Retiring into Poverty

[tmm99]

In the early 80's, I was sitting in a watch center late at night, looking at news magazines (which were allowed reading). There was an article about GM auto workers, basically factory line assemblers; my age, uneducated, unskilled, all with homes, multiple cars, boats, and other nice things that I couldn't afford. I felt like, "What am I doing here, and why did I work for that college degree?"

Well, it was a little bubble in time and space, which burst a few years later. Those people would all be in their 60's now, like me. Wonder how retirement is going for them?

I remember those days as well. It seemed that there were many more jobs available in the 80's for people without education/skills but they could still make a decent amount of money. I also remember some families having mining jobs and oil industry jobs without educaiton good money. My ex-husband's father was one of those people (silver mining). He lived in south Tucson and his house was basic and his car was old, but he had an RV - they went fishing a lot. The town near by became a ghost town after the mining business went down hill. The area he lived in was a blue color area. Everyone's house was pretty basic with no fancy cars. I remember one guy on the street was a truck driver. Another worked retail. Their kids, for the most part, didn't go to colleges and they had similar, blue colour type jobs after high school.

When I lived in northern California (Silicon Valley) (late 90's to 2015), I didn't get to know a single person who had a blue colour job. Everyone I met was a business professional of some kind who most likely had good education and made good money. (One person I knew made only $50K/yr doing admin type work in the financial industry.) I think living there gave me a pretty skewed idea about how other people lived. I moved to the Buffalo NY area back in 2015 for 6 months before moving to Canada, and I had a rude awakening (or re-awakening) to see poverty all over the area. I got to know a few people there in a short time and realized that some people do not have a lot of means to get out of poverty. Even if you could land a job and work hard, the pay was low and it would be hard to get ahead and buy a house or save a lot of money.

 

[OldShooter]

As I casually follow this thread, I am put off by the many comments from people who believe that anyone who isn't comfortable in retirement is to be looked down on, guilty of poor planning or profligate living. Maybe the problem is, as @tmm99 observes, that these posters have lived and worked in environments that gave them a "skewed idea about how other people live."

I have recently discovered that one thing I have known for a long time actually has a name: The Dunning-Kruger effect: https://en.wikipedia.org/wiki/Dunning–Kruger_effect.

Colloquially: The less someone knows about a topic, the more strongly they believe that their beliefs are correct.

 

[Chuckanut]

The over-representation of married people on this site makes sense, as this is one of the more important factors in obtaining and KEEPING wealth.

I figure that getting divorced probably delayed my retirement 2-4 years. So be it. There was little I could do.

There is no legal defense against divorce, nor should there be, IMHO. The good news is that we managed to protect both our retirements because we did not turn the financial decision making over to the Black Robes - IOW, the legal system. That saved us each a bundle, far more than anything one of us might have been able to legally squeeze out of the other. So, years later, we are both financially OK in our retirements.

 

[friar1610]

I have a former friend in Southern CA who is 71 years old and works as a server in a restaurant.She's been unemployed due to the pandemic and she said she wouldn't want to go back to work even if her restaurant opened for indoor dining, as she is diabetic and doesn't feel safe. She's currently getting unemployment from the government. Her SS is around $1,200/mo after medicare, etc and because she got in a car accident (her fault), her auto insurance is very high. (Can't remember how much tough.) Her rent is $1,100/mo. She has about $100K in savings. Not sure what she's going to do, but she does have one daughter who might be willing to take her in if necessary.

We go to a restaurant (well, we used to) where an older woman (late 60's - mid 70's ?) often serves us. She has a limp that looks like there is a problem with her hip. This is a seafood place by the beach that is a zoo all summer and everyone is really hustling. And she has to shlep huge trays of food when she is waiting on larger tables. I don't really know anything about her circumstances but I can't imagine she wants to be doing that at her age. I always leave there thankful that my mother never had to do anything like that in her senior years.

 

[Sunset]

When we see these old people working, it's easy to jump to conclusions, I know I do.

My mother at about age 75+ would volunteer at the hospital, pushing people around in wheelchairs, etc..
I always thought of it as odd, that she was helping out younger people.

I'm sure the occasional person saw her working and thought it sad someone so old had to work.

I suppose, I'm saying that some of these old folks might work/volunteer or work and get paid simply for the social rewards and interaction inherent in working, and not for the money.

 

[Mr. Tightwad]

Another 50% stat...everyother couple that marries will divorce. Broke and alone...lifes terrible hidden tragedy.

Just because you're divorced doesn't mean you are alone. Lots of those that are divorced avoid isolation.

While 50% is the divorce rate, remember to consider all the sexless marriages, those that stay married but have affairs, stay together for the kids, stay together for religious reasons....Plenty of "still married" but unhappy marriages that are on top of the 50% number.

I retired at 45, thanks to never marrying. I have 2 daughters and the freedom/finances to live life any way I chose. What I consider a dream life.

 

[Dtail]

I figure that getting divorced probably delayed my retirement 2-4 years. So be it. There was little I could do.

There is no legal defense against divorce, nor should there be, IMHO. The good news is that we managed to protect both our retirements because we did not turn the financial decision making over to the Black Robes - IOW, the legal system. That saved us each a bundle, far more than anything one of us might have been able to legally squeeze out of the other. So, years later, we are both financially OK in our retirements.

Hey in my case it didn't delay retirement, although I wasn't aware of the FIRE concept before my 50's.
However paying out alimony over 500k certainly caused us to have less investment assets for retirement, although we are still fine.

 

[jazz4cash]

When we see these old people working, it's easy to jump to conclusions, I know I do.

My mother at about age 75+ would volunteer at the hospital, pushing people around in wheelchairs, etc..
I always thought of it as odd, that she was helping out younger people.

I'm sure the occasional person saw her working and thought it sad someone so old had to work.

I suppose, I'm saying that some of these old folks might work/volunteer or work and get paid simply for the social rewards and interaction inherent in working, and not for the money.

I could be wrong, but I always think I can tell the folks that are working because they must from the ones that are working because they want to. i believe some work to support grown children or grandchildren. I am grateful that I don’t think I’ll ever be in the position of needing to work instead of doing something else.

 

[Nemo2]

I could be wrong, but I always think I can tell the folks that are working because they must from the ones that are working because they want to.

I never liked working when I had to - can't conceive of wanting to when you don't have to.

 

[Rushmore]

Just because you're divorced doesn't mean you are alone. Lots of those that are divorced avoid isolation.

While 50% is the divorce rate, remember to consider all the sexless marriages, those that stay married but have affairs, stay together for the kids, stay together for religious reasons....Plenty of "still married" but unhappy marriages that are on top of the 50% number.

I retired at 45, thanks to never marrying. I have 2 daughters and the freedom/finances to live life any way I chose. What I consider a dream life.

I was FAR more alone married than I am divorced! I know lots of people who are retired poor. It different but actually I would say most are pretty happy and content. There is a world of cheap and low cost things to do

 

[Walt34]

Another 50% stat...everyother couple that marries will divorce. Broke and alone...lifes terrible hidden tragedy.

An addition to that stat is that the divorce rate for 2nd marriages is 70%.

I didn't learn that until my 2nd marriage was going on 20+ years, and mentioned it to my older sister, whose 2nd marriage (for both of them) was going on 30+ years. She had a good answer for it:

"Those are the people who didn't learn anything the first time."

Speaking only for myself, I did have the sense to take notes the first time and not repeat any of the previous mistakes.

 

[Chuckanut]

Just because you're divorced doesn't mean you are alone. Lots of those that are divorced avoid isolation.

Very true. I spent 1/2 of last weekend with a grandchild. We had quite a good time doing everything from playing bouncy ball outside to making our own lunch and dinner.

Apparently many companies and government offices now have a default minimum deduction to a retirement plan. Usually it is some type of self adjusting life-cycle fund. Hopefully, this will help keep the younger folks from visiting the SS office at 67, and leaving it wondering, "How in the heck can I afford to live on this pittance?"

 

[OldShooter]

... Apparently many companies and government offices now have a default minimum deduction to a retirement plan. ...

Yes. That is called a "nudge." The signup rate when it's a default is much higher than when the default is no savings. There is also another nudge called "save more tomorrow" where the employee is encoursged to pre-program some increased savings from his next raise.

Richard Thaler's book "Nudge" discusses these strategies in detail. The basic idea is to nudge people towards desirable behavior without it being manipulative. He calls it "libertarian paternalism." The book is a good read. His ideas on behavioral finance, discussed in the book, got him a Nobel a couple of years ago. And if you like that one, your next assignment is his book "Misbehaving."

His observations and experimental results, discussed in both books, have huge application to many of the decisions discussed here on the board, especially investment decisions.

 

[jazz4cash]

I remember clearly when Megacorp added 401k plan around ‘85. It was a blessing to me and one of the few times I was an early adopter. They clearly did not want to be accused of advising or recommending anything. The 401k replaced a very popular Stock Savings Plan that was a hybrid retirement/bonus scheme. Many people were leery and didn’t sign up for the new plan so they sponsored educational sessions on company time but that didn’t help either. The hourly participation was worse. The non discrimination provision puts the benefit at risk for highly compensated employees if too many lower level folks don’t participate. At the end of the day too many are uninformed, lazy or procrastinate and just never get around to changing away from the default choice so I think that’s why it is somewhat effective. Entirely different mindset from the members here that are feel compelled to contribute the max and beyond.

 

[armor99]

Just to prove a point, I plugged this one into my compound interest calculator this morning.
Staring with nothing, what would $200/month turn into in 40 years, at 7% average gain? The answer is over 500k. Certainly not a fortune. But between that and SS. I would say a vast majority that led frugal lives could get by on that just fine.
I would say that for the vast majority of people in the US, I would guess over 85%, could probably swing that, if they felt like their lives depended on it. Which in a very real way..... it does.
This is not so much a financial problem as it is a mindset and education problem. When I was 29 I started really saving seriously. Friends though I was crazy when I opened my ROTH IRA with $2000. Back in those day’s, that was a huge amount of money for me. And when the market tanked and it lost $900 I felt like a fool. Luckily, I stayed the course... and flash forward 18 years... I am a millionaire.
Or you can play the “maybe something lucky will happen to me, and I will be OK” game. Your life belongs to you, all the choices are yours, and better choices usually lead to better outcomes. I have met many who became poor “accidentally”. I have never met someone that became wealthy by accident....

 

[LarryMelman]

In the early 80's, I was sitting in a watch center late at night, looking at news magazines (which were allowed reading). There was an article about GM auto workers, basically factory line assemblers; my age, uneducated, unskilled, all with homes, multiple cars, boats, and other nice things that I couldn't afford. I felt like, "What am I doing here, and why did I work for that college degree?"

Well, it was a little bubble in time and space, which burst a few years later. Those people would all be in their 60's now, like me. Wonder how retirement is going for them?

The same was true in Las Vegas. PBS made a documentary about 15-20 years ago showing casino employees (maids, food service, entertainment support, etc.) living very comfortable lives. But a few years later, the MBA's started demanding that every part of the business show its own profit (instead of the other departments being loss leaders supported by gambling). And now the casinos have been closed for months, shows are going out of business, etc. History repeats itself.

 

[jollystomper]

Just to prove a point, I plugged this one into my compound interest calculator this morning.
Staring with nothing, what would $200/month turn into in 40 years, at 7% average gain? The answer is over 500k. Certainly not a fortune. But between that and SS. I would say a vast majority that led frugal lives could get by on that just fine.
I would say that for the vast majority of people in the US, I would guess over 85%, could probably swing that, if they felt like their lives depended on it. Which in a very real way..... it does.

The main problem with that scenario is that the growth is not linear. It is a roller coaster, and one has to fight human nature to get off the roller coaster when it starts heading down.

There is also a short term bias in our desires. I am not saying that having a long term outlook makes one "better". I am just saying it is difficult to get to that outlook, and one needs a lot of support to get there.

Maybe that is why having a spouse who is liked minded financially helps. You can support each other towards the long term goals, and better withstand the temptations to live for the moment.

 

[athena53]

Or you can play the “maybe something lucky will happen to me, and I will be OK” game. Your life belongs to you, all the choices are yours, and better choices usually lead to better outcomes. I have met many who became poor “accidentally”. I have never met someone that became wealthy by accident....

But... but... I might win the lottery! Oh, wait a minute. I don't buy lottery tickets.

 

[armor99]

The main problem with that scenario is that the growth is not linear. It is a roller coaster, and one has to fight human nature to get off the roller coaster when it starts heading down.

There is also a short term bias in our desires. I am not saying that having a long term outlook makes one "better". I am just saying it is difficult to get to that outlook, and one needs a lot of support to get there.

Maybe that is why having a spouse who is liked minded financially helps. You can support each other towards the long term goals, and better withstand the temptations to live for the moment.

I suppose you are correct. If someone only uses short term thinking they will almost always become poor, and stay that way. Long term thinking has just been a part of who I am as a person. Hard for me to comprehend being otherwise...
Maybe I turned out that way because I knew from a very young age, I was not going to get much financial help. When you “work without a net” you tend to make sure the bar is there, before you jump...

 

[jollystomper]

I suppose you are correct. If someone only uses short term thinking they will almost always become poor, and stay that way. Long term thinking has just been a part of who I am as a person. Hard for me to comprehend being otherwise...
Maybe I turned out that way because I knew from a very young age, I was not going to get much financial help. When you “work without a net” you tend to make sure the bar is there, before you jump...

Sometimes people lead you to believe that there is a net. It is tough to fight that.

That is the situation I was in. when I started with Megacorp, they offered such a good pension deal that, in my early 20s, the last thing I was thinking about was retirement. It was all taken care of, and along with SS no worries. Back then little was being discussed about SS not being enough to retire on. And while there were a few warnings about it running out of money... that was going to be 70+ years in the future. Don't worry, be happy. Besides, Megacorp practically promised me that as long as I did not do anything illegal or unethical, I would never lose my job.

When 401ks came along, my initial view was "I don't need to worry about this". Goodness, give up some of my salary to get money that I could not touch for 35 years? I have "better things" to do, I am married, we want to start a family, get a bigger house, get "better" things... we "need" the money now. I was not a spendthrift, I knew about having 3-6 months put away for emergencies, but I did not need anything beyond that.

I was SO fortunate that a couple of older, wiser co-workers harassed me daily about opening up a 401K for close to a year before I did. They showed me calculations, said I could better budget, said you cannot assume Megacorp pension will be as it is... and it still took close to a year for them to get through to me.

In sum, I had to be convinced to take a long term view. And it was challenged when I hit my first "bad" market experience on Black Monday of October 1987. I was tempted to take the short term view, as were a lot of my co-workers, and listen to the "boasts" of those who claimed being in the market was too dangerous. But... I listened and read up on all angles. And DW and I concluded that, really, we had been fine without touching the 401k money, let us just leave it alone. And maybe, as a vote of confidence, saving more and increase putting money into it. And then I started reading more about investing for the long term...

Perhaps what happens to some is that they assume "why worry about the long term, there is/will be a safety net". Others can make lead you into that belief. It was not until the mid-1990s, after surviving Megacorp's first major purge as well as changes to that "nice" pension plan that I fully realized that I had to take full responsibility for any future in retirement. I was not thinking FIRE, but started more thinking "the only safety net I have is the one I try to build myself".

 

[RobbieB]

I think the abolishment of pension plans would be a good first step in financial responsibility.

"we have this great pension plan pay out 70% after retirement"

But the minimum is 20 years and you got fired at 19. Ooops, sorry, no pension.

 

[timbervest]

I think the abolishment of pension plans would be a good first step in financial responsibility.

"we have this great pension plan pay out 70% after retirement"

But the minimum is 20 years and you got fired at 19. Ooops, sorry, no pension.

Actually under ERISA, accumulated benefits vest 100% after 7 years service, as long as the plan is not terminated (when some but less than full benefits will be vested). No guarantee that it will be 70% but it will be something. Unfortunately, most companies have frozen their plans which no longer accumulate new benefits and have switched to defined contribution (401(k) plans when the risk of outcomes is totally shifted to the employee and their investing ability.

However DB plans still provide a good retirement basis for union working people and public employees (stop -- not the politicians but civil servants).

In today's world where people don't generally work for 30 years for the same company and retire with a gold watch and a pension, investing for retirement requires more personal responsiblity.

 

[RobbieB]

Yeah. Instead of defined benefit "vaporware", let's go with a Company funded 401 that the company contributes $1 a year to. Then there is a "profit sharing" component that varies on what the employee contributes.

The more you save the more you earn. Fully vested in 5. That's the plan I was in at all but the first job I worked (for 4.5 years, got nothing at my "pension" job) back in 1978.

If it was a 401K setup I would have been 80% vested. I would have got something instead of the shaft.

 

[street]

I think the abolishment of pension plans would be a good first step in financial responsibility.

"we have this great pension plan pay out 70% after retirement"

But the minimum is 20 years and you got fired at 19. Ooops, sorry, no pension.

That happened to a lot of people! I know some personally that companies got rid of and got nothing.

 

[jazz4cash]

Just to prove a point, I plugged this one into my compound interest calculator this morning.
Staring with nothing, what would $200/month turn into in 40 years, at 7% average gain? The answer is over 500k. Certainly not a fortune. But between that and SS. I would say a vast majority that led frugal lives could get by on that just fine.
I would say that for the vast majority of people in the US, I would guess over 85%, could probably swing that, if they felt like their lives depended on it. Which in a very real way..... it does.
This is not so much a financial problem as it is a mindset and education problem. When I was 29 I started really saving seriously. Friends though I was crazy when I opened my ROTH IRA with $2000. Back in those day’s, that was a huge amount of money for me. And when the market tanked and it lost $900 I felt like a fool. Luckily, I stayed the course... and flash forward 18 years... I am a millionaire.
Or you can play the “maybe something lucky will happen to me, and I will be OK” game. Your life belongs to you, all the choices are yours, and better choices usually lead to better outcomes. I have met many who became poor “accidentally”. I have never met someone that became wealthy by accident....

Wow! Thanks for running those numbers. That is stunning good news. I always wondered about this scenario but never thought it would be that accumulative.