Housing Bust Puts the Squeeze On Retirement Plans

I'll never forget that conversation with my dentist about a year and a half ago when I sheepishly asked, "Do you think home prices will go down a lot?"

He snapped back, "They better not! My retirement is depending on it!"

Whether he knows it or not, along with millions and millions of other aspiring retirees, the good Doctor is now a couple hundred thousand dollars less wealthy than when we had that conversation.

Along with millions and millions of other homeowners, who are now facing losses in their stock investments to go along with their declining home equity, he's probably had to sharpen a pencil or two and make some uncomfortable new calculations.

That was the topic of the front page story in the Wall Street Journal yesterday:

Americans Delay Retirement As Housing, Stocks Swoon
Nest Eggs Shrink, Deferring Dreams; 'Freaked Out' Elite

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.
...
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.
...
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.

The retired school teachers down the street don't know how good they have it.

Comments

[WAKEUP]

When I predicted something very close to this, six months ago, I was "booed." There is no satisfaction in this for me, now. I do wonder, though, in retrospect, why almost everyone couldn't see this coming, as home prices bloated to absurd levels. Where was their common sense? Someone once told me that "people are like sheep," when it comes to following blindly on a trend. Unfortunately, it looks like that's what happened, this time. Another triumph of hope over experience, and not a happy one.

[User 124700]

Yes, teachers have it good because they put in 10 to 12% of their income for 30+ years and had good state stewards of their money!

[cfish]

Cry me a river. In the same WSJ article, A couple, Mr and Mrs Greenspan, was stuck flipping two Miami Condos. They planned to retire with the proceed, living on a yacht traveling around the Caribean. They have the boat reserved under thier name. They stated they "should be living on the yacht right now" instead of retiring.

When times get tough, speculators like to disguise themselves as poor little guys. These two apparently have jobs they hate. (Mrs Greenspan is a part time realtor!) and they will slave away forever on the account of thier stupidity and greed.

[swaps]

When I lost my job 18 months ago I was offered another one 200 miles from Denver in the outback. It was quite a cut in pay, but with my back to the wall and unable to retire at 62 I made the move (my wife is in a nursing home as quad due to m.s. and my kids are raised).

I bought a 700-square foot cottage for $18K, the seller taking a $15K mortgage that will be paid off in 3-1/2 more years. I could retire now, but will wait until I get some dental work done first, which my employer offered dental insurance is helping with quite a bit.)

People need to cut their overhead and be willing to give up some of the comforts of city life, which has made all of us too soft.

I fear this current financial mess is more than just an unpleasantness. It could be the Big Collapse or at least the 10-year Japanese style muddle.

I only wish I had been converted by Gene Logdson's cottage farmer concept 35 years ago. He thinks everyone should have a small landholding, grow their own food, and have a business or job on the side, with the population more evenly dispersed across the American landscape, instead of being clustered in cities. Think Amish.

[Renter]

I retire in another 30 years, hopefully the falling dollar doesn't diminish my 401K to zero dollar value by that time.