Retirement News is Better Than Reported

Retirement News is Better Than They Tell You

Don’t you just get sick of seeing retirement news about the dismal state of retirement in the US?  You read articles and news stories and hear radio reports that dwell on your inadequate resources to retire or that as people retire, they will be destitute.  Here are typical headlines from today’s financial news:

Report: US retirement savings shortfall growing by $3T per year,  and

Social Security Trust Fund Exhausting Faster Than Expected

I just saw a recent edition of Forbes and here is a common journalistic observation:

“A 2016 Transamerica Center for Retirement Studies® (TCRS) survey put the state of retirement in alarming perspective. Fifty-one percent of workers are afraid they will outlive their savings. Baby boomers approaching retirement have only $147,000 (estimated median) saved for the coming years.”

The fact is, I have not met anybody destitute or anybody that has run out of money.  So why do the journalists keep writing this dire and “fake” retirement news?  Since the journalists covering these topics are not official experts of finance, they interview people on Wall Street to get the information and tips for their stories.  It is in Wall Street’s interest to tell you that your savings are inadequate and have people save more because that means more fees to investment firms.

There is nothing wrong with saving more, and I am a big fan of you doing so.  However, the doomsayers overhype stories regarding inadequate retirement savings. They ignore very positive underlying retirement news, financial and otherwise.

Health

Would you consider your health to be more important than your money?

The latest retirement news on that front just keeps getting better.  Medical science is closer to eradicating several types of cancer in the next few years and slowing or eradicating Alzheimer’s in the next ten years.

Cancer

For example, Novartis, the huge pharmaceutical company has apparently developed a cure for acute lymphoblastic leukemia.  In a recent test of 25 children and five adults, 90% had a complete remission, in which cancer becomes undetectable. Says Sally Church, a drug development consultant, "It really is a revolution. This is going to open the door for all sorts of cell-based and gene therapy for all kinds of disease because it's going to demonstrate that it's economically viable."

Won’t it be fantastic when people no longer suffer from cancers of all type?  The person with the illness and his family members will all be relieved from suffering.  And since illness most afflicts the aged, retirees are the big winners.

As CBS MoneyWatch reports about medical advances, “Many older workers can expect to live five to 10 years longer compared to prior generations. This is a significant improvement if you agree that being alive is better than being dead…we didn't just extend the period of being frail and dependent -- many of those extra years are spent being healthy and active.   That’s pretty great retirement news.

Alzheimer’s

It's an astounding statistic: 50% of people who reach age 85 will suffer from Alzheimer’s.  A cure for this disease would have a huge impact on older retirees quality of life.

In 2017, Pharmaceutical researchers published in the journal Science Translational Medicine, that they have discovered a drug which could halt and even reverse the loss of brain function from diseases like Alzheimer’s and ALS.

In a 2015 article, also in Science Translational Medicine, researchers describe a particular type of ultrasound called a focused therapeutic ultrasound, which non-invasively beams sound waves into the brain tissue.  The ultrasound can clear out the toxic beta-amyloid clumps that are responsible for the worst symptoms of Alzheimer’s.

The researchers report fully restoring the memory function of 75 percent of the mice they tested it on, with zero damage to the surrounding brain tissue.

Although the time from discovery to marketable cure is at least five years, someone retiring today will certainly have access to an incredible remedy should they be afflicted.  I cannot imagine much better retirement news than for retirees to have a better quality of life and reduced suffering from ill health.

Now let’s look at beneficial retirement news about your money.

Positive Retirement News on Finances

The gig economy is great retirement news

Over time, I have noticed the level of interest in various discussion forums on the AARP website.  Which topic has had the most traffic?

If people retire and need more money in retirement, it is now easier than ever for unskilled people to earn money without applying for a job.

It is hard to get hired at older ages, and it’s also hard to get hired if you don’t have the requisite training or education for a job.  Great retirement news -- you don’t need education or resume in the gig economy to have your own business.  Driving for UBER or renting out a room in your house on Air B&B creates a windfall of new income for retirees.

The gig economy provides optimal benefits—having your own business and independence without having to create a business.

And if you do have a skill, it’s easier than ever to turn that skill into money.  The retiree of 20 years ago didn’t have the Internet.  There was no place to list your skill on Craigslist or Upwork for employers to easily find you and hire you for part-time or temporary work.  Now it’s easy to be found because the Internet allows so many skilled workers to be location independent.  Therefore, you work from your home for company 8000 miles away.  This was simply not possible pre-Internet.

In addition to temporary rental income (e.g. Air B&B), you may have opportunities to extract permanent rental income from your property.   Here's some beneficial retirement news about gaining rental income. My state just relaxed the rules for adding “grandma units” to residential properties.  Permission to add these new living units do not go through lengthy approvals, have no hookup fees for utilities and are now permitted to be larger than prior rules.  People who own homes can add these units to their property and generate a handsome source of new income.  I assume that many municipalities will take similar action to increase the stock of rentals.

The True Economics of Retirement

The folks who write the articles stating that you don’t have enough money to retire forget the most important control that you have.  You dictate your expenses.

You can always sell the house, take the equity and move to a less-expensive area.  You then invest the equity for extra income.  You can change your lifestyle to dine out less or maybe take fewer vacations.  You could discover that giving up these high expenses are hardly sacrifice when you meet a group of new friends on the bocce ball court.

If you’ve been living alone, you could live with others and share expenses.  Three retirees living in one home would each pay a third of the mortgage, the property taxes, the utilities, etc. The lesson: there is much within your control, and you dictate your lifestyle to fit your income.  And in the gig economy, you have the flexibility to dictate your income to fit your lifestyle.

Shift to Low Expense Activities and Low Spending

A new Center for Retirement Research (CRR) issue brief reaches a seemingly upbeat conclusion:  the vast majority of folks who retire aren’t being pushed out of the workforce by ill health, bad bosses, or age discrimination. Instead, they’re pulled into retirement by the allure of spending more time with family, and on other activities they enjoy.  “People are being pulled towards positive things. That’s what keeps people at work or pulls them into retirement,’’ says Steven A. Sass, the CRR economist who wrote the new brief.

My brother, age 67, almost never leaves the house due to a multitude of medical conditions.  However, he arranged to have his children who lived on the other coast move back “home.”  They now live 15 minutes away, and my brother’s favorite activity is babysitting the three grandchildren. Cost = zero.

There is also a societal trend away from materialism.  A big factor is because people cannot afford more stuff and they adjust their living standards downward.  If people don't need to "keep up with the Joneses," spending levels may decline for all age groups.

The Cost of Living is Declining

While you may think everything is so expensive, the cost of living is declining for many (healthcare excepted).  In fact, we have experienced gradual deflation over the last several years in the cost of raw commodities.  Raw commodities are the starting point for almost everything you buy. You can see that the falling prices of basic inputs like energy, grains, and metals serve to mute the cost of living increases.

Ways in which living costs have declined:

• If you own a home with a mortgage, you have been able to refinance several times and reduce your payment significantly.
• If you like to travel, the cost of air travel has declined significantly since prices were deregulated in 1978. The Travel Insider says, “In round figures, and in inflation-adjusted dollars, airfares today are almost three times cheaper than they were in the late 1970s.”
• The cost of fuel has declined. And you and now have the option never to buy gasoline when you choose an electric car.  In 2016, AAA declared “The annual cost of owning and driving a car in the U.S. has reached a six-year low.”

Declining Investment Costs

Stock brokerage cost declined dramatically in 1974 when they were deregulated.  However, the cost of packaged investments such as mutual funds has stayed relatively high, until recently.  Since investments make up a larger part of a retirees’ income than the income of a person working, investment costs can be a significant issue.

A 2015 study by Morningstar showed that expenses charged by mutual fund companies have fallen over time.  Additionally, investors have shifted their portfolios toward lower costs alternatives such as index funds and ETFs.  Because investors are smarter, mutual fund companies have felt the pressure to cut costs.  Here’s a title of a 2016 press release from Fidelity: “Fidelity® Lowers Expenses on 27 Index Mutual Funds and ETFs.”  They certainly did not lower their income to be good citizens.

And a June 2017 story at Yahoo Finance (from Reuters) noted the impact of the coming Fiduciary Rule, designed to protect investors from high-commission investment recommendations:

“...consumers already have reaped collateral benefits from the fiduciary rule. In response to the rule and client demand for low-cost investments, numerous investment companies had lowered fees and dropped minimum investments required on their mutual funds and exchange-traded funds...Bloomberg reported that Morgan Stanley was lowering commissions for trades involving stocks and exchange-traded funds and improving customer disclosures, among other changes. Fidelity Investments, Charles Schwab, and BlackRock are also among those large companies that have reduced fees for retirement investors.”

You Spend Less as You Age

I think financial advisors, in general, do a poor job of retirement planning for their clients and provide sub-optimal advice.  They will often pick a static number such as 8% for what you can earn on your money over time.  Similarly, they will pick a number like 4% as to what you can withdraw from your nest egg over time.  These static assumptions are not good because your life and the markets are dynamic.

Indeed, a recent article in the Wall Street Journal (WSJ) concluded,’ “Financial advisers and investment consultants often aren't as smart as they like to think they are.”

The latest research from the Federal Reserve shows that your spending declines with age.  Therefore, you should spend more in your early years of retirement because you will be spending less in your later years of retirement.  Note that this is a general recommendation and may not be appropriate for all investors.

The Employee Benefit Research Institute research concludes the following:

“Household spending is lower for older households, but the decrease is not uniform across the spending distribution. Between age groups 50‒64 and 90 or older, the median drops nearly 55 percent, but the 90th percentile drops only 35 percent.”

The University of Michigan study on the same topic found that people spend less as they age—about 2.5% less, on average, in each successive year between 60 and 70 and by a greater percentage in later years. Other studies have detected similar patterns.

While it is conventional wisdom to think that people spend down their assets during their retirement years, that is not what the data shows.  Retirees do not get poorer. Here we see that net worth increases during the initial years of retirement and only falls after age 75. The decline in net worth is likely due to increased health expenditures not covered by Medicare or Medigap insurance (e.g. expenses for long-term care).  Yet, net worth is still higher for this oldest age band than for those in the 55-64 pre-retirement group.  It is apparent that aging retirees have adjusted their lifestyles to preserve their assets.

Chart shows net worth including retirement assets such as IRAs, 401ks,
non-retirement savings and home equity – Federal Reserve 2017

Technology - a Great Benefit for the Aged

Technology provides several transformative benefits to retirees. Tech makes it easier for people to live alone, live anywhere and have care without paying a caretaker.  Consider something as simple as having access to 20,000 videos without leaving your home—not even possible as little as ten years ago.

Consider that there are now pillboxes reminding people to take their pills.  Not yet commercially available, Boston Dynamics has invented a robot that can climb stairs in your home and grab your pants or your drink and bring it to you.  There’s even a wheelchair that can navigate stairs so that you could leave your house, get down the stairs and catch a cab.

Another solution that the Internet has provided is to eliminate social isolation.  You can have a chat with your friends and see them on your screen any time of day or night.  You can have an online meetup or Google Hangout.   Maybe not the way you’d want to spend your day, but I know of one retiree who spends hours each day competing in multiplayer video games with people around the world.

And soon, you will be able to have a driverless car pick you up and take you wherever you’d like to go, any time of day or night at a very low cost.

Taking developing tech a step further, the June 2017 issue of the Kiplinger Retirement Report notes the benefits of virtual reality to seniors. They say, “For older adults with mobility issues or cabin fever, VR breaks up day-to-day monotony and loneliness, letting seniors travel – skydiving or swimming with whales, anyone?  – without leaving home.”

Conclusion

While the raw statistics and traditional calculations indicate many people are not prepared for retirement, people adjust.  Retirees have more control over their income, expenses and where they live.  They have more financial tools than 20 years ago (e.g. reverse mortgages, purchase or sale of life settlements, secondary annuities, etc).  The positive retirement news is hidden by the media's fixation on negative news.

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