Sustainability--Retirement--Extended Lifetimes--Quality of Life--Relative Terms

Sustainability has become a key word this year.  President Obama mentions it in connection with the economy and preserving the ecology of the planet by developing alternative fuels and lifestyles that do not destroy our environment.

In this context we need to pay attention to the long-term impact of our solutions.  We don't want to begin relying on new car batteries that will further harm the environment when they wear out.  One aspect of sustainability is keeping in mind an extended time frame.

Sustainability is important to keep in mind when thinking about retiring--especially in today's economy in the USA.  Improvements in medicine, nutrition, and health have extended life expectancy.  To maintain a high quality of life (not necessarily a very expensive lifestyle) to age 100, for example, it is important to create a flow of income adequate to support that quality of life (including inflation) either before retirement age or to supplement any retirement income that a person has access to.

After World War II, social security was developed to make sure that wage earners could have some supplementary income in case their pensions from work plus their savings were not enough to provide basic needs.  Medicare came out of a similar concern.  More recently, most companies have decided not to fund pensions directly and have turned to 401K plans where companies and employees purchase stocks, bonds, or mutual funds to plan for retirement.  In the last few years, when the stock market took a nose dive, on paper, people have lost between 75% and 50% of the money they had invested.  Of course they did not realize these loses yet because they do not manifest until the stocks, bonds, or mutual funds are actually sold.  While the concept of dollar cost averaging (the concept that every dollar invested in the stock market will increase in value over an extended period of time) is still valid, some people do not have 40 more years to wait for the value to rise to the point where they need it to be.

News reports in the last few days have talked about "a jobless economic recovery."  Claiming that while there are indications of economic recovery, new jobs--or jobs of equal value to the jobs that have been lost--are not being created.  These same reports speak to a 10% unemployment rate for the country.  Unemployment rates do not include those whose benefits have run out and who, while possibly still unemployed, are now "off the radar."

My mother's highest salary in the public school system was about $22,000 per year as a supervisor.  When she retired, two supervisors were hired to do what she did and they each earned about $60,000 per year.  The economy shifted and her generation operated under a much lower ceiling for pay.

In today's economy we may be facing a reversal.  Excluding the super-high-incomes of certain executives of what have historically been multi-million dollar companies, many salaries have been in a six-figure range.  There appear to be fewer six-figure salaried positions available today.  The salary for many jobs seems to have dropped significantly.

As baby boomers continue to age and as the next generation advances in their careers, openings for leadership jobs will continue to shrink.  While no one practices age discrimination, some people are calling for a particular type of training or experience that older workers will not have.  Other companies are paying only entry-level wages for higher responsibility positions.

A challenge for baby boomers happens when, for whatever reason, the job or business they are used to ceases to exist and they have to begin planning for a sustainable retirement.  Social security (for as long as it lasts) will help and needs to be supplemented.  Supplementary income can be much less than baby boomers used to get in their previous jobs.  At the same time, many of these baby boomers are especially concerned with the quality of life they experience--at home and at work.  With age comes a desire for less stress, a shorter commute, regular hours, and quality time outside of work.  Six-figure jobs frequently don't offer these added benefits. 

Some people work best as employees and others enjoy earning their income directly--through sales or running their own business.  Planning for retirement differs for these two types of earners and both need to create effective, workable, and sustainable plans to enjoy a good quality of life for the lifetime left to them.  Planning for a 100-year lifetime does not seem to be too unreasonable in the near term, especially if the person planning is currently age 50 or less.

All of these terms are relative--we will each be thinking of what quality of life means to us and how much income we will need to cover planned and unplanned expenses as we age.  What we do need to plan for is a network of income resources that will be sustainable as we age.  This usually means that we need several streams of income, each of which can last for a long time.