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Retiring from retirement
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June 11, 2001: 7:18 a.m. ET
Seniors work longer, take part-time jobs as portfolios plunge
By Staff Writer Shelly K. Schwartz
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NEW YORK (CNNfn) - Betty Bull wasn't ready to call it quits.
When the 57-year-old resident of Cortland, N.Y., was downsized a few years back from an agricultural supply company, she decided it was time to make herself more marketable. She went back to finish her associate degree in business administration.
"I had already raised four children and I wasn't ready to stay home all the time," she said. "I had no intentions to quit working when I was downsized. I mean, I like to do crafts, but I don't want to do it full time."
Bull, who expects to work full time until at least age 62, is now employed as an administrative assistant for the Cortland County Business Development Corp. – handling reception work, ordering supplies and managing general office needs.
"People are living longer and if you're used to being in the work force, it's nice to stay involved," she said, noting the extra cash doesn't hurt either. "It allows my husband and I to do more of the things we want. We went on a cruise last year to Alaska."
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Betty Bull is among the many Americans nearing retirement age who plan to work full time for years to come. | |
Bull is by no means alone.
Job market observers say a large percentage of older Americans are working well into their Golden Years, fearful of outliving their savings accounts or looking for extra income to improve their quality of life.
Moreover, they note, the downturn felt by Wall Street during the last 12 months has exacerbated that trend, as thousands of seniors who had planned to retire this year or next put off their plans until their portfolios recover.
"With what's happening in the market, we see that confidence is going down in terms of older Americans feeling comfortable with their nest eggs," said Don Blandin, president of the American Savings Education Council. "We got ourselves into a period of false confidence, expecting double-digit returns on all our investments. Now, we are seeing people reassessing where they are with respect to what the market is doing and what the economy is doing as they see their 401(k) funds and IRA accounts go south."
In the worst-case scenarios, those who had 100 percent of their portfolios tied up in company stock have seen their nest eggs shrink by 30 percent or more since April 2000. Those who diversified into low-risk equities, bonds and cash, however, took a hit as well – in many cases losing 15 percent-to-20 percent.
For a $500,000 portfolio, that's a drop of up to $100,000.
"Some just said, 'I can't retire now,'" Blandin said. "Last year they were 401(k) millionaires and now they're not. Many of their portfolios dropped by $225,000 and folks who were already struggling are going paycheck-to-paycheck."
Round II
At the same time, however, the recent market mood swings have given retirees a much healthier perspective on what their investments are actually worth.
Such newfound clarity has prompted many who already left the work force to pick up part-time jobs for professional organizations, including accounting firms, law offices, and managerial consulting groups. Some, too, especially those with fewer years of formal education, are finding work in restaurants and the hotel industry – McDonald's is now a leading employers of seniors.
"Many retirees are looking for part-time jobs where there are skills shortages," Blandin said. "Some school systems have seniors come back to help teach classes. And in some industries, the employers might even welcome their former employees back, because of the brain drain that's happening with the baby boomer population all retiring at once."
Where do they work?
Not all seniors are greeted with a welcome mat by corporate America, though. Some, even those with years of professional experience, have a tough time finding jobs that meet their physical needs, offer flexibility, and pay enough money to make ends meet.
"Some get downsized and they can't find jobs because they're older," said Renee Lobdell, a state program assistant for Green Thumb, a nonprofit group in Arlington, Va., that helps place low-income seniors in the job market. "And some of them thought they wanted to retire but now they're bored, or they really need the money and want to work part-time."
Demand for job placement services among older Americans has grown so rapidly, in fact, that Green Thumb established its own temporary agency four years ago called "Experienced Works: Senior Workforce Solutions."
The program recruits temporary workers of all income and age groups for part-time positions with corporate offices, school systems and small employers. Lobdell, however, said "Experienced Works" targets the 40-plus crowd, most of whom earn between $7.25 and $9 per hour. More experienced workers can command up to $15 per hour.
"We created this program because we believe mature, dependable and reliable older workers are the way to go," she said, noting employers in the information technology and education fields, which suffer from chronic labor shortages, are beginning to realize it too.
"Mature workers require very little training or supervision, and their work ethic is phenomenal so it saves the company a lot of money in lost time," Lobdell said.
No more early retirement?
So whatever happened to the concept of retiring early?
Clare Hushbeck, an economist for AARP, said it's still hovering out there like a carrot on a stick. But she said it's no longer a reasonable goal for middle-income Americans, who are living longer than ever before.
"It's just not reasonable to spend 30 or 35 years not working," she said. "Retiring in their mid-50s and living into their 80s or 90s requires a whole big cushion of cash; a huge amount of money."
A better approach, Hushbeck insists, is a phased-out retirement – a growing trend that allows older workers to slowly reduce the number of hours they put in weekly. This new model is beginning to replace the older version of "cliff retirement," where workers put in a 40-hour work week, attend their send-off party Friday night and call it quits come Monday morning.
"It's very common and it will become more common in the future," Hushbeck said. "Employers have been willing to do this for years but we're just now hearing about it more regularly."
Knowing when to quit
As for how much longer would-be retirees will need to remain in the workforce to offset portfolio losses, there's no easy answer.
Experts say it depends on how far the individual's assets have fallen, how diversified their portfolio was to begin with – and of course, how long this downturn lasts. Equity strategists seem to agree that the markets are poised to recover later this year, but the extent of that rebound is anyone's guess.
As a general rule of thumb, Deborah Voso, a certified financial planner in Frederick, Md., said those who suffered a loss of 20 percent or less in their portfolios should plan on sticking it out for at least another year.
Those who took a bigger hit, losing 20 percent or more, should be prepared to punch the clock for two-to-three years more, giving the markets a chance to rebound and their pension plans a bit more padding.
In the meantime, if you are two years away from retirement or less, you should take this opportunity to give your retirement portfolios a closer look.
Voso said it's wise to shuffle at least 40 percent of your total portfolio out of equities and into bonds, cash, and semi-liquid securities including CDs, and short-term Treasurys.
"It depends on how much money they have and what their income requirements might be," she said. "People get tired of hearing us say diversify, diversify, but it truly does work. I have a lot of clients who are thanking me now for those bonds I recommended last year."
It may also help to remember that the market always recovers in due time. In April alone, Voso notes, the average mutual fund gained 15 percent-to-18 percent.
"If they were planning to retire this year, hopefully they had done proper asset allocation two years ago," she said. "But even with proper asset allocation many had 40 percent or so of their portfolios in equities so some of them are rethinking their retirement plans. They're saying, 'Maybe I will wait another year and by doing so I can put more into my 401(k) plan.' We have a few clients who have decided to wait."
Don't jump the gun
At the same time, other financial pros say the worst thing you can do is panic and move all of your equity holdings into cash and bonds. Such a move is not only costly, since many equities are still trading at their 52-week lows, but it is also short-sighted.
That's because retirees will need their nest eggs to continue working for them for the next 30 years. As such, they'll need to maintain a portion of their portfolio in the stock market for higher returns.
Soon-to-be retirees, Voso notes, also should have three months worth of living expenses tucked away in a rainy day fund that consists of semi-liquid securities as well. That figure jumps to six months for those who are already retired.
"That'll give them enough time to see the market recover or to bring in dividends to refuel," she said. "It lets them sleep well at night knowing there is cash there for income if they need it."
Lastly, Voso suggests that retirees sit down with pen and paper and rethink their withdrawal rate.
It's widely recommended that retirees withdraw between 4 percent and 8 percent of their portfolios each year. Such a strategy allows the money left behind to grow by at least the same rate, ensuring their nest eggs last as long as they do.
Vaso said she normally recommends a 6 percent withdrawal rate, but with recent market turbulence, she's telling her clients to scale back to 4 percent. "When we see some recovery then we'll go back up to 6 percent," she said.
And Blandin, of ASEC, said he recommends an even lower withdrawal rate of 3 percent.
"You have to decide what kind of lifestyle you want," he said. "For example, some planners say you need 70 percent-to-80 percent of your existing income in retirement, but that includes a lot of assumptions."
ASECs Ballpark Estimate easy-to-use calculator helps older workers determine how much they'll need to save to live on comfortably in retirement.
"Do you have insurance? Are you healthy? Do you own your house?" he asked. "If you don't have all of those things in place you might need 100 percent or 110 percent of pre-retirement income to live on." 
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