it] goes down during hard times."
And then there's the "x" factor.
"Early retirement, as well as retirement itself, is a concept and process that is always changing," says Georgetown University's Friedlander. "I do think it will probably change even more over the next two decades -- but I would be careful not to pronounce it as 'dead.' Perhaps it is just 'morphing' into something else."
Robert Powell is a personal finance columnist for CBS MarketWatch, co-author of "Decoding Wall Street" and executive producer of PBS' More Than Money. He also is the editor of Retirement Weekly, a service of CBS MarketWatch.
Give the heave-ho to the idea of early retirement
By Robert Powell, CBS MarketWatch.com
Last Update: 8:46 PM ET June 16, 2004
BOSTON (CBS.MW) -- On paper, it sounds great.
Plan for the retirement you envision with Retirement Weekly
Baby boomers -- as the theory goes -- will move in and out of the work force as they age. They will retire early to go back to school, or to spend time with family and friends or to pursue the good life. And then they will return to work, only to repeat the cycle at some point in the future. In and out of the work force. In and out of life's other offerings.
The reality, however, seems quite different. At present, there are only two types of people who retire early: those who have health problems -- the majority -- and those who have the financial wherewithal, thanks to savings or early retirement incentives, to kick back, to pursue the good life and then return to work -- the minority.
And the net result, at least from this vantage point, is that early retirement -- and the notion of weaving in and out of the work force -- is nothing more than yet another American fairy tale.
Yes, there are some Americans who are leaving and re-entering the work force today. Women have been doing it for years. Unfortunately, doing so costs them a great deal. They lose 5 percent in earning potential for every year out of the work force, says one study. And C-suite executives do it all the time.
David D'Alessandro, 53, announced last week that he's calling it quits later this year as president and chief executive of John Hancock Financial Services to spend the next 12 months writing and thinking about his next move. His $16.5 million severance will no doubt take some of the pressure off searching for the next new thing.
Retiring early is one thing. Re-entering the work force is another. Richard Burkahauser, a Cornell University professor, says there are two kinds of workers most likely to leave and re-enter the work force. The first are folks with small Social Security pensions and no private employer pension who take low-wage jobs to make ends meet, such as phone sales, hotel reservations, and the like.
Indeed, those who retire early, either permanently or for a spell, don't necessarily enjoy the good life. Most Americans who retired early, between the ages of 51 and 59, said they were less well-off financially than workers the same age, a 2000 National Academy on Aging Society study showed. The median family income of those who retired early was $24,000 vs. $41,000 for those still working.
Burkahauser says the other type of early retiree who returns to the labor force is a highly skilled white-collar worker, an accountant or manager for instance, with a good combination of Social Security and private pension who wants to stay active. That type either does general consulting or returns to a previous firm during periods of peak demand, he says.
"The notion of a lifetime of moving in and out of labor can only work when worker's skills are easily transferable from employer to employer, ageism is dead and people don't become chronically ill or functionally dependent on others," says Robert Friedlander, head of Georgetown University's Center on an Aging Society.
In fact, Friedlander says most people who are out of the labor force in there 50s are out because either they or a spouse are in poor health or they have been discouraged from remaining in the labor force.
"Yes they might have changed jobs, they did so to collect their pension, but then they found that other employers were not as interested in them [as] their former employer and eventually they decided that it was not worth it to take a physically demanding job at such a relatively low wage," he says. "There are relatively few people who voluntarily leave the labor force in their mid-50s because they have saved enough to do so."
So what will the future hold? For his part, Longino says the economy in America will play a dominant role with whether boomers will cycle in and out of retirement. "I have a gut feeling that (boomers moving and out of the labor force) will be documented as trends and will increase as the baby boom retires," he says. "But the general economic cycle is a strong overlay that tends to mold other trends. In good times, early retirement creeps up and [it] goes down during hard times."
And then there's the "x" factor.
"Early retirement, as well as retirement itself, is a concept and process that is always changing," says Georgetown University's Friedlander. "I do think it will probably change even more over the next two decades -- but I would be careful not to pronounce it as 'dead.' Perhaps it is just 'morphing' into something else."
Robert Powell is a personal finance columnist for CBS MarketWatch, co-author of "Decoding Wall Street" and executive producer of PBS' More Than Money. He also is the editor of Retirement Weekly, a service of CBS MarketWatch.
