Some Early Retirees Have Second Thoughts

By Sandra Block and Ramya Gopal, USA Today

August 27, 2008

When Vic Paganucci of Norwalk, Conn., was given a chance to take early retirement last spring, he jumped at it. He was weary of his two-hour commute to Wall Street and no longer enjoyed his job as an insurance broker.

But now, at 58, he's having second thoughts. In part, it's because he misses the fulfillment a job provides. But increasingly, money is a concern, too.

"I have no problem paying the bills, but the market seems to go down endlessly," he says. "Sometimes I wish I had looked for a job rather than just retiring."

The oldest Baby Boomers are turning 62 this year, making them eligible for Social Security. About half of this year 's group — some 1.6 million — are expected to file for Social Security as soon as they qualify, even though that means receiving reduced benefits for the rest of their lives. 

Many older Boomers — including those, like Paganucci, who have yet to turn 62 — say they're willing to accept a smaller payout in exchange for an opportunity to retire while they're still young enough to enjoy it. But recent retirees who had expected to supplement Social Security with their savings have seen their investments decimated by the stock market's nose dive. Their home equity has evaporated. And rising prices for gasoline, airfares and groceries threaten to shred their retirement budgets. 

Even well-off retirees have been unnerved by the economic downturn. Austin Frye, a financial planner in Aventura, Fla., says several of his clients who are retired physicians were accustomed to seeing their pre-retirement pay rise at the rate of inflation. 

Now, he says, the value of their investments and real estate holdings has fallen, while their cost of living is surging.

To supplement their retirement income, Frye has helped some of his clients find part-time jobs as teachers or expert witnesses. 

Otherwise, he says, "They can't give gifts to grandchildren. They can't jump on a plane and visit their children like they used to."

Some older Boomers have postponed plans to retire until the storm blows over. An AARP survey conducted in April found that nearly 20% of workers 55 to 64 plan to delay retirement because of the economy.

Others don't have that option. Jim Bergstrom, 59, of Dent, Minn., retired in September from his job in construction because arthritis made it hard for him to continue working. "Construction is a young man's job," he says. 

After retiring, Bergstrom and his wife, Karen, a former secretary for the University of Minnesota, put their house near Minneapolis up for sale and moved to a lake house they bought four years ago. They planned to use the proceeds from the sale of the Minneapolis home to supplement their retirement savings. But after months on the market, the house sold for $30,000 less than the asking price.

"We hit it at a bad time," Jim Bergstrom says. But it could have been worse. Some of his former neighbors haven't been able to sell their homes.

No retirement regrets 

Fortunately, both the Bergstroms have a pension. Jim Bergstrom, an avid fisherman, also earns what he calls "minnow money" by cutting neighbors' trees for them. He doesn't regret his decision to retire.

But many other older Boomers are reconsidering the decision to stop working — or deciding not to retire at all. Among the reasons:

•The bear market. A slide in the stock market is painful for all investors but can be devastating for new retirees. Low investment returns or outright losses during the first five years of retirement significantly raise your risk of outliving your savings, according to an analysis by T. Rowe Price.

Retirees who seek shelter in low-risk investments face another problem: Their returns aren't keeping pace with inflation. The average yield on a one-year certificate of deposit, according to Bankrate.com, is 2.4%. Retirees who lock up their savings in a five-year CD will earn a miserly 3.6%. 

Jeff Harriman, 56, retired from his job as a pilot for US Airways in April. In June, two financial advisers separately suggested that he move some of his savings, which were primarily in conservative investments, into the stock market. He took that advice, just in time to watch the market sink. 

Fortunately, Harriman had moved only a small amount of his savings into stocks, so the damage wasn't significant. He's decided not to move any more of his money into the stock market until after the presidential election, or the economy improves, even though earnings on his fixed-income investments remain meager.

"It's tough," he says, "to find a place to make money."

Harriman has a small pension, and he and his wife have no debt. They sold their home on Maryland's Eastern Shore in 2006, at the height of the housing boom, and bought a smaller home in Wilmington, N.C., which reduced their expenses. In addition, Harriman recently started working 15 to 20 hours a week as a representative for Callaway Golf. As long as the economic doldrums don't last too long, he says, the Harrimans should be OK. 

Even so, Harriman finds the current economic situation disconcerting. In May, he was offered a full-time job with benefits for a flight-safety company in Savannah. He turned it down but now thinks "it might have been prudent" to take it.

•Health care costs. In 1991, according to Hewitt Associates, 88% of large employers subsidized health care coverage for early retirees. In 2007, only 45% did so.

That means most workers who retire before 65, when they become eligible for Medicare, need to find another source of health insurance, says Rick McGill, head of retiree medical consulting for Hewitt Associates. Individual insurance policies are often prohibitively expensive — if they're available at all. Twenty percent to 40% of early retirees who apply for an individual insurance policy are either denied coverage or charged a higher premium than other policyholders because they're considered high-risk, McGill says.

If you retire before 65 and your employer doesn't offer retiree health care, McGill says, "You better hope your spouse has coverage or (you) work for an employer for enough hours that you can get some coverage."

Rainee Adamson, 59, of Glendale, Ariz., retired from her job in the computer industry in 2003. Her husband, Robert, 61, retired not long after that. Rainee says she doesn't regret retiring, because she has more time to help care for her 86-year-old mother, who lives in an assisted-living facility. But she was unprepared for the cost of health care.

The Adamsons tried to buy individual health insurance policies but were rejected because both have high blood pressure and high cholesterol levels. They were able to get coverage through Adamson's former employer. But the premiums have risen each year, from $800 a month a few years ago to $1,300 a month now. 

"We're paying close to 30% of my husband's pension" on health care, Rainee Adamson says. "It's a lot, and it goes up all the time."

Some large companies offer health care benefits to part-time employees, making them popular with older workers. At Starbucks, which offers health care benefits to employees who work at least 20 hours a week, the number of employees who are 50 or over has risen 50% over the past five years.

About 4% of the company's 163,300 full- and part-time workers are now 50 or older, spokeswoman Nicole Fallat said in an e-mail. (The company recently announced it's closing 600 company-owned stores.) 

Companies such as Starbucks remain in the minority. Only about one-quarter of companies that provide health insurance offer such benefits to part-time workers, according to the Kaiser Family Foundation.

•Inflation. People who retire during a bear market can minimize the damage by reducing withdrawals from their savings, according to the T. Rowe Price analysis. "The less you withdraw from your investments at times like these, the better," says June Walbert, a financial planner for USAA, a financial services firm. 

But in a period of rising prices, retirees may find they need to make larger-than-expected withdrawals or cut back on non-essentials.

Cutting back 

Cathy Jones-Waggoner, 58, says her pension and retirement savings pay the bills. But Jones-Waggoner, who retired from the U.S. Geological Survey two years ago, says she's had to cut back on restaurant meals and trips to visit her family. 

To generate extra income, she's working part time for the American Cancer Society.

"Money doesn't stretch out," as it used to, she says. "I see people in their 50s and 60s going back to work, just because of the downturn." 

Jones-Waggoner represents a growing trend. RetireeWorkforce.com, a website launched in 2007 that matches retired workers with jobs, has generated 1.5 million new unique visitors the past year, says CEO Joseph Scalice. 

Job applicants range from retirees who need a full-time job to make ends meet to those looking for part-time work to pay for vacations, Scalice says. 

Arthur Koff, founder of RetiredBrains.com, a website that provides job-search advice for older workers, says traffic on his website has more than doubled since the start of the year. 

Though his site also offers information on volunteering, continuing education and memory loss, the bulk of the traffic has been focused on the job-search area, he says.

"For the first time," says Patrick Rafter, a spokesman for RetirementJobs.com, "working is an indispensable part of retirement." 

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