By some accounts, I recently spent a week in “retirement” – sightseeing, reading good books, spending time with my family, and yes – even walking on a beach.
And I have to tell you — if it was retirement, I don’t know how I’m going to afford it.
Now, I realize that’s not the stuff of most “real” retirements, although it’s often the stuff of retirement planning brochures. My week was a family vacation, and I spent it doing the things that families do on vacation.[1] And it served as a stark reminder that sitting on a beach is cheap, arranging to stay – and eat – near the aforementioned beach is a whole other financial consideration.
That said, when you ask those who are currently retired about their confidence in retirement, well, it’s pretty high. According to Employee Benefits Research Institute/Greenwald Associates Annual Retirement Confidence Survey, 77% of current retirees say they are very (33%) or somewhat confident that they have enough money to live comfortably through their retirement years. All of this suggests that while there’s a lot of uncertainty as to what retirement will/will cost, once you’re “in it”, well, you both have an idea of what it’s going to cost and the amount you will need to cover this.[2] That, by the way, despite the fact that the same RCS has found for years that a significant number of people have found themselves in retirement without having chosen their own[3] — sometimes because of health, sometimes because of employment decisions.
Today we are witnessing an unusual confluence of events: a tight labor market amid what has been called the “Great Resignation”, inflation soaring to rates not seen in a generation, and investment markets which, after a remarkable acceleration – well, let’s just say it’s been tough for most 401(k) accounts. We get the same kind of investment advice we always give/give during such recessions – but one can’t help but wonder if it’s ‘different’ this time around – if the disruptions are anything but” transitory”.
“Disruptions” are the bane of a fixed income, of course. Just when you think everything is balanced, you have to spend (a lot) more on gas, pay a higher property tax bill, scoop up cash for a new prescription drug, or deal with the financial consequences of… ‘unexpected. medical emergency (or that of a loved one). The fact that this is happening at the same time as your investment portfolio is taking a sustained “hit” contributes to the sentiment of economic pessimism that is attracting so much attention from the press, polls and political aspirants this election season. Undoubtedly, things cost more than they cost (when you can find them on the store shelf), and those on a fixed income (and that includes a growing number of current workers who can’t -not getting a pay rise for some time) have to make “adjustments”, which are often painful. And while all of that doesn’t warrant changes to financial plans, it certainly warrants a new level of discussion about them.
Perhaps the only “sure” things are death and taxes after all, but the lesson for those of us who continue to collect a paycheck and plan for retirement is the importance of preparing for this third “safe” thing in retirement planning: uncertainty.
Footnotes
[1] In fairness, we also spend a day researching the burial sites of some ancestors, and that’s probably not on most holiday diaries!
[2] It’s worth pointing out, of course, that workers reporting that they or their spouse have money in a DC or IRA plan or have benefits in a DB plan from a current or previous employer are twice as likely than those without any of these plans to be at least somewhat confident (83% with a plan vs. 40% without a plan).
[3] In the RCS 2022, 32% of people who retired earlier than expected say they did so because of a hardship, such as a health condition or disability, unrelated to COVID-19. Another 23% say they retired due to changes in their company, but 38% say they could afford to retire earlier.
