Cold reality ahead for future retirees

Profound changes make future less certain

by Ben Rand

Democrat & Chronicle

(August 21, 2005) – Steve Vaughn would like to say he'll be able to retire one day and collect his gold watch and a few pats on the back for a job well done.
Just one problem: He's pretty sure it will never happen.

The 49-year-old programmer figures he'll be working longer in light of growing weaknesses in the nation's once-reliable retirement safety net. He says he just might like it that way.

"I don't know that retirement is all it's cracked up to be," notes Vaughn, a former IBM Corp. manager now teaching part time and working in information technology at the University of Rochester. "I think it's hard to ‘turn it off' …. And I'm not sure it's feasible financially."

Legions of workers, both young and old, are reaching the same conclusions as they grapple with sweeping changes in the nature and meaning of retirement.

The aging population and rapidly changing economy are financially straining programs such as Social Security and Medicare, while making it harder for many companies to continue affording traditional pensions health care and other retiree benefits. Those forces have unleashed a major political debate in Washington, D.C.

With the baby boom generation starting to retire, the pressures will only grow and force profound social changes, experts say.

"People will have to plan on working a good five to 10 years longer than their parents did," says Jeremy Siegel, professor of finance at the Wharton School of Business at the University of Pennsylvania and a leading experts on the financial markets. He predicts that the nation's average retirement age, now about 63, will increase to 68 over the next 15 years and to 72 by 2040.

"The question is how much longer people must work," Siegel writes in a best-selling book, The Future for Investors, "not how much earlier they will retire, and if they do retire early, how much will their living standards have to decline?"

A new model

The trends in retirement are prompting workers such as Vaughn to revise their preparations and adjust their expectations for how they'll spend their golden years.

Vaughn, for one, has spent time pondering less demanding – but equally satisfying – ways to stay active and make money as he grows older. His decision to leave full-time work for part-time positions was made in part to spend more time with his children – Nicole, 16; Kevin, 10; and Daniel, 5.

Working longer for Vaughn is more about staying active, but it's also about generating the resources to afford his preferred standard of living. He and his wife, Mary, have saved diligently. But he does not believe that Social Security will survive in its current form and health care will only become more and more expensive. So, "my biggest nest egg is going to be my skills," Vaughn says.

Joanne Cammilleri, 41, says she and her husband will have to control their own destiny. The Greece couple launched an investing program, and also developed a series of career backup plans, in part because her husband, Domenic, faces the uncertainties of working in manufacturing at Kodak Park.

Cammilleri, a graduate of Monroe Community College, went back to Rochester Institute of Technology and upgraded herself to a four-year degree in business management.

Fully licensed to sell insurance, she now works about 35 hours a week in the office of Christina Breen-Hale, a State Farm insurance agent in Greece.

At the same time, the two are working with a financial planner to save what they can in 401(k) plans and individual retirement accounts.

Cammilleri sees herself working at least until 65, though hopefully not in the 9 a.m.-to- 5 p.m. mode, she says, agreeing that retirement in the future requires individualism. "It's no one's responsibility but our own," Cammilleri says. "I don't think anyone promises you anything anymore. You are foolish if you're not thinking about retirement."

An uncertain future

Stan Purdie says he's been saving for retirement – by responsibly managing his finances – almost since he entered the world of work. Now 30, Purdie believes that the key lies in showing restraint today and setting realistic expectations about tomorrow.

Don't take on debt unless it's for an asset such as a house or education, says Purdie, deputy director of employment and economic development at Action for a Better Community Inc. And, don't lay grandiose plans, he says.

"I can never earn as much as my greed wants," says Purdie, a certified public accountant who used to work for Global Crossing Ltd. and who teaches classes in financial literacy at ABC.

Purdie said his views on retirement partly were shaped by his parents, who scraped to get by while he was growing up. He says he wants to teach his children to respect and understand the meaning of hard work and the difference between wanting an item and truly needing it. Purdie and his wife, April, 32, have four daughters between the ages of 5 and 12.

He said he'll be able to retire on his own terms but doesn't ever see kicking his feet up. "Retirement for me," he says, "means not working for someone else. But I always see myself doing something."

Purdie also said that Social Security, corporate pensions and other programs won't survive in current form but that government and companies have a responsibility to provide for workers in later years.

Here and now

Roger Nelson, 67, has certainly stayed active in his retirement, which began in 2001 after more than 30 years with Eastman Kodak Co.

Nelson works part time and volunteers for Reachout Radio, a reading service jointly operated by WXXI and the Association for the Blind and Visually Impaired.

He also volunteers at the Fairport Library and Perinton Historical Society, sings for the Finger Lakes Choral Festival and exercises – bicycling, walking and cross-country skiing – to stay healthy.

Nelson and his wife believe they have a comfortable nest egg now and are mostly wary about the weaknesses in the system on behalf of their three children and two grandchildren.

"What's scary is we're all living longer. My big concern is outliving the money," he says.

Those concerns, experts say, are valid in light of the financial situation of Social Security and Medicare, the government's health care plan for the elderly. Medicare in particular is already paying out more in claims than it collects in new taxes. And Social Security is clearly on a trajectory for insolvency, says Matt Moore, a senior policy analyst for the National Center on Policy Analysis in Washington, D.C.

"If we don't do anything," he says, "Social Security and Medicare together will be taking a third of everything people earn in a few years. By the time today's college kids retire, it will be taking half of earnings."

Any potential solution, Moore says, has to involve some pain in the form of reduced benefits.

Policymakers are just now showing they are prepared to contemplate weaknesses in the retirement system, says Bill Armbruster, associate director for AARP New York, based in Rochester.

The AARP, a nonprofit group that represents the interests of people over the age of 50, has established retirement security as its top priority, working to lobby legislators for policy changes while creating services for members such as the "Featured Employers Program."

That program highlights companies that have made commitments to hiring older workers.

Are we ready for the retirement boom? "Yes and no," Armbruster says. "The conversation is out there, and clearly things have changed … but the solutions aren't there yet."