No early retirement for these families

[dlhanson]

Ranks of Older Workers Swell as Losses as Shorten Retirement - May 9 WSJ

This article describes two families who lost their retirement funds on "business ventures" and now are having a difficult time finding a job in their 60's. And they are lamenting that they can't retire.

The most revealing paragraphs:

Family #1
They lost much of their savings and cashed out their retirement funds in 2000 after a string of pizza restaurants Mr. Villareal opened in Mexico went bust. He then turned to running a small consultancy, but business dried up over the past year as the economy slowed.

Family #2
The couple moved from California nearly six years ago and owe more on their home than it is currently worth. Mr. Schimmelman borrowed against it to finance business ventures that didn't work out. He also moved much of the couple's retirement money a few years ago into the precious metal palladium, which is closely tied to demand from the auto industry and has lost more than half its value.

 

[ziggy29]

One of the problems with this trend is that it has a ripple effect of crowding the work force for everyone. When older workers who would have retired a couple of years ago have to stay on for a few more years, it has a ripple effect for job seekers. In addition to increasing job losses, a terrible stock market in an era of 401K-dependent workers means much lower than usual job openings being created.

Some people have long speculated that the real motivation behind Social Security was to get older workers to retire so younger ones could find jobs.

 

[REWahoo]

I find it difficult to have a great deal of sympathy for these two examples of "I can't retire" syndrome. I see two guys nearing traditional retirement age who took risks they should never have taken with assets they couldn't afford to lose. Looks to me as if they played it fast and loose when most who post here would have said "what the heck were you thinking"?

 

[LOL!]

These families are both old enough to be receiving SS benefits, so the solution is pretty simple: Declare bankruptcy, move to a lower cost-of-living location and live off of SS benefits. For example, the guy with failed pizzerias in Mexico could probably be living in Mexico on his SS benefits.

 

[ziggy29]

I find it difficult to have a great deal of sympathy for these two examples of "I can't retire" syndrome. I see two guys nearing traditional retirement age who took risks they should never have taken with assets they couldn't afford to lose. Looks to me as if they played it fast and loose when most who post here would have said "what the heck were you thinking"?

I agree to an extent, but I think this downturn was sharp enough to take even the relatively prudent by surprise. This didn't only get the people who were taking ridiculous risks. Anyone who was reasonably prudent but retired "on the cusp" of portfolio survivability (according to the 4% rule or whatever else) with a modest AA in stocks could have still had their retirements busted for a while.

Having said that, to build on your comment, I remember reading an article around 2002 when job losses were rampant and there was a quote from an unemployed 62-year-old guy in Boston who was quoted as saying: "It's like all it takes is one crack in the system and you can go from having a really good lifestyle to being literally homeless."

Uh, no. If you are 62 and had a "really good lifestyle" (probably for many years), you would have been able to save and invest the difference between a "good" lifestyle and a "really good" lifestyle and when you found yourself unemployed at 62, you'd be FIREd. Similar things have happened to some of the FIREd folks here -- the difference being that the distinction between "FIREd" and "literally homeless" is that the FIREd didn't piddle away every last penny of their healthy incomes on stuff and go into debt to get even more.

Nobody with even remotely decent financial planning should be 62 and enjoying a "really good lifestyle" if job loss would threaten their financial solvency, let alone torpedo their retirement. In that case, it took a LOT more than a "crack in the system" to make him destitute. It took short-sighted live-for-today consumption and horrible financial planning.

 

[W2R]

It's a jungle out there. No really, it is! I mean it. If you don't find a way to take care of yourself, the world will pass you by. It's not easy but it's a (quality of) life or death situation.

Retirement planning is a serious challenge with much of your life on the line. Put all your intelligence, judgment, creativity, and hard work into it and maybe, just maybe, it will pay off.

But what if you don't have much in the way of intelligence, judgment, or creativity? What if your luck doesn't hold out? What if you don't believe in yourself and give up before you start? You may have to work until you die. It's a jungle out there.

One of the problems with this trend is that it has a ripple effect of crowding the work force for everyone. When older workers who would have retired a couple of years ago have to stay on for a few more years, it has a ripple effect for job seekers.

I'm doing my best to help out by November. I feel really sorry for some of my co-workers who are around my age or older, and still can't retire. Some made bad decisions but some were blindsided by economic events, and some just had terribly bad luck (Katrina or otherwise).

 

[Notmuchlonger]

What the hell.


"I don't buy $200 shoes like I used to," said Mr. Villareal, dressed in a white polo shirt bearing a EuroDisney logo, chino shorts, loafers and ankle socks. "I'll wear these clothes for another 11 years -- what do I care?"

Ya you think buddy..

 

[Nords]

"I don't buy $200 shoes like I used to," said Mr. Villareal, dressed in a white polo shirt bearing a EuroDisney logo, chino shorts, loafers and ankle socks. "I'll wear these clothes for another 11 years -- what do I care?"

I think we're narrowing in on the source of the problem-- he's afraid to retire before his office clothes wear out.

But if he's going to fix Social Security and Medicare with his payroll contributions, then I can't complain.

 

[bubba]

One of the problems with this trend is that it has a ripple effect of crowding the work force for everyone. When older workers who would have retired a couple of years ago have to stay on for a few more years, it has a ripple effect for job seekers.

I'm seeing this is my workplace. There are several folks who'd planned to retire (per the grapevine), and another layer all set to move up into those vacated positions. Of course, the slots opened would provide a chance for young folks starting out. Now, all of the "planning to retire" set that I know about are saying "one more year". Discouraging to those who want to retire, those looking for promotions, and those trying to break into the workforce. Agree with Want2Retire - it's a jungle out there.

 

[tuixiu]

These families are both old enough to be receiving SS benefits, so the solution is pretty simple: Declare bankruptcy, move to a lower cost-of-living location and live off of SS benefits. For example, the guy with failed pizzerias in Mexico could probably be living in Mexico on his SS benefits.

Interesting point.

Scottsdale is certainly one of the more expensive places to live out West, so a move to someplace cheaper (perhaps with a house walk-away) would certainly do a lot for their cash flow. Heck she could even keep her same job at a discount retailer if they moved a few miles South to one of those retiree trailer parks in Mesa.

Here's another recent "retirement oops" article that caught my eye recently:

http://www.nytimes.com/2009/05/10/fashion/10generationb.html?_r=1

That guy did really well and was able to save up more for his kids' colleges than most people save in a lifetime and still retire at 55, but now five years later the kids are unemployed and living at home while he's looking for work.

Seems like really rotten luck as they got the perfect storm hitting the whole family at once, but it sounds like he's not on the desperate edge just yet and has a realistic attitude about it:

The Diamonds know they’re more fortunate than most. They’ve built a cushion that has shielded them from the worst, and depending on how long this goes on, they may be fine.

“I have a fair degree of confidence, but it’s not unshakeable confidence,” Mr. Diamond said. “At the end of the day we can sell the house and move to a place where the cost of living’s not like northern New Jersey. We’re not going to starve; that won’t happen.Intellectually, I know that.

 

[tuixiu]

and one more from the "financial train wreck" type articles:

Business & Technology | Seattle couple stretched to buy house just before downturn | Seattle Times Newspaper

On a good month, their combined take-home pay hovers around $4,600, and about $3,000 of that goes to their mortgage payment, which has a fixed-interest rate of 6 percent and includes taxes, insurance and private mortgage insurance (PMI). When Jackson isn't called in to sub at the library as often, they may bring home $4,000 in a month.


Mortgage, depending on wife's hours that month, between 65% and 75% of take home take-home pay. Ouch x 12.

 

[Tadpole]

My husband's attitude is that he can retire and so he will retire in September at age 63. The downturn in the economy is not a variable in his plans. His ease is not my personality but I envy his "fed up" confidence. But I keep thinking that someone retired in 2007-2008 and, whatever life brings to them, they will just have to make do and adjust. So if he lives to 95, he likely will see a lot of downturns in the economy no matter how he may have delayed retiring in this downturn.

So while I fidget with my spreadsheets and retirement calculators, go to work, and resolve to "die at my desk", he ignores my warnings and paves his own path. I may decide to follow his lead when I reach 62 if for no other reason than **** (poo-poo) happens and probably will happen again.

I cannot bring myself to criticize people for retiring and attempting to be senior entrepreneurs. It seems so American as does failure and punt.

 

[rescueme]

But I keep thinking that someone retired in 2007-2008 and, whatever life brings to them, they will just have to make do and adjust.

Well, some of us that actually retired in 2007 (like me ) are not having to "make do" at all.

Maybe I'm smart (or dumb, or lucky) but my plan did include the "aw sh**" situation we are now in. I (and my wife) have been here before and we're sure we will be here again, in the future.

Is our plan perfect? No; but it is "good enough" to allow us to live on the same pre-retirment net income (and forecast at the same rate, adjusted for inflation, till age 100).

Sometimes you do get what you planned for...

 

[REWahoo]

I cannot bring myself to criticize people for retiring and attempting to be senior entrepreneurs. It seems so American as does failure and punt.

Someone can "retire" or someone can "attempt to be a senior entrepreneur", but not both. The former involves leaving the workforce, the latter is simply a job change.

My criticism is directed towards the risks the two examples in the article took with assets that should never have been used to finance late-in-life business ventures. I think it terribly unwise for someone in their 60's to use retirement savings or home equity to finance "business ventures". Did they not give thought to the consequences of failure? The "I'll figure something out" strategy is OK when you are younger, but the rules begin to change at some point after passing the half century mark. Tough to punt when your arthritic leg doesn't work worth a darn...

 

[W2R]

I think it terribly unwise for someone in their 60's to use retirement savings or home equity to finance "business ventures". Did they not give thought to the consequences of failure? The "I'll figure something out" strategy is OK when you are younger, but the rules begin to change at some point after passing the half century mark. Tough to punt when your arthritic leg doesn't work worth a darn...

I couldn't agree more. But we have to remember that people who frequent this board are more likely than most to have taken control of their own financial situations in order to actively engineer their retirement.

Frequently I come across people who approach retirement from the viewpoint that they have worked hard all their lives, so their retirement will just magically fall into place when they get to retirement age. I would truly hate to be a financial planner approached by this type of person in their 50's or 60's.

Co-workers in their 50's have told me that they think (but are not sure) that they are contributing to the TSP. Others have told me that they know they are contributing to it, but aren't sure what funds their money is going into. Some have no idea how to find out what their TSP balance might be because for some unknown reason they are no longer receiving statements, and haven't bothered to even look up the website online.

Others not in government and in their late 50's have told me that they have no idea what the maximum 401K contributions are, never heard of over-50 catchup, and don't know how much to tentatively expect from their current pension system if it even survives.

In fact, one reason why I like this board is that in real life, I know very few people who have bothered to think about and plan what they will live on in retirement. But still, most of these who have developed a plan are planning to work part time at a more pleasant job after "retirement".

It's a jungle out there and there seem to be far too many just assuming that SS will be sufficient, or that either they or their spouses will die on the job.

 

[ziggy29]

I couldn't agree more. But we have to remember that people who frequent this board are more likely than most to have taken control of their own financial situations in order to actively engineer their retirement.

IMO, we lose sight of that sometimes: we on this board are most definitely NOT a "representative sample" of the average person dealing with money management, financial planning and retirement issues. That there are so many here in their 20s and 30s who are already actively planning and saving for retirement underscores that fact. That's definitely not the norm, especially when you read news articles saying the average retirement account balance of a 60-year-old is something like $50,000.

 

[Bikerdude]

I cannot bring myself to criticize people for retiring and attempting to be senior entrepreneurs. It seems so American as does failure and punt.

I don't have a problem when people try something new to try to improve their lot in life, even if its risky. Its just the crying, when it does not work out that bothers me.

 

[dex]

I find it difficult to have a great deal of sympathy for these two examples of "I can't retire" syndrome. I see two guys nearing traditional retirement age who took risks they should never have taken with assets they couldn't afford to lose. Looks to me as if they played it fast and loose when most who post here would have said "what the heck were you thinking"?

I agree and would add:
1. The subjects and the article are a form of "information fitting" i.e. the author fit the circumstances to the points they wanted to make. At another point in time the author might have wanted to point out the difficulties in work life changes - e.g. out of corp. life.

2. The real mistake with family #1 is that success in corp. life does not mean those skills will translate to a small business - "success fallacy."

 

[unclemick]

I don't have a problem when people try something new to try to improve their lot in life, even if its risky. Its just the crying, when it does not work out that bothers me.

Hmmm - 100k lifestyle to 12k lifestyle - 1992 - age 49 - back when a dollar was really a dollar(a little humor) - layed off toward the end of the downturn(when I thought I was safe).

Ticked me off so much - I've been ER'd ever since. Crying is optional - now whining and bitching and being a really cheap bastard you can really get into if you put your born again hat on. .

Should I say rock up - cut expenses stupid?

Medical is a different story. And and do I want to be that cheap again?

Er ah well no.

heh heh heh - Time in the market(90's yet), older, fatter, less cheaper?

 

[Independent]

Interesting point.

Scottsdale is certainly one of the more expensive places to live out West, so a move to someplace cheaper (perhaps with a house walk-away) would certainly do a lot for their cash flow. Heck she could even keep her same job at a discount retailer if they moved a few miles South to one of those retiree trailer parks in Mesa.

Here's another recent "retirement oops" article that caught my eye recently:

http://www.nytimes.com/2009/05/10/fashion/10generationb.html?_r=1

That guy did really well and was able to save up more for his kids' colleges than most people save in a lifetime and still retire at 55, but now five years later the kids are unemployed and living at home while he's looking for work.

Seems like really rotten luck as they got the perfect storm hitting the whole family at once, but it sounds like he's not on the desperate edge just yet and has a realistic attitude about it:

The Diamonds know they’re more fortunate than most. They’ve built a cushion that has shielded them from the worst, and depending on how long this goes on, they may be fine.

“I have a fair degree of confidence, but it’s not unshakeable confidence,” Mr. Diamond said. “At the end of the day we can sell the house and move to a place where the cost of living’s not like northern New Jersey. We’re not going to starve; that won’t happen.Intellectually, I know that.

Thanks for the link. I have nothing in common with the two families in the OP who took way more risk than I would. But I can certainly relate to Mr. Diamond. I did the same "cautious actuarial" analysis, but didn't plan for the possibility that the kids wouldn't be self-supporting. I've got one who recently passed the bar but isn't employed. Another who still hasn't found a real "career", another that's at risk of a construction downturn (an architect married to an architect).

Like him, I know that I'm not going to starve. I can rationally observe that I've got just as good a lifestyle as my parents did at my age. But, that doesn't mean that I'm not worried about the kids.

 

[freebeer]

I think it terribly unwise for someone in their 60's to use retirement savings or home equity to finance "business ventures". Did they not give thought to the consequences of failure

Robert Louis Stevenson wrote about the "desperate game we play in life". Risk is relative, and in the long run, we're all dead. If someone is compelled to follow their dream, rather than tidily run out their string, who are we to criticize? Charles Goodyear perfected vulcanization in his 40s - beyond the mean lifespan of the mid 19th century - and only after being imprisoned multiple times for indebtedness.

My mother was a successful business owner for almost 40 years, and started several ventures during that period including one in year 39. The newest ended badly, and instead of relaxing in her 60s she worked. Now in her late 70s she's dependent on Social Security and the family safety net, with a very modest lifestyle. Do I wish she hadn't "bet the farm" - absolutely! But there's a lot worse outcomes than mentally sharp, healthy and broke in your late 70s, enjoying Mother's Day with your children and grandchildren!!

 

[ziggy29]

Starting a business has many of the same rules of thumb as investing (and gambling, for that matter): don't put more money into it than you are willing and able to lose.

 

[armor99]

Frequently I come across people who approach retirement from the viewpoint that they have worked hard all their lives, so their retirement will just magically fall into place when they get to retirement age. I would truly hate to be a financial planner approached by this type of person in their 50's or 60's.

Yes... I have seen this one alot as well. It is this "magical thinking" that will lead to their own destruction. My own father is probably going to be one of these folks. I have begged, pleaded, and offered to pay for him to go see a financial planner. Not because I trust a FP, but he would never take my advice, no matter how sound it is.

I think for alot of people, facing reality is just too emotionally painful for them. So instead of planning and making their situations better, they continue through life "pretending" that things will turn out OK. That "somehow" things will work out on their own, with no active participation on their part. I have literally seen people blow through 1000's of dollars wind up in complete bewilderment when they suddenly cannot pay their rent.

I am not a psycologist, but I would almost have to label it some sort of mental psycosis. To be that disconnected from cause and effect completely baffles me.

For better of worse, self dillusion is not a luxury that I can afford. I see things for pretty much what they are. And no matter how much I might want it to, reality is just not going to change for me, or anyone else.

 

[dex]

Risk is relative, and in the long run, we're all dead.

Risk is not relative in business (one aspect of this thread). It can be quantified by various means.

You might have meant - that the risk that a person is willing to take is subjective. In that their is no doubt.

32508. Keynes, John Maynard. The Columbia World of Quotations. 1996
Long run is a misleading guide to current affairs. In the long run we are all dead.

 

[ziggy29]

You might have meant - that the risk that a person is willing to take is subjective. In that their is no doubt.

That's certainly true, and it's also amplified by paradox: to a large degree, the people who can most afford to take risks with their money tend to be the same people who don't need to.