There is plenty of data, but no reliable data, about what percentage of Baby Boomers are in for retirement on a shoestring.
My own rough guess is that about a third are pretty well off, either because they are affluent, or because they are not affluent but live within their means and have some savings and/or a decent pension plan. And that about a third are very badly off, either because they are already unemployed, underemployed, disabled, or otherwise not earning much, or because they have very little saved and very little prospect of income in retirement other than a modest Social Security benefit. That would leave about a third who are in the gray area: they will not starve, but they will not be able to live the life they envision, or the life they are probably living now.
Such observations usually lead to some kind of scolding, and a prescription for strong financial medicine. Well, you’ve heard that before, so you don’t need to hear it again from me.
Instead, I’d like to think about how those of us in this middle group are going to cope with the realities we will be facing. There are three main strategies for it, that I know of.
First and most obvious: don’t retire.
Or at least delay retirement until you’re maybe 70 or 75, or longer. Depending on how you feel about your job, this might sound perfectly OK. Or you might decide that if you’re going to have to work that long, you might as well switch jobs to something you like better, or something that’s more suitable for an older person.
But there are two reasons you can’t count on this strategy. One is that you might not be able to hold onto your job as long as you want (and you might not be able to find other work that pays you enough to be attractive). The other is that you might not be able to work because of illness, injury, or the need to take care of a spouse or other loved one who is ill or injured. A study that came out a few years back, just before the recession, indicated that about four out of every ten people retire involuntarily. And I have to believe that that ratio is going to be going up if many of us try to work until age 70 or later. So your plan to just keep working might itself not keep working. Of course, perhaps it will work, and that will be how you cope with not having saved enough.
The second way you can deal with not having enough to maintain your lifestyle in retirement is to cut back on your lifestyle.
This sounds painful, but typically is not so bad as we fear. Do you really need to live in a four-bedroom house when you’re retired? Do you really need to go out to eat three nights a week? Do you have to buy extravagant gifts for your kids, and take really cool vacations twice a year? Do you still need two cars, one or both of which are pretty pricey, when you’re retired? Even if you’re not living extravagantly, most of us spend a whole lot more than we need to just to live a comfortable life with occasional flashes of excitement. Stepping down a notch or two, for many of us, just means letting go of what is really, if we think about it, kind of excessive.
But even so, the act of stepping down can hurt, at least temporarily. Even if we’re just giving up status symbols, that, too, can hurt. At least we have the consolation that retirement gives us a very good excuse to step down. It’s not that we failed in life, we are just moving on to the next normal phase, which is less showy and more “real.” And actually, that’s all true. We don’t have to be embarrassed to say it.
Unfortunately, for many of us, we’re going to have to do more than give up the excesses. People who will be living entirely or almost entirely on Social Security are going to have to give up a lot, even if they are eligible for the maximum Social Security benefit. The extras will definitely have to go. But so are many of the things we regard as more essential to our lifestyle. And we're going to have to learn to live – dare we say it? – economically. Oh, the horror of it! The shame!
And the opportunity! The people who have been saying that “less is more,” that simplicity is the golden rule, that money doesn’t buy happiness, are, it turns out, right. Granted, making the shift from an affluent (or pseudo-affluent) life to a life that is much more modest, where a budget is stuck to and has to be stuck to because there’s only so much income to spend, and where every expense has to be reduced or eliminated, is a strain.
But once that transition is made, and you are now living a simpler life and staying within a budget, you will experience so much less stress, and will find that there are so many joys to be had that are free (or cost peanuts), that you'll be kicking yourself for not having made the change sooner. And you will view the more show-offy lifestyle you had as kind of silly, maybe even a bit shameful. Sure, you'll still miss some of the extra goodies you used to have, but you'll also find that there are easy substitutes for almost all of them. And that these substitutes bring you at least as much pleasure, and a lot less hassle, than your pre-retirement lifestyle gave you.
At least, that’s the way it will be if you approach it with a positive attitude. And that is the one thing that’s totally up to you.
A third strategy that I think many Baby Boomers will want to try is some sort of communal living arrangement. Instead of selling that four-bedroom house, invite one or two or three old friends who are also retiring - or siblings, cousins, or even strangers - to move in with you. Or you move in with someone else, or a bunch of you all move, and together find a new place to live as a group.
There are obvious potential problems having housemates, but if you judiciously choose people you’ve known for years, there should not be too many bad surprises, and there will be many, many offsetting advantages – not just financial, but also in convenience and companionship. And as you age, when someone gets sick, there will be others to help out. When one or two can’t drive, someone else still can. If someone gets a bad financial break, the others can help carry the load for a while.
These are things that extended family used to do. Sadly (or maybe not), most of us don’t have hordes of extended family living next door or on the next block any more, but we can choose our own “extended family” – and live a reasonably comfortable retirement lifestyle by pooling what we do have.
As a society, we put a lot of emphasis on money – probably too much. And as long as we still have a decent income, it takes unusual discipline to change our lifestyle. Only when retirement forces the issue, will many of us simplify our desires, or learn to share our lives with others. It might actually be something to look forward to.
Chuck Yanikoski is a retirement adviser who lives and works in Harvard. For more about him, or to contact him directly, visit http://www.ChuckYRetirement.com.