If you want bad news about your prospects for retirement, it’s pretty easy to find. Just click on any financial news site and you’ll find headline after depressing headline.
The statistics are dismal, but there is good news to be heard and it comes through loud and clear in a new book by Charley Ellis, one of the deans of prudent investing and a member of the Investment Committee of my firm, Rebalance.
The book is entitled Falling Short: The Coming Retirement Crisis and What to Do About It. The takeaway is that far more than our parents, we are on our own. Yet there are course adjustments that can and will ensure that you have a comfortable retirement.
Yes, he uses that word — crisis. And it really is, if you face the facts. As Charley and his co-authors explain, the numbers are not in our favor.
“The main message is clear: retirement is expensive — and longer retirements are more expensive,” he writes. “People are going to need substantial assets if they are going to maintain their standard of living for many years after they stop working.”
Assets that, objectively, we do not have. If we all had to retire on the dot at 65, the broad majority of us would be broke in just a few years, never mind enjoying 20 leisurely years of golf and travel. Even high-income earners are not necessarily secure.
Ellis and his colleagues spend a fair amount of the book building up historical context, a clear-headed and highly readable review of our patchwork retirement system dating back to the Civil War and the Great Depression. Since then, he explains, a system with minor faults saw its weaknesses compounded by 20th-century politics, economic tribulations and plain shortsightedness.
By chance, Ellis writes, those same historical and economic forces temporarily created a “golden age” in which a relatively early retirement came to be seen as normal.
Before, people just worked until they physically could not manage. We’re headed in that direction once again. “People who say America has a strong retirement system are looking backward,” he writes. “We cannot go back to the golden age.”
Are we doomed to a life of labor until death? Absolutely not — if we can make some big decisions, as individuals and collectively as a nation.
For one, Ellis writes, it’s important to recognize that the government long ago unofficially raised the retirement age to 70. Yes, you can start taking benefits at 62, but you get much more for every year you wait — up to 76% more money, by Charley’s calculation.
It’s also important to accept that working, at least part-time or in a less demanding occupation, is central to putting off Social Security until it grows into that larger payout. He offers additional, specific recommendations for near-retirees, such as continuing to add to private retirement savings, using home equity and, above all, avoiding needlessly high-cost investments.
“If we continue to retire in our early sixties, we will not have enough saved to support our standard of living for 20 or more years in retirement,” he notes. “So we must adapt one way or another — accept lower living standards once we stop working, save more while working, and/or work longer.”
Along with personal sacrifices, Ellis recommends an increase in the payroll tax that will make Social Security as sound as people presume it to be, as well as changes to the 401(k) system. That’s just how the numbers work out. To pretend otherwise is fiddling as Rome burns to the ground.
In my view, this little book is required reading for policymakers, but given Charley’s natural, easygoing writing style just about anyone could read it in a sitting. Besides concrete policy prescriptions, Falling Short provides practical, personal advice on how to make retirement work. It’s good news if you want to hear it.