Retirement? What's That?

Little noticed in the bleak economic and unemployment statistics is the fact that the American work force is getting grayer and grayer.

Americans are working longer and longer due to a number of factors.  Too many people took too much on in debt.  Too many people no longer have pension plans.  Too many people have seen their 401(k) plans and IRA accounts fall short of what they thought they would be worth.  Too many people did not save enough to begin with.  There are fewer strenuous blue collar jobs that are tough on the body of someone over the age 55 and more jobs in the economy that are easier for older workers to be ongoing contributors.  There are greater numbers of older workers who have the health and abilities to continue to work much longer than prior generations

Edward Glaeser, a Professor of Economics at Harvard, outlines how the labor landscape has changed in an opinion piece in The New York Times.

Between 2007 and 2010, the number of working Americans over 65 years old jumped 16 percent; the number of under-65’s in the labor force shrank. The trend started before the current downturn: the number of Americans over 65 in the labor force increased from 10.8 percent in 1985 to 12.1 percent in 1995 to 15.1 percent in 2005 to 17.4 percent in 2010. Until 2001, most workers age 65 and older had part-time jobs; since 2001, full-time work has been far more common.

Consider the difference between today’s extended work life and the average American work life during the mid-20th century in the midst of what was, in retrospect, a retirement boom. Again, the numbers present a vivid picture: from the ’40s to the ’80s, the percentage of men who were 65 and older in the labor force fell precipitously — from 47 percent in 1949 to 15.6 percent in 1993. By the 1980s, retirement at age 65 was nearly universal for American workers. Today, however, 36.5 percent of 65- to 69-year-old men are still part of America’s labor force. (The number of working women in this demographic is slightly lower.)

For those age 55 or older, there are actually more people working today than at any time in the last 50 years-about 40%.  This is almost a third higher than it was 15 years ago.  This is great news for our economy if these experienced people want to continue working.  However, many seniors have had to return to work in the last few years because of lost retirement assets, unrealistically low interest rates for savers and increasing health care costs that Obamacare has only made worse.

Just consider the impact of today's interest rates and what they have done to seniors.  A retiree with a $250,000 nest egg has traditionally been able to plan on earning a 4-5% safe return on that money in a certificate of deposit, money market or short term treasury bond.  That would provide close to $1,000/month of income for the retiree.   According to Bankrate.com, the average 1-year CD rate nationally is just .35% and money market rates are below .25% today.   A 3-year Treasury bond has a current coupon yield of .375%.  Therefore, what previously was $1,000 per month in income for a retiree with $250,000 in savings now produces less than $1,000 of income annually on the same nest egg!  This is a loss of over 90% in potential income.

It is somewhat surprising to me that this coordinated central bank and federal policy that purposely has taken money from one class of asset holders (savers) to give it to another (Wall Street and the big banks) to bail them out of bad decisions and bad loans has not gotten more attention.   This is the issue that Occupy Wall Street should be focused on.  Those savers are our parents and grandparents and other responsible souls who played by the rules their whole life.  They saved their whole life to build a nest egg for a respectable retirement.  Their reward today-a return on their money of less than 10% of what has traditionally been considered a fair return on their savings.   Their reality tomorrow-the real possibility that they could lose even more if inflation begins to erode the purchasing power of their retirement nest egg due to these same government policies.

Looking at these facts it is not hard to see why we are seeing fewer retirees.  This also probably explains why we also don't see more gray hairs at Occupy Wall Street.  Most of them are working and can't get the day off.