Retiring into Poverty

[Offgrid Organic Farmer]

When I retired I owned my home [no mortgage], I owned multiple vehicles [a sedan for myself, a sedan for my wife, a dump truck, and a farm tractor], we live in an extremely low COL region of the East Coast.

My pension has been paying us roughly $19,000/year. From this income we support ourselves and we have saved enough on the side that we managed to buy another apartment building [again no mortgage]. So this year [during the pandemic] we filled it with tenants, and we now have an additional $50k/year Net income.

While $19,000 might be considered 'poor', I fail to see how that level of income supporting us, was 'bad'.

 

[34rlsa]

I'm getting to the point where I just scroll through the posts looking for Oldshooter's replies.

Thanks OS... I enjoy your contributions...

Usually...

 

[Navigator]

Interesting!
Pensions do make a difference there is no question about it. The company I worked for still offers a pension and a 401K that they contribute to also. My son has been with a company for 17 years now and they have a pension and also have a 401K that they contribute to also.
I still beleive people that don't have a pension and are savers and plan for retirement can still be wealth at retirement age. You have to be disciplined and be frugal and be a saver and you can be a millionaire and retire high on the hog.

I remember when 401Ks first came out, only upper management was interested in them. Normal workers thought they would have a pension to rely on. That changed - pensions have mostly gone away and many people had to rely on savings. The trouble with that is people my age got a late start and most didn’t know enough to make good decisions on how much they needed to save or how to invest their money. Often, even if they did know how to invest, the limitations of employers 401K plans guaranteed poor returns. If you throw in the complication of having 10 years less to save and grow a portfolio, I am not surprised so many people are having financial problems. You are correct, people can retire with a modicum of wealth, but it takes a special person to know how to navigate all the pitfalls.

 

[MRG]

+1

The article blaming this situation on the Covid recession is ridiculous. Probably a particular view being pushed for I can’t imagine what reason.

They wanted money?

 

[Al in Ohio]

I think the point is low wage earners in their 50’s losing their jobs due to Covid are not going to be rehired and will not be able to build up savings for 10 yrs leading up to 65. I think I know many folks living on 20k that would not consider themselves impoverished. They are in LCOL areas, some have paid off homes or subsidized senior housing and decent health.

I think you just hit the nail on the head. It’s in that situation Covid has hurt a certain segment of future retirees, but not the rest that many of us are fortunate to be in.

 

[Al in Ohio]

There has never been a time in the USA where even 50% of the population received a defined benfit plan (pension). Way down now but it was never the majority.

In 1960 approximately half the American private sector workforce had a pension, or dbp. That was in fact the peak of the defined benefit plan.

https://www.thebalance.com/the-history-of-the-pension-plan-2894374

You’re correct about the fact it’s never been the majority. Another interesting note is that just a decade earlier in 1950 it was 25%. So from 1950 to 1960 it doubled, then started its decline.

 

[Gumby]

In 1960 approximately half the American private sector workforce had a pension, or dbp. That was in fact the peak of the defined benefit plan.

https://www.thebalance.com/the-history-of-the-pension-plan-2894374

You’re correct about the fact it’s never been the majority. Another interesting note is that just a decade earlier in 1950 it was 25%. So from 1950 to 1960 it doubled, then started its decline.

Here is more detail from the Bureau of Labor Statistics on the decline of private pensions in the US. It's from 2013 but I can guess that the trends have continued in the same direction over the last 7 years.

https://www.bls.gov/opub/mlr/2012/12/art1full.pdf

 

[Fermion]

Money isn't everything though. I would rather live on $36k a year with good health than be a billionaire with terminal cancer.

 

[teetee]

20k a year is doable for me but I will have to put aside extra for health care related expense (insurance premium and copay) as well as the property tax.

 

[teetee]

With that low of an income (18k), if a person is a homeowner, they might be eligible for a significant reduction in their property tax bill. By significant I mean over 50%.

It is the first I hear that low income enables property tax reduction. Curious why would any people lose their houses because they can't pay for the property tax from job loss.

 

[ILikeStarTrek]

does the article spell out what changed - by numbers - pre and post covid? Is 50% that much worse than before? Couldn't see the delta in the article, which renders it drivel for me.

I think the point is low wage earners in their 50’s losing their jobs due to Covid are not going to be rehired and will not be able to build up savings for 10 yrs leading up to 65. I think I know many folks living on 20k that would not consider themselves impoverished. They are in LCOL areas, some have paid off homes or subsidized senior housing and decent health.

I get the "point" but if you're going to say "now it's 50%!!!!" then at least you should say, previously it was 46%, or whatever the number was. Not stating the amount of the difference is bad writing, at best.

Completely agree that the article is poorly written in this respect. Here's the inference I make from the article and from other information I found.

The article says, "A total of four million people potentially pushed into retirement before they are ready will increase old-age poverty..." So we just have to figure out what number raised by 4 million gets us to 50% of the demographic in question, in order to figure out the original percentage (before COVID).

Since the article refers to people "over 55" and is focused on people not retired yet (presumably not yet 66-67 which is the average retirement age), we can roughly say it pertains to people aged 55-64. Now, per wikipedia (https://en.wikipedia.org/wiki/Demographics_of_the_United_States), the number of people age 55-64 is just over 42 million. So, if the article is right that 4 million aged 55+ will be laid off due to COVID, and all of them get pushed into retirement too soon due to not being able to find another job, that's a little under 10% of the 42-million demographic.

This implies that the number of people in the given age bracket will rise from roughly 17 million to roughly 21 million, or from about 40% to 50%. That probably overstates the effect, because of the 4 million pushed into retirement earlier, some of those people would have been in the poor/near-poor category even without the COVID layoff (but those people will certainly be worse off after a layoff). So the real increase is likely more like 8% instead of 10%; but this gives us a general ballpark.

I agree that, as I believe another poster in this thread said, there is some clickbait going on in the article. It's arguably more alarming that 40% to 42% of the population would have been poor in their retirement even before COVID, than it is that COVID added another 8-10% to the figure. But focusing on COVID likely got more readers for the article.

 

[NW-Bound]

Does this Covid pandemic make some people poorer by turning them jobless, and having to draw on their savings or retirement funds to survive? I think so.

How bad is it? We will not have any firm statistics for a while, but I just saw something on this subject.

A new survey from the Pew Research Center finds that 44% of lower-income people say they have dipped into their retirement or other savings since the start of the coronavirus crisis, while only 16% of upper-income people say they have done so.

... the new Pew survey indicates that half of all US adults who lost a job in the coronavirus crisis continue to be unemployed.

As the pandemic drags on, it’s possible those who have run down their savings will not recover as quickly, because it’s not just income but also the accumulation (or destruction) of wealth that determines financial insecurity.

See: https://qz.com/1908543/33-percent-in-the-us-are-dipping-into-savings-or-retirement-to-pay-bills/

Nobody in my extended family has lost their job and faced financial hardship, but we are a fortunate bunch. My son for example is really enjoying doing his engineering job from home, compared to having to come into his workplace. However, I knew of small business owners who have lost their livelihood. It's not pretty for a lot of people.

 

[Sunset]

It is the first I hear that low income enables property tax reduction. Curious why would any people lose their houses because they can't pay for the property tax from job loss.

The reduction in property tax approval takes some time, to take effect. Missing the current bill puts a person at risk of losing the house.

The amount of reduction is varied, so perhaps some places get 50% off, but I'm guessing some are only 10%, 20%. All that sounds good but if you can't pay the 50% , you lose.

I also think, these reductions are based on a person having very low income, and no bank assets. Imagine the outcry if some person with $1,600,000 in the bank in IRA's and owned a $1M house, had zero income, does he qualify ?

 

[Sunset]

Does this Covid pandemic make some people poorer by turning them jobless, and having to draw on their savings or retirement funds to survive? I think so.

How bad is it? We will not have any firm statistics for a while, but I just saw something on this subject.


See: https://qz.com/1908543/33-percent-in-the-us-are-dipping-into-savings-or-retirement-to-pay-bills/

Nobody in my extended family has lost their job and faced financial hardship, but we are a fortunate bunch. My son for example is really enjoying doing his engineering job from home, compared to having to come into his workplace. However, I knew of small business owners who have lost their livelihood. It's not pretty for a lot of people.

I've been dipping into my savings even prior to Covid, haven't many of the folks here been doing that too
It makes the reporting more difficult to how accurate it is, by the way they state the "facts".

 

[NW-Bound]

I've been dipping into my savings even prior to Covid, haven't many of the folks here been doing that too
It makes the reporting more difficult to how accurate it is, by the way they state the "facts".

OK, I see your points. I guess I wrongly assumed that retirees would be excluded in the Pew Research poll.

Have I been dipping into my savings for my retirement expenses? I initially thought so, but then remembered to consult Quicken. It showed that I underspend my dividend and interest income. The principal went up/down like a yo-yo, but that is another matter.

 

[Montecfo]

Most of what DW and I have is probably more due to good luck than to wisdom, starting with being born to middle-class white families.

Actually, people of any race that become educated, marry and have children (in n that order) are the "lucky" ones. Of course, these are choices, not luck.

 

[Closet_Gamer]

One thing our fearless leaders have not taken to heart is that the [-]War on Savers[/-] ultra-low interest rates of today are taking a huge tole on those who did save money in their insured savings account. Alas, the accounts are not insured against inflation and Fed policies that toss the savers to the hungry dogs.

I remember when I figured I could count on 3-4% interest on my insured savings account and maybe as high as 6% on a five year CD when I retired. Had somebody told me I would be scraping the bottom of the barrel to find 1.6%, I would have thought the person to be a nut case.

I'm the first to raise the "personal responsibility" flag, but I agree 100% with the war on savers issue.

For over a decade now, we've made it nearly impossible to begin getting the savings-fly-wheel spinning with some solid, interest bearing safe accounts. I remember getting 6.75% on a CD in 90s. Admittedly, my student loans were also a 8-10%.

But if you don't see results from your savings, its disheartening. Low rates encourage also piling up debt. And the vast majority of people are not wired to immediately learn about building an AA and leap into the market.

Personally, I believe the low rates are pushing on an economic rope at this point. Those of us who hold a bunch of assets would get clipped hard if rates went up, but I actually think it would be healthy for society.

 

[bmcgonig]

Well, life is not fair. Nothing we can do about that.

Regarding "not saving enough" I am not judgemental on that. There are people on subsistence incomes, people who must support other family members (like parents) on their incomes, people with high medical expenses, ... Lots of reasons for that recent observation that 40% of Americans adults couldn't come up with $400 in an emergency. Then there are those who legitimately wasted their money, including sports stars, where I guess we could look down on them. But why? So we can feel superior? Man plans, and God laughs. Most of what DW and I have is probably more due to good luck than to wisdom, starting with being born to middle-class white families.

+1

 

[athena53]

Regarding "not saving enough" I am not judgmental on that. There are people on subsistence incomes, people who must support other family members (like parents) on their incomes, people with high medical expenses, ... Lots of reasons for that recent observation that 40% of Americans adults couldn't come up with $400 in an emergency. Then there are those who legitimately wasted their money, including sports stars, where I guess we could look down on them. But why? So we can feel superior? Man plans, and God laughs. Most of what DW and I have is probably more due to good luck than to wisdom, starting with being born to middle-class white families.

I'm with you on the people who didn't have the skills for well-paying jobs and/or had bad breaks.

As for the ones who wasted their money- annual cruises, Disney World, shiny new cars every few years, houses full of Stuff... well, no I don't look down on them but the unfortunate fact is that the taxpayers (and our children and grandchildren) end up propping them up- subsidized senior housing, property tax breaks and ultimately Medicaid nursing homes. I really don't have an answer- we can't let them starve- but for some seniors, poverty in old age would have been preventable.

 

[target2019]

It's a sad development, 50% of Americans aged 55 and up will retire in poverty or near poverty.

https://www.marketwatch.com/story/half-of-americans-over-55-may-retire-poor-2020-10-01

“Our data is showing that, because of the COVID recession, about 50% of workers over the age of 55 will be poor or near-poor adults when they reach 65,” she said.

How poor is that? “A person who’s 65 will be near-poor or poor if they’re living on less than $20,000 a year,” she told me. “I think we could all agree that means chronic deprivation for the rest of your life.”

I posted a link recently (https://fredblog.stlouisfed.org/2020/08/the-impact-of-recessions-on-net-worth/) that mentioned the loss of wealth during the Great Recession. The summary is that the bottom half lose much of their accumulated wealth during a typical recession. The graph will change during each recession, and I imagine this ongoing recession is a similar disaster for many.

 

[Chuckanut]

It is the first I hear that low income enables property tax reduction. Curious why would any people lose their houses because they can't pay for the property tax from job loss.

Not all states and counties offer that program, but many do. The idea was to not tax grandma and grandpa out of their homes in high property tax areas. If their sole income is SS, the tax break can be substantial.

Available To:
Taxpayers who meet one of the following requirements as of December 31 of the year before the taxes are due:

• at least 61 years of age or older
• retired from regular gainful employment due to a disability
• veteran of the armed forces of the United States receiving compensation from the United States Department of Veterans Affairs at one of the following:
  • combined service-connected evaluation rating of 80% or higher
  • total disability rating for a service-connected disability without regard to evaluation percent

Program Benefits:
The qualifying applicant receives a reduction in the amount of property taxes due. The amount of the reduction is based on the applicant's income, the value of the residence, and the local levy rates.

 

[brett]

There is another side to low interest rates.

Low inflation. When we retired eight/nine years ago we expected inflation to be higher. We have experienced low inflation than we built into our model and a higher return on equity.

I believe that there are two groups. The working poor who cannot afford to save a dime for retirement. Another group who can but simply do not or cannot perhaps because of lifestyle, medical, whatever.

It seems to me that it is very easy to criticize and make wide generalizations when one is not in the position of not having any retirement savings.

 

[jkern]

The numbers in the article are misleading. They don't take into account any subsidies from friends, family or government. For example, in Santa Clara County someone on Section 8 may pay $50 per month for a $2550 per month housing unit. That's $30K per year net, or approximately $45K gross per year. They could have Medical for their medical cost which could be another $15K gross subsidy. Add in Food Stamps and you may get another $5K gross. That's about a $65K gross subsidy. If that person were to have $15K income, their standard of living actually matches someone with $80K gross income with no subsidies.

 

[NW-Bound]

Some posters have already mentioned that they are doing fine on $20K/year, and perhaps that's even for a couple. And we all know that a lot depends on the COL of the area, and even more importantly, whether people have a paid-for home when they retire.

A friend of my wife just lost her job. The writing has been on the wall for many years for her, and I did not expect her IT job would last so long. She's one who keeps her head in the sand, and never takes any real effort to plan for the future, or to update her skills. She just hangs on to her job, and hopes something good will happen.

She never wants the trouble with homeownership, and just plans to live in a rented apartment until she dies. All that is fine if she can find money to pay rent, but I wonder if she ever thinks about that. She does not share how much savings she has, but whatever it is I don't think it will last long.

Here's one case where I think a person could be in a much better financial shape, if she plans better for rainy days. She has not been making a ton of money, but she is not one of the low-pay workers who live paycheck-to-paycheck. And no, she is not a big spender, just not a good planner or informed investor. And she is not one who expects to be rescued by a prince either.

 

[daylatedollarshort]

Supporting a college kid in a very high cost of living area made me realize how one could live cheap and well. Rent was $800 a month, for a small but very nice apartment (split with a roommate) near the beach in an upscale, walkable area. College tuition was free with grants. Students could get free bus passes. We paid for a car but it was hardly used since parking was a hassle. Taking the bus, walking, biking and Uber were easier. Utilities were low for a small apartment in a mild climate. The local thrift shops were really nice - almost like regular stores with gently used goods. The entire apartment was furnished really cute with hand me downs from relatives, thrift shop items and Ikea (especially the yellow tag bargains). I think I spent under $200 for most of the furnishings and kitchen appliances from thrift shops and garage sales. With discount stores and a plant based diet, groceries were not that expensive. ACA plan for medical. Paid internship for spending money. The college had cheap events and gym facilities. Barbecues at the beach with friends were low cost.

One of our kid's friends at the same school shared a bedroom with a friend so had similar expenses except rent was ~$400 a month. And those costs were for student roommates who were dependents and did not qualify for Medicaid, Section 8, SNAP, low income utility help, etc. It did not seem like living in poverty to me at all. It actually seemed like a pretty cool life. In California tuition is free at many top colleges, even schools like UCLA, for senior citizens.

Another friend of one of our kids lives in a rural area of the Pacific Northwest where houses rent for $600 a month. Split with a roommate that is $300 for monthly housing in a scenic area. It is not an area with a lot of high paying jobs but that is the kind of area perfect for seniors on SS. I guess cost of living just depends on location, understanding government and community services, maybe part-time work, etc.