There's a piece that's making the Facebook.com rounds about a former vice president for a major company who is 77 and just getting by working two jobs -- one at Sam's Club doing marketing demonstrations and another at a golf club, flipping burgers. The story is getting tons of social media traffic and sympathetic readers, but it makes me say "ouch."
The story holds this man up as emblematic of today's retirees. I think his situation -- if true -- is unfortunate, but had he made different -- and better -- decisions along the way, his current circumstances wouldn't be so dire. Those of us who are younger have time to be smarter.
Below are some lessons to be learned from this story about "Tom."
Save aggressively in tax-advantaged accounts. The story says that Tom had neither a 401(k) nor an IRA because he was self-employed. Self-employed people can and should have both of those kinds of accounts. Generous tax deductions mean that most self-employed people leave money on the table when they ignore those options.
Get good retirement planning advice. The story says that Tom at one point earned well over $100,000 a year, but he had saved only $90,000 by 2008. His saving were invested in stocks and were hard hit by the financial downturn, so he lost half his money. A good financial adviser before and during those tough times would have encouraged him to save more, diversify his investments, and stay the course, giving his investments time to recover.
Don't take Social Security at 62. A man who worked all his life, including earning more than $100,000 some years, and met his legal obligations as a self-employed person to pay annually into Social Security, would be entitled to far more than the $1,200 a month that the story says he gets. Using the free AARP Social Security calculator and assuming that he was born in 1936, I worked backward and determined that he must have earned an inflation-adjusted average income of $35,000 a year and started taking his benefit at age 62. That meant he took a 25 percent haircut. For every year he had waited to claim benefits past age 62, he would have gained about 8 percent. By the time, he was age 70 and reached the maximum amount available, he would be receiving $2,136 or $25,632 a year. That's not a princely amount, but combined with the $600 a month in pension benefits the story says this man gets, it would add up to nearly $33,000 a year, plus accumulated Social Security cost-of-living adjustments. At that income level, he probably wouldn't need two part-time jobs.
Be thoughtful about supporting your grown children. This story also says that this man sold his house in New Jersey for $182,000, bought a mobile home for $23,000, and divided the rest among his grown children, so they would have enough to buy their own homes. That is a generous gesture, but not if it means that they have to support you in your old age.
This retirement sob story appeared originally in a very reputable publication. I wish the editors there had questioned it. These kinds of pieces are widely read, but they make heroes out of people with poor judgment. That doesn't help people trying to make good decisions.