March/April 2009

When Retirement Savings Fall Short
By Chuck Yanikoski
Aging Well
Vol. 2 No. 2

Despite all the warnings and advice, many older adults retire with inadequate savings, and this seems likely to be more prevalent in coming years. In this context, inadequate means they cannot indefinitely support the standard of living they maintained before retirement.

The causes are many: failure to plan or a naïve belief that planning is unnecessary, bad luck in the financial markets, a medical or other financially draining problem in the family, job loss, illness forcing an early retirement, or the failure of an expected inheritance to materialize.

The obvious solution is to continue working—or go back to work—and most people will do so, if possible. But that option is often impossible or insufficient. In many cases, the problem was caused by an involuntary termination, disability, or the need to take care of a spouse or other family member. Substitute employment, even if it can be found, may necessarily be of a different kind, at a lower level, or part time and is therefore likely to yield lower pay. So increasing one’s earnings is frequently not a plausible option.

If that is the case, the only other choice is typically a painful and often large step down in one’s standard of living, plus a further reduction in one’s options in the event of future adversity.

Mental Adjustment
Studies of the connection between wealth and happiness generally confirm the adage that money cannot buy happiness. There is little correlation between the two, except below the poverty threshold, where inability to provide for even the bare necessities generates true hardship. But for most people, the enjoyment of simple pleasures is as great as that of expensive pleasures, and living with less can be just as fulfilling as living with more.

In some ways, mental adjustment becomes the most difficult aspect of modified lifestyles, but depending on the temperament of the older adults involved, this can be a temporary phenomenon. The adjustment of going from more to less can be painful, especially for those who have always placed a high—even if fundamentally invalid—value on costly goods and experiences and those whose sense of personal worth is bound up in the number or quality of their possessions. Counseling is advisable for such individuals, and fortunately, help can usually be found locally either for free or at an affordable price.

Even so, the temptation to avoid stepping down the lifestyle is compelling. An older adult who has retired with inadequate savings probably still has some assets that are either liquid or capable of being liquidated. It’s usually possible, therefore, to continue living too well for a few years, or maybe quite a few years, before hitting the wall. But unless there is a legitimate expectation of a large inflow of cash or an early death, such a strategy is clearly foolish, and any advisor should discourage putting off the inevitable. The longer it’s put off, of course, the more severe the eventual adjustment will be. Then the elder is dealing not with disappointment but with depression, or not with depression but with thoughts of suicide.

Stepping Down Gracefully
Psychologically, the best strategy is not so much to give things up as to substitute less expensive for more expensive options. And in making such trades, it is usually possible to assuage or even eliminate the pain by seeking compensating advantages in the new situation. It’s hard to focus on the positive unless it’s really there. But if it’s there, even in part, living on less can actually seem like an improvement.

For example, older adults’ largest expense is for housing. Stepping down in one’s dwelling can have advantages, such as the following:

• Less living space requires less time and expense for cleaning and maintenance. Less yard space or renting rather than owning requires fewer outdoor chores.

• Relocating offers the opportunity to be closer to favorite people or places or acquiring new features or conveniences, even though others are being lost.

• Having someone move in or moving in with someone else provides benefits, such as the chance to reconnect with a sibling or an old friend, the pleasures of companionship, help with preparing meals or other household chores, and shared furnishings, books, music, and DVDs.

Similarly, taking fewer, shorter, or more local vacation trips can be seen as a pure loss or as a way to experience less hassled travel, to focus on one’s companions more than on strangers, and to get to know nearby places that can be enjoyed more often instead of big adventures that one is unlikely to ever be able to re-create.

Rather than abandoning more expensive goods and activities entirely, older adults can cut down on their frequency and/or extravagance, creating more opportunities to try new things, some of which will prove to be enjoyable.

In many ways, stepping down does not have to be stepping down at all. Most American families spend a good deal of money on things for which there are equivalents that are very economical or even free. It is largely a matter of paying attention and seeking them out. This can be a rewarding activity in and of itself.

For the financially minded, it’s worth pointing out that a penny saved is more than a penny earned because a penny saved is not taxed. And once older adults focus on saving rather than on earning and spending, they find opportunities in abundance. Becoming a smart shopper; taking advantage of senior discounts for services; checking out yard sales, bazaars, and secondhand shops; using coupons; making off-season purchases; perusing eBay and craigslist; swapping goods or services with neighbors, friends, and family members; starting a vegetable garden; and using the many tips that are available in books and magazines on how to save money (not just on purchases, but on energy use, taxes, insurance, etc) all can be economical and enjoyable.

What If Economy Isn’t Enough?
Although reducing one’s living expenses by 50% is a big jolt, elders can still come out on the other end of it living a pretty satisfying existence. Simply eliminating the stress of trying to match big bills against small resources can make it worthwhile. But what if money is really starting to run out, and there is little left other than Social Security and whatever modest property an older adult owns?

It would take a book to cover all the possibilities. But the following are the basic questions elders should ask and which advisers can help them think through:

• Is the elder really out of money? What is the value of his or her home, car, and life insurance policies? Can he or she take in a paying boarder or become one? Can the elder get any kind of work, even part-time work or irregular work such as baby-sitting or pet sitting?

• Is the older adult entitled to something he or she doesn’t have? Are there Social Security benefits based on a deceased or divorced spouse? Is there a pension plan with a former employer or a spouse’s former employer? Is there unclaimed property held by the state or unclaimed insurance values? Are federal housing subsidies available? Does the elder qualify for Medicaid or reduced prices on prescription drugs? Are there local real estate tax breaks, energy subsidies, or other benefits based on age or income?

• Who can help financially strapped older adults? Relatives and friends may be both more able and more willing to help than an elder may expect, but individuals usually need to make clear that they need help rather than pretending that everything is fine. Federal agencies such as the Administration on Aging, the Department of Housing and Urban Development, the Administration for Children & Families, and the Centers for Medicare & Medicaid Services can often help directly and even recommend other resources. State and local government agencies, churches, charities, and other groups offer many kinds of help. It’s best to start with the local Area Agency on Aging or a nearby senior services center to explore options.

Often, the biggest obstacle is the older adult. Pride and shame get in the way of admitting hardship and seeking help. Despondency can sap initiative and prevent older adults from taking or even seeing what is readily available to them. Just as important as keeping the body safe, nourished, and intact is keeping the soul safe, nourished, and intact.

Fortunately, what best serves the soul is usually free, but there is often damage that needs to be healed first. Wise counsel in caring for the mind and spirit may be a necessary first step toward launching a positive, productive approach to resolving or adapting to financial hardship.