The TV blats out ads showing rosy-cheeked retirees basking in luxury on cruise boats and dressed in the latest swank. Geezers are playing golf on Tiger Woods’ favorite courses and squiring the grandkids in SUVs by Cadillac, BMW and Hummer. Magazines, save for the basest of porn rags, run page after page of ads pimping mutual funds, Krugerrands and yachts as if money grew on trees. Oh, and don’t forget the ads for Mercedes-Benz and Rolex. The assertion in all this is you too are destined for truly golden Golden Years. All you have to do is live right, invest properly, play by the rules, and a secure retirement is yours.
Maybe. And maybe not. Let’s take the case of an average couple, Mr. and Mrs. Brownlick, who, being an average couple, had Mr. Brownlick pulling the plow until age sixty-five. Living here in Western Washington, they made $48,688 in their last year of work (this is in 2004 dollars, a sum I found noted in The Herald, our local newspaper). As young marrieds, they took their banker’s admonitions and saved like crazy for retirement. For forty years this stalwart, rock-ribbed couple dwelt in a leaky, under-heated dump eating fatback and beans so they could sock away every possible cent. They even limited themselves to one kid. They were told that unless something came out of left field (a Damoclesian possibility that haunted many nights and spoiled many days), a luxuriant, painless retirement would be theirs. They would realize the American Dream – a few short years of ease and plenty, thanks to a lifetime of unpleasant toil. They put the money in the bank, the stock market, and in a shoe box under the bed.
Today the Brownlicks are my age (sixty-nine) and have amassed a $200,000 portfolio and own the house free and clear. Mr. Brownlick made sure he got a good corporate job so he now retires with a pension and company benefits – plus almost $1,500 a month from Social Security. The scolds on the nightly news nod in approbation and applaud this couple’s thrift, probity and foresight. The Brownlicks, they say, are such good people.
But there’s a fly in the ointment.
One morning, Mrs. Brownlick, who is only fifty-eight and ineligible for Social Security and Medicare, finds a strange lump and into the hospital she goes. The doctor determines it’s a malignancy. It’s a nasty cancer which is hard and expensive to treat so the co-pay is pretty stiff. One day, after focusing for months on his wife’s care, Mr. Brownlick sits down at the desk in the den. He catches up on the old newspapers and goes through the stack of mail. Oh, oh: While he was out of circulation, taking care of the Missus, history repeated itself: The stock market tanked, the bond market soured and the crooked s.o.b. that ran Mr. Brownlick’s old company looted the pension fund and used the health insurance premiums to build a new beach-front home on a small island outside U.S. jurisdiction. With his portfolio in the toilet, his pension down by half, and his house worth but half of what it was before the mortgage meltdown, our hero has to dig into what’s left to pay his wife’s medical bills.
Thanks to the stress and worry over his wife’s health, coupled with the discovery of impending penury, Mr. Brownlick’s heart heads south. After oodles and oodles of tests, he gets a pacemaker and is put on 6 different kinds of meds. He gets a little green oxygen bottle to carry around, plus a battery-powered scooter and buys a new wheelchair-accessible van to get around. To do all this, Mr. Brownlick liquidates the last of his portfolio and pledges his remaining pension.
Unhappily, the chemo was harder on Mrs. Brownlick than the doctors expected and a few weeks after she went home, she had a stroke. Mr. Brownlick had to use the proceeds from a viatical mortgage to pay for his wife’s long-term care as she is now blind, incontinent and cannot walk. All he has left now is his monthly Social Security check. It’s not enough to pay for the utilities, gas for the van, oxygen, Medicare insurance and food, so remaining in the house is not an option as the place needs a new roof, a paint job and the main toilet is busted.
It should be noted that we Average Joes have “contributed” more in Social Security taxes than we have paid in Federal income taxes, so let’s not hear any of the usual BS that we don’t “save.” Just ask any self-employed person who files Schedule C on his or her Form 1040, and pay’s the full Social Security hit, not just the half you see (FICA) on a company paycheck.
Mr. Brownlick swallows his pride and asks their son if he can move in while he packs Mrs. Brownlick off to a nursing home to complete her long, miserable slide to the yawning hole. Unfortunately, the kid is having difficulties of his own; after acquiring a Masters degree in Computer Science, his employer outsourced his job to India and he is now facing a Chapter 7 and foreclosure.
With that avenue closed, Mr. Brownlick rents a subsidized 1-room downtown hovel a block from skid road. Of course he had to sell the van (the scooter went weeks before) so he cannot visit Mrs. Brownlick unless their son can find the time to pick up Mr. Brownlick and play chauffeur – which is difficult as the kid is working two jobs that pay minimum wage. Oh, Mr. Brownlick did try the city bus once, but it took three hours, four transfers and a two-mile hike that left him close to collapse.
One evening, the building superintendent knocked on his door. A call just came in from the nursing home: Mrs. Brownlick died the previous night. Their son takes some time away from his second job to bring his father to the funeral parlor for a final goodby. A whopping bill for her “final expenses” arrives two days later.
Widowed, alone, out of food, his cloths threadbare, and now more in debt than he ever thought possible, Mr. Brownlick heaves a sigh, dons his coat and hat and heads for the mini-mart around the corner where, for the last six weeks, he’s seen a Help Wanted sign in the window. He told the building’s super that if he could afford a gun, he’d blow out his brains.
Ah, but thanks to his new career as night clerk, Mr. Brownlick has some pocket loot again. Of course it’s not much, so he has to make some choices. He decides to forego the daily can of dog food (mmm, delish), opting to spend this money on screw top wine. Now, in the evenings, Mr. Brownlick can be seen sitting on a park bench with other sorry old bastards, getting plastered and passing time, waiting for the end.
I did some scratching around and figure that to have a comfortable retirement, the kind where you can do more than sit and stare out the window, you need a nest egg providing a reliable income of at least $25,000 a year, or $2,000 a month (in 2007 dollars). At least here in Washington; the Good Lord only knows what it is in New York City! Of course this assumes:
- Your house is paid off and will never need repair and your appliances will never need replacement;
- You’ll never need to buy a new car or repair the old one, and that gas doesn’t go much above $3.99 a gallon;
- Neither you nor your spouse will ever take seriously sick;
- There is a Goodwill store within walking distance where you can get clothes;
- Both you and your spouse will die quietly in your sleep (preferably on the same night);
- Last but not least, it also assumes your nest egg won’t get Enroned or Bushed.
It also assumes 0% inflation: When my Dad died in 1959, he made $10,500 a year and we were in Fat City. When Mom died in 1996, that princely sum was below the poverty line by a factor of two.
Ah, but what if the Brownlicks were shrewd people and bought an annuity? Well, lets take a look: A $1million Lotto jackpot paid out over 20 years is about $40,000 a year, roughly twice our putative comfortable income. This Lotto jackpot is provided by an annuity bought and paid for by the state and costs between $500,000 and $750,000, depending and depending.
This means Mr. Brownlick, on retirement, could use his two-hundred grand to buy an annuity with a 20-year payout, but if he and the Missus live any longer than that, hello poorhouse. Also, the annuity has no cost of living adjustment so if we have another bought of Jimmy Carter inflation, things will get pretty rough for the old folks. And if the bank who sold the annuity goes under (read: Charles Keating), the Brownlicks are terminally hosed.
Oh, and don’t forget the applicable federal, state and local taxes – those are still due and payable.
You think I’m making all this up? Hey, this is my reality and the reality of almost everyone I know.
In promoting the idea of retirement, financial columnists and TV gurus are selling a dangerous pipe dream. I say dangerous because their preachments have built up false expectations in the minds of the proletariat, i.e., those who can’t spend $1,500 for a bottle of balsamic vinegar. What do you think will happen when these baby boomers start retiring and find that their mutual funds, 401(k)s bonds, homes, bank accounts and CDs will just provide a substance living, and then only – only – if nothing goes wrong?
What will happen when they see that all their stinting and saving has only generated a bagatelle that can’t possibly take care of them for more than a few years? What will happen when they realize they’ve spent their lives slogging away at jobs they hated because they were promised pensions and health care, only to watch helplessly as it all vanishes like a morning fog?
Probably nothing good. I guess we’ll find out.