Retirees and the Economy

[Helena]

AP article:

Falling stocks land hard on retirees

• Retirees are tightening their belts
• Rising food and fuel prices are hurting their budgets
• Interest rates and stocks are falling, slimming their savings
• Study: Retirees depend on Social Security for 40 percent of income

Falling stocks land hard on retirees - CNN.com



*

[brewer12345]

Snore. More doom & gloom cherry-picking by a lazy reporter. Next!

[maddythebeagle]

Quote:

Block and his wife have shrunk what used to be $2,000 to $5,000 annual donations to the local symphony, church and social service agencies to $150 to $300. Vacations are out. When homeowners' insurance hit $1,200 a month, the couple trimmed their coverage. He and his wife gave their Acura and their Mini Cooper to two of their sons, downsizing to a four-cylinder Accord.

It's tough out there...

[Helena]

I am listening to one of the most popular personal finance experts
in the DFW area who has been telling his clients to be out of the
stock market for months... he just said when a recession is officially
announced, the stock market may drop another 1000 to 1500 points.

[Notmuchlonger]

Time for retirees to go back to w*rk!





I kid I kid!

[Alan]

Quote:

Originally Posted by Helena I am listening to one of the most popular personal finance experts in the DFW area who has been telling his clients to be out of the stock market for months... he just said when a recession is officially announced, the stock market may drop another 1000 to 1500 points.

He sounds like another panicking market timer - "the market is down, sell-up before it goes even lower".

[Marquette]

MSNBC had the same story: As economy tumbles, retirees scramble to cope - Money - MSNBC.com

My first thought on the lead-in was 'well, you should have picked an asset allocation more in line with your willingness and ability to take risks.'

I have a hard time feeling bad for people that got themselves in their own pickle.

[martyb]

Homeowners Insurance hit $1200 a month My whole mtg payment including PITI is < $900. Sounds like time to sell & downsize. My home is worth $200K, 1900 sf 4/2/2. Not a palace but pretty nice, and is 12 yrs old. My HO insurance is in the range of $100 a month. No way I'd pay $1200.

[martyb]

"The median income of people 65 and older in 2006 was $16,443, according to the Employee Benefit Research Institute, an independent nonprofit group."

Wow....I hadn't really thought about the median being this low!

[Helena]

Quote:

Originally Posted by Alan He sounds like another panicking market timer - "the market is down, sell-up before it goes even lower".

Well.. I don't know him personally, but he has been a financial planner
in DFW for 20 years. He gives many historical examples that show
the "buy and hold" philosophy is wrong... especially if the economy
is heading for recession and the stock market may be heading into a
prolonged downturn.

[martyb]

"Ed Block, 81, has seen a series of expenses drain his savings in the 22 years since he retired from AT&T and moved to Key West, Florida. He and his wife helped with two granddaughters' college bills and still contribute to one grandson's prep school expenses. They've started a college fund for the rest of their grandchildren, assisted two sons who were downsized and pitched in when a grandchild needed special education.
With his diminished investments and a pension that doesn't rise with inflation, what he calls "Wall Street's agonies" added urgency to 2008 budget cuts the couple would have had to make anyway, he said.
"Twenty-two years without a paycheck is a very long time in the face of persistently rising costs," he said."


I'm sorry, not to diminish these folks problems, but when you're retired, living on your investments and have full knowledge of your financial vulnerabilities, it just doesn't make any sense to go funding your grand-kids college expenses or doling out cash to your grown kids who got downsized at work. Likewise for grandson's prep school or starting college funds for all the other grandkids. It doesn't sound like they were in any position financially to shell out all this money, and now they're crying the blues over their foolishness. I'm ok with helping the special needs kid, though. I help those who can't help themselves, or in rare case those who try very hard but still need a helping hand. To the others, sink or swim!

[brewer12345]

Quote:

Originally Posted by martyb "The median income of people 65 and older in 2006 was $16,443, according to the Employee Benefit Research Institute, an independent nonprofit group." Wow....I hadn't really thought about the median being this low!

That's actually the main reason I am willing to be taxed eavily to support SS even if I never see a dime of the money personally. SS is easily the most effective way to keep large numbers of elderly people from abject poverty.

[FIREd]

Quote:

Originally Posted by Helena AP article: Rising food and fuel prices are hurting their budgets Interest rates and stocks are falling, slimming their savings Study: Retirees depend on Social Security for 40 percent of income

All true statements. No exaggeration there.
Some of the examples portrayed in the article are a bit extreme (I have especially little sympathy for the Blocks who keep paying for the grand-kids' education expenses while having to cut their own lifestyle).
I know several retirees living on (lower) fixed incomes and living simply and they all say the same: It's getting harder to make ends meet. Some live exclusively on SS, some on SS + their own savings. They are all worried. My aunt has even gone back to work. I am sure wealthier retirees are faring much better, but I don't know any...

[Helena]

Quote:

Originally Posted by FIREdreamer I know several retirees living on (lower) fixed incomes and living simply and they all say the same: It's getting harder to make ends meet. Some live exclusively on SS, some on SS + their own savings. They are all worried. My aunt is has even gone back to work. I am sure wealthier retirees are faring much better, but I don't know any...

This is why I stay out of debt [ house and car paid off ]
and engage in PT self-employment as long as I am able.

[FIREd]

Quote:

Originally Posted by Helena This is why I stay out of debt (house and car paid off)

Just to be precise, none of the retirees I know have any debt, be it credit card, car loans or mortgages.
To be sure, having no debt when retiring is very important IMHO.

[youbet]

Quote:

Originally Posted by martyb "Ed Block, 81, has seen a series of expenses drain his savings in the 22 years since he retired from AT&T and moved to Key West, Florida. He and his wife helped with two granddaughters' college bills and still contribute to one grandson's prep school expenses. They've started a college fund for the rest of their grandchildren, assisted two sons who were downsized and pitched in when a grandchild needed special education. With his diminished investments and a pension that doesn't rise with inflation, what he calls "Wall Street's agonies" added urgency to 2008 budget cuts the couple would have had to make anyway, he said. "Twenty-two years without a paycheck is a very long time in the face of persistently rising costs," he said." I'm sorry, not to diminish these folks problems, but when you're retired, living on your investments and have full knowledge of your financial vulnerabilities, it just doesn't make any sense to go funding your grand-kids college expenses or doling out cash to your grown kids who got downsized at work. Likewise for grandson's prep school or starting college funds for all the other grandkids. It doesn't sound like they were in any position financially to shell out all this money, and now they're crying the blues over their foolishness. I'm ok with helping the special needs kid, though. I help those who can't help themselves, or in rare case those who try very hard but still need a helping hand. To the others, sink or swim!

Interesting comments. I do "dole" (as you put it) out cash to my son and his family in similar ways to the couple discussed in the article and which you criticize. You may be right, but here's my reasoning.

1. Helping grandkids with college - I reward my son and DIL for funding their deferred retirement accounts at work by funding Coverdell ESA's for each of their three kids. $2K/yr per child, the max allowed. This started at birth and won't cover four years of college, but I estimate the value of each account will be in the $40K - $50K range (real) by the time they're 18, so it will be a big help. Costs me $6K/yr and a few hours managing the accounts. Son and DIL would not be able to both fully fund their 401k's and do college savings. This activity does impact our lifestyle, but I enjoy doing it more than the satisfaction I'd receive from purchasing a fancier car, taking an additional vacation each year or any other comsumptive activity. It "floats my boat" so to speak.

2. Helping out of work kids - I've never had to do this but assume I would if I could. My WR is below 4% and I'd be willing to temporarily increase it to 4% to help out for a few months if necessary.

3. Helping special needs grandchild - My oldest grandson is afflicted with cerebral palsy. His expenses, of course, impact son and DIL's budget tremedously and the actions in #1 and #2 above are directly related to this. Helping is something I'm priviledged to be able to do. I spend Wednesdays with him at Easter Seals. DW (alias Gramma) is a retired special ed teacher and works with him frequently. If it turns out we can afford it, a portion of our portfolio will morph into a trust for him.

I'm perfectly free to not do these things and realize we could be living in a fancier house, driving fancier cars, taking more vacations, buying more toys/electronics/jewelry, getting deeper into our hobbies, etc., etc. But the satisfaction we receive from these giving activities surpasses the marginal utility of adding the next additional consumptive activity.

Although our giving activities are within our SWR, we understand that if things go against us financially in the future (high inflation, low investment returns, employer stops paying pension, blaaaah, blaaaah bad news, etc.), we could have been better off keeping these funds within our portfolio. And if physical limitations related to growing older prevent us from taking as many of our beloved fishing and camping trips, we might wish we had taken more now instead of spending time with the family.

It's all a crap shoot, a matter of priorities, a matter of what personally gives you pleasure.

A friend stopped by to show off his new BMW. Man, what a nice car! I could easily afford one by using the $6K/yr I put into the grandkids college funds to make the payments. But......... naw.......... My 1999 F150 (used for camping and hauling canoes and kayaks) and 2000 Civic do just fine.....

You pay yer money, you makes yer choice......

My only beef with the 81 year old couple in the article is that they are whining about their situation now. If you're going to give during your retirement, take the time to understand what you're giving up to do so in terms of both current consumption and potential future lifestyle downgrades if things go against you financially.

[youbet]

Quote:

Originally Posted by brewer12345 That's actually the main reason I am willing to be taxed eavily to support SS even if I never see a dime of the money personally. SS is easily the most effective way to keep large numbers of elderly people from abject poverty.

Brewer....

In an earlier life, I used to fret and stew over SS, felt I was getting ripped off by being forced to contribute, etc. I've gotta say, I've really mellowed in my outlook. Despite the fact that, given the way my life worked out, I'd probably have been financally ahead to keep my SS contributions and invest them myself, today I do support SS and the safety net it provides.

[Rambler]

Youbet,
I applaud you and your DW. When I am over 65 and if the kids are in need, such as you describe, I will have no problem doing the same, provided my WR stays at or below 4%. However, from 48 (or so, when I expect to ER) to 65, I feel my WR better be below that, more like 3%, just for safety's sake. Besides that, I see no need to have Bimmers, Mercs, Acuras or Lexus or any such when you can have just as nice a vehicle for a little over half the price (and half the depreciation, and lot less on maintenance) for a Honda or Toyota badged car or truck. (Sorry I won't go back to Ford...too many problems with our old Windstar...but I digress). I know this because I have a mega-corp provided Lexus now, and I am just as happy in my personally acquired Honda or Toyota truck. There are many other things like that as well. I am happier camping than on a trip to Paris or London, for example.

The point with the Block couple is that they seemed to be trying to have it all...Acura, Cooper, spending big buck supporting the kids, and who knows what else. ...and $1200 a month for homeowners insurance? Ours is about $3000 a YEAR for a mini-McMansion. We have another home, which is quite nice, that would only rent for just a little more than $1200, and its homeowners insurance is less than $100 a month (we do not live full time in either of these, but the explanation is too long for this post). So, while I feel for some of the other folks mentioned in the article, I think the Block family simply does not (or at least did not) know how to live within its means. I'm sure they could have supported their kids just fine, if thats what they chose to do, AND lived a comfortable life, but they chose too many luxuries and now are feeling the pinch.

R

[MooreBonds]

Quote:

Originally Posted by Rambler Youbet, ...and $1200 a month for homeowners insurance? Ours is about $3000 a YEAR for a mini-McMansion. R

Don't forget - the Blocks live in Key West. There's a reason their insurance is sky-high.

But...if they can't stand the heat, then quit complaining and move out of the kitchen! $12k/year in lower insurance premiums would buy a LOT of things.

[bssc]

The way that I looked at SS security was that it went to my grandparents and now parents. It also kept me from being mugged

for a tin of meat for the cat