Retirement Planning: On Being Too Old

Baby Boomers face all sorts of challenges when it comes to retirement. Are we ignoring the most obvious of those challenges when we refuse to think that we will one day be old - not just older, but old old.

It is a relatively well known phenomenon amongst the soon-to-be retired. You are jettisoned from your 401(k) with a large chunk of money, a lifetimes' worth of hard earned cash. You are forced to make a decision about what to do with it. Kept in its present form would require you pay taxes on it as it is. Rolled into an IRA allows you to hold off on distributions, possibly until you are 70 or begin to take money out. But some folks fall into the annuity trap.

This choice, the annuity, in whatever flavor you are sold by the insurance company is often picked when the newly retired person does so in the midst of what would be a bear market. 

For those not versed in that term, this a period of lower stock prices; the reverse of which would be a bull market. Most folks fall back on the same logic, perhaps not fully tested or vetted, that retiring in a down market is hardest on your retirement account because you have far less than you might have has had you retired when the market was on the upswing.

On paper it might look bad. But the bear market might be your friend, especially if you are the counterintuitive type not prone to believe the conventional wisdom. What is the conventional wisdom? To be upfront, something I disagree with in most cases in large part, because I don't think pat formulas work. We evolve and so does our thinking. Why, if that is true of us and we are the markets, do we insist on being harnessed by stringent parameters?

Because they provide comfort, a point of reference, a goal. No matter what name you assign them, they are prevalent and with so many personal finance and retirement "gurus" saying the same thing, you tend to fall lockstep into the same thinking. Withdraw 4% you chant and you will never run out of money.

I've disputed this notion in the past as not very wise or thoughtful. Two things helped me arrive at this conclusion. Long before Susan Jacoby wrote her new book about old age (Never Say Die: The Myth and Marketing of the New Old Age, Pantheon Books), which provides a no-hold-barred look at the distinct, perhaps inevitable slide the human body takes on its path to death, I was suggesting that we might live longer but what will living longer mean. Oh, we may live to 85, but our arrival signals the end of cognitive independence for more than half of us.

She blames the baby boomer, the reinventor of what life is as the culprit in this thinking. We may have changed the way our youth unfolded and we may have upset the norm throughout our working careers. But when it comes to old age, it doesn't matter whether you have some sort of can-do attitude, you won't be able to change what is going to happen to you. You may envision a life of vigor and vitality, volunteerism and travel. We all need something to keep us moving forward. But Jacoby says we are ignoring the hard facts of life. We'll still get old. And with age comes the maladies of that time. Still there and still the same unsolvable mysteries.

So we will reach a point somewhere in the future - and the odds are in favor of this thinking - when you will no longer be the person you are right now. The years that you believed would be full and vital are now gone and you are collecting in the form of equal - possibly inflation adjusted - income that you can't spend. You scrimped in the early years of your retirement, downsized, even counted every penny. And then later in life, it doesn't matter. My suggestion was to start out big and taper back. Perhaps gradually easing back from a 6-7% withdrawal rate in the first ten years of retirement to a paltry 2-3% by the time you are 80 years old.

The result would be more or less the same with you using the money in the early years to do what you thought you could do and scaling back as your new sedentary lifestyle takes hold, an inevitability we can't avoid. "Young old" is easy to imagine. "Old old", not so much.

But the choices we make right at the moment of retirement may have a greater impact on how well that retirement is financed than we may have previously thought. Those bear market retirees, the ones who graviate towards annuities more so than their cohorts who retire in the midst of a bull market, may end up doing better over a longer period than their more optimistic cohorts.

I am of course referring to the studies done by Wade Pfau, an associate professor at the National Graduate Institute for Policy Studies in Tokyo who has suggested that retiring during a bear market is actually the best case scenario. His thinking is that a bear market provides more upside potential than a bull market would. On this point, he may be right. Our penchant to follow the herd during a bull market gives the impression that markets will always go up.

And there is some proof that for a time, they will. There is also proof that if you retire during a robust bull market, you will be more inclined to believe that you possess some sort of powerful ability to manage your money better. But bull markets fall and this causes confusion among those who may have deluded themselves into thinking they were more skilled than they were.

Professor Pfau thinks that a 60/40 stock split is optimal and if you invest over the course of 30 years at a rate that is close to 17% of your pre-tax income, you will be able to have 50% of your pre-retirement income, inflation adjusted, throughout your retirement. Staring earlier will mean less needed to get to the same mark. And of course this excludes any other money you might receive in retirement.

You are probably saying to yourself, 'that's a lot of income to sock away' and you'd be right. But this is one thing that hasn't changed: if you think you haven't been putting enough away, you are probably right. If you think old age is something that will resemble the first day of retirement for the next 30 years, you would be wrong.

Baby Boomers should be thinking about spending more when they are healthiest. Because 'old old' doesn't give you the chance to revise your planned 'young old' retirement.

Paul Petillo is the managing editor of Target2025.com/BlueCollarDollar.com

Retirement Planning and Woulda, Coulda, Shoulda (or Old Age and Health, Part Two)

The poem below, because of copyright restrictions and the fact the Shel Silverstein’s people never got back to me after I requested permission to include it in the book goes something like this:

Woulda-Coulda-Shoulda
By Shel Silverstein

All the Woulda-Coulda-Shouldas
Layin' in the sun,
Talkin' 'bout the things
They woulda coulda shoulda done...
But those Woulda-Coulda-Shouldas
All ran away and hid
From one little Did.

While the previous post here outlined some of the serious health risks that are under-realized and little acknowledged in most retirement plans, I wanted to spend a moment explaining some of the references that I used for this section.

We will not be the retirees in the commercials. This is bad news for some us and a grim reality for others. The idea that we will enter old age in a different physical condition than we are currenlty in is highly likely. For most of us, that condition will not mean an improved state but rather one that is in need of repair.

We are the woulda-coulda-shouldas that scrimped and saved, lost sleep over money, worked too, too hard, and lived perhaps a bit too well. But living well will present its problems sometime in the future as our bodies will ask us, “what exactly did you do?”

Consider Ellie Metchnikoff (1845-1916), a Russian biologist who studied in Russia and Germany, and after working with Pasteur in Paris, became deputy director of the Pasteur Institute in 1904. He also won the Nobel prize in 1908 for medicine for his work in immunology.



As a biologist, he noticed that his advancing age was bound to complicate things for him. In the preface of his book The Prolongation of Life: Optimistic Studies also written by Ilya Ilyich Metchnikoff and Peter Chalmers Mitchell he wrote: “It is, of course, quite natural that a biologist whose attention has been aroused by noticing in his own case the phenomena of precocious old age should turn to the study of it. Because it is equally plain that such a study could give hope of resisting the decay of an organism which had already for many years been growing old.”

As a scientist, he began his research by looking at the historical and cultural ways peoples around the world treated their elderly members. He was well aware of how the old were thought of in Europe during his time. The sight of these people with the ravages that time took on the body concerned him. What Metchnikoff found made him pause asking why those cultures developed the attitudes toward the elderly and the way they treated their old.




The Melanesian islanders buried their old tribe members alive when they reached a point of uselessness. Natives of Tierra del Fuego would eat an elderly woman in times of famine, he wrote in cool style of an academic, because “dogs could catch seals, whilst old women could not do so.”

But we are civilized now. Right? At the time Metchnikoff wrote his book, a follow-up to his book Nature of Man, old age was nothing to look forward to. Suicide was rampant among the elderly of Metchnikoff’s era, with rates running almost twice that of any other age group. Murder of the old, as was discussed in Dostoyevsky’s “Crime and Punishment” seemed to be justified because of the childlessness, worthlessness, ill-temperedness and poor health of an old woman one might encounter was thought to be “a nuisance to everyone. She does not even now why she should live”.

A Danish law passed in 1891 began what could have been the first governmental type intervention into the deteriorating circumstances of the elderly. Metchnikoff was a biologist and his primary concern was how we age, why we do so in such different degrees and what if anything can be done to cease or at least slow the process. He looked at numerous sources for his answer from the cellular level to the giant Dragon Tree, the baobab, the cypress and of course, the one we are most familiar with, the sequoia of California.

I do however mention Sanford Bennett in the book and mostly to encourage those of use who have abused our bodies more than just a tad over our lifetimes. He found himself, as he writes in his 1912 edition of Old Age: Its Cause and Prevention: The Story of an Old Body and Face Made Young., republished in 2003 by Kessinger Press, “At fifty, I was a physically old man. Many years of a too active business career had resulted in a general physical breakdown.” He continues by describing his state as “wrinkled, partially bald, cheeks sunken, face drawn and haggard, muscles atrophied and thirty years of chronic dyspepsia.” For those of you who may not know what dyspepsia is, the word was and still is a more medical term for upset stomach and acid indigestion. That, he says later caused him to develop a “catarrh” (kind of like a running nose in your gut – it just doesn’t sound very pleasant) “of the stomach”.


Bennett at age 50


But Bennett turned that physical deterioration around as he developed an exercise routine, researched dietary guidelines and wrote his experiences down if only to authenticate his health reversal. Like Metchnikoff, he spent a good deal of time studying the ill effects of aging and developed a way to fix what nature had wronged.


Bennett at age 72


He writes that he was unable to find adequate information about the subject largely because no one prior to him had experienced what he had. So he offered to the public what may have been the first self help book for health designed for the layman.

Retirement planning, like the claim made by Bennett, is not something that you have to accept at face value for what it is. If you focus on your health as an important attribute to a successful plan, the financial end of the equation may just fall right into place.

To answer your question: No. Being healthy will not make you financially savvy. That’s why you have me. But you cannot ignore the cost of poor health on your retirement. We are all aware of the pressures already being exerted on our health system and movement to push more and more of those costs and as well as the decisions of how that care should transpire back to the private citizen.

This will not be the last time we touch on the topic of health and the cost it tallies against your best retirement goals. Poor health almost acts like a tax on those savings, which is yet another important topic we will consider further along.