April 1, 2008

As the falling real-estate and stock markets erode their savings, many aging Americans are delaying retirement, electing labor over leisure in uncertain times.
A three-decade veteran at International Business Machines Corp., Dick Boice had planned to sell his house, pack up and move to Arizona with his wife, Lauren, to take early retirement. But two months after the January date he set to exit the work world, Mr. Boice, who is 59 years old, is still on the job. He figures he'll stay put for another couple of years.

The Boices had counted on proceeds from the house sale to boost their retirement income. After a year on the market, the roomy colonial in Blue Springs, Mo., didn't move, forcing the couple to cut the asking price by $40,000 to around $250,000. The house remains unsold. Meanwhile, Mr. Boice has watched the value of his 401(k) and individual retirement accounts fall by roughly 20% so far this year, to a combined $240,000. 

"Everything is just heading south," says Mr. Boice, who works in client support for IBM in Kansas City, Mo. "You can't hardly make any kinds of plans because you don't know what you can count on."

Mr. Boice has plenty of graying company at the grindstone. Millions of retirement-age Americans, stung by the recent economic pall, suddenly are having to reassess their plans -- with many forced to quickly change course. In February, the proportion of people ages 55 to 64 in the work force rose to 64.8%, up 1.5 percentage points from last April. That translates to more than an additional million people in the job pool, according to the U.S. Labor Department. The ranks of those 65 and over in the work force rose to 16.2% from 16% in the same time span -- meaning 212,000 more hands on deck. So far, the numbers for March continue to show a "sharp" increase, says Steve Hipple, a department economist.

While many Americans are still sitting on large gains from homes and stocks bought years ago, today's market turmoil is shaping up to be the most painful in decades. Nationally, house prices have fallen 10% or so in the past year. And the quarter ended Monday marked the worst period for stocks in 5½ years, with equities off 15.5% from their October highs.

Don Meyer 

Dick and Lauren Boice, of Blue Springs, Mo.; Retirement is on hold until they sell their home and the market goes up.

The double dip, affecting asset owners of every age bracket, is unprecedented in recent decades. In 1987, property and market values dropped in tandem -- but nowhere near the extent to what's happening now. To document similar conditions, "you'd have to go back to the era of the [Great] Depression," says financial historian Richard Sylla of New York University's Stern School of Business.

With their homes worth less, fewer people feel confident enough to retire, even if they plan to continue living in them. And unlike younger workers, they don't have years to make up for downturns in the stock market. As a result, they worry that their investments will diminish to the point that they won't have enough money to get through retirement.

TOILING LONGER

• The Situation: Demographers have been predicting a 'gray wave' -- an exodus of older workers from the labor force. Instead, the ranks of retirement-eligible Americans in the workplace is growing.

• Background: The shift is being fueled by falling stocks and home values.

• The Impact: Delayed retirements could ease the burden on Social Security but could also create more job competition in certain industries.

According to economists and demographers, a huge exodus from the work force should be happening. The first of 78 million baby boomers, those born between 1946 and 1964, passed the 60-year-old mark two years ago. And 2008 was expected to be a banner retirement year, with the oldest boomers reaching 62 -- the earliest age for collecting Social Security. When the first boomer drew a benefit on Feb. 12, the Social Security Administration described it as the start of "America's silver tsunami."

Gray Wave

The giant gray wave is still an inevitability. But it has run into a breakwall. Investment advisers and retirement planners at more than a dozen firms, including Charles Schwab Corp., Edward Jones and Merrill Lynch & Co., say they are seeing large numbers of older workers put off retirement as the housing and stock-market troubles have deepened.

A recent Schwab survey of 1,006 financial advisers indicated that nearly a quarter of their clients are considering working longer specifically because of the economic fallout of the past 12 months.

Factors other than the gloomy economic outlook may be contributing to stalled retirements, says Mr. Hipple of the Labor Department. Most retirees, of course, get Social Security benefits. But traditional corporate pension plans -- which promised specific, predictable monthly payouts -- are largely a thing of the past.

Over the past three decades, the 401(k) plan has gradually supplanted pension plans as the main source of retirement coverage for U.S. workers in the private sector, according to the Employee Benefit Research Institute, a nonprofit group. In 1979, it says, 62% of U.S. employees participated only in a pension plan. By 2005, 63% of workers reported that they participated only in a 401(k) plan.

Another big motivation for older workers to stay on the job: scarce health benefits for retirees. Between 1988 and 2007, the percentage of large companies offering retiree health benefits fell by half, to 33%, according to the Kaiser Family Foundation.

'Double Whammy'

The dot-com bust and stock plunge of 2000-02 also persuaded some workers to delay retirement. But back then, those suffering losses in the stock market could take comfort in home values, which were still appreciating. Not anymore. "It's a double whammy this go-around," says Kevin Waldron, a Merrill Lynch financial adviser in Bala Cynwyd, Pa.

Many would-be retirees are angry about the conditions that they see as contributing to the economic downturn. Mr. Boice blames lax lending standards and regulations for dragging down his home value. "What really needs to happen at this point," he says, "is for those that created the subprime mess to have their hands slapped."

In Healdsburg, Calif., Jeff Bartman, who has also shifted retirement gears, still considers himself fortunate compared with others. But he points to the Bush administration for many of the country's current woes. "The war, housing, $100 oil...when you look at those things, you blame management. You blame the people running the show," he says.

Seniors delaying retirement could create competition for jobs with younger workers and put more pressure on the unemployment rate, which at 4.8% remains low, but has been edging up in recent months. The squeeze could be especially acute in industries that require less-skilled workers, says William Frey, a demographer at the Brookings Institution, in Washington.

However, there is a potential upside. People who earn more as they age may rely less on Social Security, easing the burden on these programs -- including Medicare -- and keeping them solvent for longer. The trend could also be good news for "knowledge-based industries," such as technology, science, and health care, which are predicted to suffer from a drain of experienced workers, says Mr. Frey.

Still, the prospect of millions of grandparents toiling away in their golden years doesn't square with the American Dream. Some aging workers feel denied their due. "I've worked all my life," says Mr. Boice, the IBMer. "It's coming down to a point where I want to try to take life easier and do something I want to do rather than work for someone 9 to 5."

The slumping real-estate market in Sarasota, Fla., has damped the longtime retirement dreams of Betty Greenspan, 65. In 2005, she and her husband, Richard, a dentist, invested a chunk of their assets -- nearly $800,000 -- in two condominiums. At the time, they believed that real estate was a safer, more lucrative, bet than the stock market. They had hoped to sell the properties in two years and use the proceeds to buy a boat, which they would live on -- sailing around the Caribbean. They were so sure of their plans that they put a $15,000 deposit on a $400,000, 44-foot catamaran. "That was the fantasy," says Ms. Greenspan.

Now they are stuck with two depreciating properties. Home prices in Sarasota plunged an average of 15.4% from the fall of 2006 to the fall of 2007. Today, units similar to one of their condos, for which they paid $500,000, are fetching only around $400,000. They still don't own the boat, which is being held for them.

Ms. Greenspan is working as a Realtor, a part-time nurse and is also selling flowers. Her husband spends four days a week at his dental practice. While they both still enjoy their work, "we should be out on our boat," says Ms. Greenspan.

Bob Sakakeeny, 65, says it's the "wave after wave of bad economic news" that has caused him to recently put off retirement from his job at Hewlett-Packard Co. Mr. Sakakeeny, who works in analyst relations for H-P in Worcester, Mass., is one of many older workers with diminished pensions who increasingly must rely on the volatile securities market.

Over his career, Mr. Sakakeeny worked for many outfits in the technology industry. Some companies didn't have traditional pension plans, or were in the process of phasing them out. H-P, which he joined in 2001, began scaling back its pension plan in 2005,significantly reducing payouts for many employees.
When he retires, Mr. Sakakeeny estimates he will have an $800 monthly pension benefit from H-P. Beyond that, he is primarily "self funded" through a 401(k) and personal after-tax savings. Mr. Sakakeeny had planned to leave his job in the "near term," but when his portfolio of mutual funds fell by 12% in January -- and stayed down -- he decided that "retirement has to be put on the back burner until things settle down."

Even people who are well situated to retire are suddenly "freaked out" at the prospect of losing a paycheck, says Bonnie Hughes, a financial adviser with A & H Financial Planning & Education Inc. in Kennesaw, Ga. The recent headlines about big losses at Wall Street firms "work on them psychologically" because "we're talking about banks," she adds. "They get nervous when banks get nervous."
Ellen Minter and her husband, Jeff Bartman, spent 30 years in demanding, mid-six-figure jobs in the tech industry, most recently at SAP AG, the German software company. Both in their mid 50s, they began laying the groundwork for early retirement last year. They moved from near San Francisco to Healdsburg, in wine country. They devoured books about retirement. They calculated future cash-flow needs with great precision -- even considering how often they would want to eat out.

Running the Numbers

With several millions set aside, they assumed they'd need a minimum annual return on their assets of 3% annually to retire a few years early. "I have spread sheets up the yin yang," says Ms. Minter. "We ran every kind of number through every kind of model. I figured, 'OK, we've got it all together.'"
Ms. Minter retired from SAP in October. She sold her workaday Chanel suits on eBay, traded her Lexus convertible for a freewheeling Volkswagen Beetle and started painting watercolors. On Jan. 1, Mr. Bartman, 57, also retired from the company. That night, they opened a bottle of 1996 Cabernet they'd bought in France years back and toasted their future.

After their stocks began heading south, the glow dimmed fast -- especially for her husband. "Every morning over coffee, he'd just sit there and say, 'Do you know how much the market has fallen? Do you know how much the market has fallen?'" Ms. Minter says.

By February, she heard him on the phone, poking around the job market to see what was available. Mr. Bartman says the gloomy economic conditions, plus the uncertainty in an election year, got to him. It "made me feel, well, I can keep going," he says. "My feeling was to ride out this uncertainty -- I'll keep working."

Mr. Bartman is interviewing for a new full-time job in technology. His wife plans to stay retired. Meanwhile, the couple says that they have moved more of their portfolio into safer money-market funds.