The Zuiderdam, an elegant Holland America line cruise ship, eases into its Boston dock. My wife and I, traveling with another couple, have been aboard for a week. We’ve been cruising the St. Lawrence Seaway from Quebec City in uncommonly warm weather.
The ship is almost fully booked, with more than 1,900 passengers and a passenger capacity just under 2,000. It’s also quite elegant, with a black hull, white topsides, a multitude of balcony cabins, elegant dining rooms and an abundance of intimate bars.
Rather posh.
Lack of tuxedos notwithstanding, it’s clear the passengers have two things in common – prosperity and white hair. Young people are rare. Old people are everywhere. It’s a sharp contrast to the day-to-day reporting on the financial perils of retirement. Or the uncertainties of our economy, Social Security, health care in general or Medicare in particular.
It makes me wonder if the “retirement crisis” we’ve been reading about for decades is real. To be sure, passengers on the Holland America line aren’t a random collection of average Americans. But neither are they the most affluent. Those people travel on Regent or Seaborn, the luxury lines that cost $1,000 a day per passenger.
And up.
In fact, a recent survey shows that the retirement crisis may be an illusion created by the financial services industry. A recent Kiplinger’s article, for instance, revealed that 74 percent of retirees feel “comfortable.”
Yes, “comfortable,” a word seldom seen in media reporting on the elderly.
Citing a Gallup survey that has been done regularly since 2002, the big finding is that retirees feel good about retirement. Those anticipating retirement are worried– only 45 percent feel they will have enough money.
What causes this gap? What happens that makes actual retirees feel “comfortable” while those not retired feel threatened by lack of money?
Let me suggest some reasons.
First, the financial services industry routinely and willfully miscalculates the amount of money needed to retire. Financial plans seldom consider lower expenses after children are grown, a paid-off mortgage, little or no debt, the disappearance of work expenses, the absence of employment taxes, lower cost of health care and a generally lower tax bill. That’s a lot of expenses that are off the table when we retire.
Second, we humans are a lot more adaptive than we’re given credit for. If income is lower than expected, few people curl up and die. Instead, they figure out how to spend less. Really, it can be done. While media devotes excess attention to the wealth and goodies enjoyed by Bezos, Gates and Musk, it never mentions that even the poorest Americans enjoy things that weren’t available to kings only 150 years ago – indoor plumbing, central heat, fast private transportation, safe food and good health care, to name a few.
Did I mention living twice as long?
Third, that the lack of pressure and the leisure of retirement may offset a significant drop in spending power. I’m serious. Time is money, and retirement is a huge and reliable time dividend.
Finally, the value of Social Security benefits and reliable income may be under-appreciated by academics and the financial service industry. That, in fact, is what the Gallup survey reveals. While only 35 percent of pre-retirees expect Social Security to be a major source of income in retirement, 60 percent of retirees cite it as a major income source.
I can vouch for that effect personally. Now in our early eighties, the Burns family net worth and income are nicely higher than they were 20 years ago. We measure in the top 5 to 10 percent of households for income and net worth.
Even so, Social Security is our largest source of income.
Related columns:
Scott Burns, “The Life of Riley Gets Even Easier,” 6/17/2023: https://scottburns.com/the-life-of-riley-gets-even-easier/
Scott Burns, “The Life of Riley Index, Retiree Version,” 10/27/1998: https://scottburns.com/the-life-of-riley-index-retiree-version-2/
Sources and References:
Charlotte Gorbold, “Retirement is ‘Comfortable’ for Three in Four Americans, Survey Finds,” September in Kiplinger’s: https://www.kiplinger.com/retirement/retirement-is-comfortable-for-three-in-four-americans-survey-finds
Frank Newport and Jeffrey M. Jones, “Why Americans Are Pleasantly Surprised in Retirement,” August 22, 2024, Gallup News: https://news.gallup.com/poll/648773/why-americans-pleasantly-surprised-retirement.aspx
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo by Sima Ghaffarzadeh: https://www.pexels.com/photo/black-and-white-cruise-ship-12422952/
(c) Scott Burns, 2024
Scott,
Could you do an article on the shift from pensions to 401K/IRAs. I have seen a number of pensions that failed or had to reduce payout. I am retired and quite happy that I started work at about the time 401Ks became available. I generally had a 5-10% company match so my total saving was almost never less than 15% of my income. and often 20%or more. I had control of where my “retirement” money was invested. and eventually found broad based mutual funds. Also, my “retirement” funds moved with me as I changed employers four times in my career. Americans like control and 401K/IRAs gives it to them. It works well for those that understood the importance of participating. Thank you.