Being a CPA for 40+ years, I have come to the realization that taxpayers truly cannot afford to retire at 65. As I prepare taxes for working folks each year, I also see that the overwhelming majority of taxpayers have not set aside enough for retirement.
Everyone thinks they can do it. It’s an American ideal born in the last century with the rise of unions, the defined benefit plan, and generous pension systems. In reality, especially due to advances in health, medicine, and nutrition, many people have great capability to continue to work and contribute to society and themselves until 80. And they should — because they need to.
There is a crisis of affordability looming. Besides the enormously wealthy, for the most part no average person can afford to retire at 65. It is simply not possible, living a normal lifestyle, for anyone to put enough toward retirement that will enable him to live another 20-30 years. A life span of 85-95 is swiftly becoming the new norm. The only workers today who are the exception to this reality, and have any hope of a lengthy retirement with comfort, are public service employees.
Taxpayers have been long bamboozled into making generous commitments to the retirement systems of public service workers. All over the country, in all levels of federal and state governments, these defined benefit plan pension funds have proven to be vastly untenable. Yet to sustain the plans in their current arrangements and cover the obligations that have already been promised, the rest of society will be duty-bound/compelled to contribute to the retirement of those public service workers via higher taxes. This is turn makes the rest of the populace poorer — because their hard-earned money is being levied to the promised public pensioner, and not for able to be saved for themselves.
The grand scheme is becoming unhinged. One must realize that the more people continue to buy into the idea that they are supposed to “retire at 65”, the more they are suckered into continuing make their retirement years poorer and subsequently make the retirement years of public service employees richer. People see a public service worker being able to retire at that age and they think “I should be able to also do so”. This idea needs to change.
There are two reasons why most people think that such pension programs are still sustainable and normal: their troubles are largely masked because they encompass the larger budget process of federal/state/local governments (and how many people pay attention?) and the costs to keep the programs afloat are borne by all the rest of society — the taxpayers. This arrangement enables a small group of people to be paid a sizeable and continuous pension for until death. It is not out of the ordinary anymore for a person to receive $65K- $100K for the rest of their life. But the actuarial cost to provide that promised benefit is astronomical.
With the lifespan of Americans growing longer, retiring at 65 is truly no longer affordable for pension programs or rational for the longevity of Social Security and Medicare either. Yet the steadfast refusal of most of government to overhaul retirement systems or make age and formula adjustments to entitlement programs — in order to maintain this retirement facade — only compounds the problem.
Another one of the biggest detriments of being able to retire at 65 is investment return. Interest rates have been historically low for the last five years and there is a strong likelihood of them staying low for another few. As a result, peoples’ retirement portfolios have lagged in their anticipated growth and goals. The low rates mean less money overall for retirement time, a problem which can be offset by continuing to work and contribute to a retirement fund past the basic age.
Likewise, inflation is not the issue that everyone thinks it is. The true problem is the cost of living — but really, it’s the cost of modern living, the “keeping up with the Jones”. For example, newer models of everything due to technology constantly changing — upgrading TVs, cell phones, etc. are raising the bar for how much pensioners want to comfortably live on and live with.
In sum, with living longer, low rates of return, and the “cost of Jones’s increase”, people must begin to realize that the timespan between 65 – 80 can be, and should be, a healthy and productive time of life. Working, staying active, and continuing to save will be beneficial in the long run. The mindset of older citizens needs to change and they need to understand that they can should aim to be productive until they are 80. At 65 they can certainly slow down, but the concept of retiring and not working anymore at that age is unrealistic and unaffordable.