After three years of a down stock market and a rocky economy, retirement seems a much more distant goal for many people. In this past year alone, about one-third of workers over the age of 45 say they have decided to postpone their quitting time for financial reasons, according to a recent survey by the Employee Benefit Research Institute.  The same survey found that the number of people who say they are “not at all confident” that they will have enough money saved for retirement jumped from 10% to 16%.

“People believed that the abnormal [run-up in the stock market during the 90s] was going to become the normal,” explains Daniel Rodriguez, a professor of organization and management at Emory’s Goizueta Business School, who has written extensively on issues related to job insecurity and older workers.

What’s unusual about the current worker unease is that it doesn’t seem entirely justified - economic conditions are actually not that bad when compared to prior economic downturns, Rodriguez says.  Counting today’s higher levels of home ownership, higher home values and the still relatively low level of unemployment – 6% compared to the 10% reached in the winter of 1981 – most people are better off now than they were in the past two most recent recessions, he says.

Why the concern? Part of the answer may have to do with the recent trend away from traditional pension plans, Goizueta professors say. Over the past 20 years, many companies have migrated from traditional defined benefit plans, in which the employer handles all the investments and sends out a regular check regardless of the investments’ performance, to defined contribution plans, such as 401(k)s, where the employee’s pension is drawn from the worker’s own investment account.

Two forces have caused companies to move away from the old-style pensions, professors say. The first is the increasing mobility of the American worker. A pension that only veterans of 20 or 30 years qualify for isn’t especially attractive to a workforce that switches jobs every few years. Second, companies are using the new plans as a way to escape from the ongoing financial liabilities and responsibilities old-style pension plans create. 

Mary Smith, the director of benefits at Emory University, which has provided a defined contribution plan for much of its staff since the 1930s, says that the traditional pension plans are complicated and expensive to administer.  In the old-style pension plan, benefits administrators must accurately estimate a myriad of factors at once to make their plans work – how long current company retirees will live, how long future retirees will live, how much money will be needed to cover all those obligations, and how quickly money invested now will grow to keep covering all those needs. In addition, most companies are required to pay insurance to the Pension Guaranty Benefit Trust, a government-sponsored entity that guarantees minimal payments to retirees in the event of a plan’s collapse—generally a fraction of what the pension provided. (For instance, the maximum a 60-year-old pensioner is able to recoup is currently $2,382.10 a month – regardless of what was originally promised by the company.)

Old-style plans also add a lot of volatility to financial statements.  In the boom years, the investment performance of the company pension portfolio effectively boosted corporate earnings, according to Al Hartgraves, a professor of accounting at Goizueta. But now, the same process is working in reverse, as market losses in company pension portfolios exaggerate corporate losses. “They’re facing the opposite situation now,” Hartgraves says, “where they’re going to have to recognize more expense in order to get those funds back up to where they need to be to fulfill their obligations.”

By contrast, defined contribution plans turn pensions into a relatively simple ongoing expense for an employer, a bit like an insurance premium. The company places money into the worker’s account every month, and from then on, the asset – and the risk – belong to the worker.

But are workers up to the complex task of managing their investments? Although stocks have typically proven to be a good investment in the long run, finance professor Jeff Busse says that it can be difficult for people to make the right choices with their 401(k) accounts. “I think it [is] difficult for a lot of people to know what to do,” he says. “If you set up classes to educate them I’m sure they’re still not going to be perfectly comfortable with the choices they’re making.”

Analysts at the Employment Benefit Research Institute are also skeptical, noting in a recent statement that just 53% of worker households have even tried to figure out how much they need to save for retirement. Even three years after the burst bubble, an EBRI spokesman says that Americans remain “chronically optimistic” about their future financial condition.

Surprisingly, lack of planning isn’t confined to the rank and file employees.  Senior executives often have trouble with their retirement planning too, according to Joel M. Koblentz, an Atlanta-based partner of Boardroom Consultants, an executive search and corporate governance advisory firm.  Koblentz says he suspects many executives haven’t done the planning they should, and are making such classic mistakes as concentrating too much of their portfolio in their own company. 

Even financial executives are not immune, according to Koblentz. “People think that when you’re a CPA, you know a lot…but just because you know a lot about public reporting or federal taxation for corporations doesn’t mean you know a lot about individual investments nor how to plan for your own future…It’s a different set of knowledge,” observes Koblentz.

One structural reason workers don’t get more help, according to a senior benefits executive at a Fortune 500 company, is that the Employee Retirement Income Security Act of 1974 (ERISA) holds companies liable if they offer advice and the employee’s investments turn out badly.

The executive says she believes the law should be changed. “My sense from a public policy perspective is that we need to change these particular provisions of ERISA to enable employers to provide their employees with the kind of meaningful help they need because defined contribution plans are here to stay and are becoming the primary retirement vehicle for most American employees,” the executive added.

With insufficient advice and little planning, a shrinking nest egg, and the worst stock market in decades, many people in their 50’s have to reconcile themselves to punching the clock for at least a few more years. 

Unfortunately, waiting out those years in a familiar job is not always an option.   In today’s business environment, retirement often comes earlier than planned, in the form of layoffs and forced retirements. Employment experts say that older workers frequently have to start over at another firm, and sometimes even learn another occupation, just to stay employed. And returning retirees can face an even harder challenge in adjusting to a rapidly changing world.

“Some people get used to things and they can’t change,” says Ted Daywalt, president and CEO of VetJobs.com, an Atlanta-based Internet job board for military veterans. Often older workers face not just a new role that requires new skills, but a tremendous contrast between the perks and pay of their former situation and that of their new one, he says.  “Personally, I think a lot of the people who are trying to make this transition – I don’t care if it’s military to the civilian world or people that were retired and now have to go back to work – their mind is caught in a trap. They do not have the ability to be flexible in recognizing that they are going to have to do things differently.”

Even workers who decide to become their own boss can be in for a shock. “If someone has worked in a major company all of his or her life, and they go into a one- or two-person company, it’s … a rude awakening,” says Rhen Cain, president and CEO of the Entrepreneurs Foundation of the Southeast, an Atlanta-based advisory group for entrepreneurs. Suddenly, he says, all the tasks they used to rely on other people to take care of, they’re going to have to take care of themselves.  “For a lot of people, that’s tough to do,” he says.

Tough as that transformation might sound, Baby Boomers pining for that now-postponed retirement may want to dry their tears. Several studies from the National Academy for an Aging Society suggest that people looking for a happier, healthier existence may want to consider staying in the workforce:

-      Early retirees are much more likely to say they are in fair or poor health – 46% of retirees aged 51 to 59 compared to 12% of workers. National Academy analysts claim this holds true at both the bottom and the top of the economic ladder: 74% of retirees in the bottom quintile report fair to poor health, compared to 24% of same-age workers in that same economic group. In the top end, 16% of retirees say they are in fair to poor health, compared to 6% of top-end workers.

-      Early retirees are somewhat less satisfied with their lives – 82% of retirees say they are satisfied, compared to 91% for workers.

In many aspects of life, National Academy analysts found, 51-59 year old workers seem to be at least a few percentage points happier than early retirees.  They are much happier with their health and financial condition, and slightly happier with their spouses, their families, their friends, their neighborhood, and even their home than retirees of their generation.

(June 2003)