Do You Have What It Takes to Quit the Rat Race? : Labor: Many want to retire early now but few can afford it. And baby boomers will be on the job longer in the next century because buyouts and pensions will be scarce.
Six years ago, Jerry Morrissy swore off business meetings, tossed aside his office memos and abandoned the tedious commute to work every day.
The General Foods executive, then 55, left the rat race while still in his prime to become a hospice volunteer, tutor disadvantaged kids and run for local office. Yes, he even took up golfing.
“I started with the company when I was 23; put in 32 years,” said Morrissy, who lives in Briarcliff Manor, N.Y. “I’m really involved in community affairs now. I was never able to do that before.”
Morrissy is among millions of workers to take advantage of early retirement packages offered by cost-cutting companies over the last decade.
About a quarter of all employers with pension plans offered at least one such deal between 1991 and 1993, and 81% of those companies got the retirements they sought, mostly by sweetening benefits or relaxing eligibility requirements, according to a survey by the Wyatt Co. consulting firm.
This work force streamlining has helped lower the average retirement age to about 58 today--two years younger than a decade ago and seven years earlier than what was long considered the typical “gold watch” age, said Paul Westbrook, who runs Westbrook Financial Advisers in Watchung, N.J.
But Westbrook and other experts believe the trend is reversing. By the next century, many aging baby boomers--who comprise one-third of the population--will have to work longer because fewer companies will offer early buyouts and many will have eliminated traditional pension plans altogether.
Full Social Security benefits also won’t be available for most boomers, the oldest of whom turn 50 this year, until after age 66.
Although more than half of all Americans hope to retire before 65--55%, according to a 1993 Money magazine poll--most will lack the financial wherewithal to get by on their own.
“It’s a lifestyle desire for a lot of people. (But) most people can’t do it . . . unless they increase their savings and make drastic changes in their lifestyle,” Westbrook said.
In fact, he said, by 2025 only one-half of all people ages 60 to 65 will be able to retire, compared with 95% now. By 2050, only 5% can reach that goal, he said.
Westbrook said he has seen a recent increase in baby boom clients coming in with dreams of beating the odds.
“I don’t sense from people that they are happy. They are tolerating the work force because they need a job,” he said.
*
Anette Kolenda, 41, a Chemical Bank executive, survived a banking industry restructuring a few years back. Although she feels secure in her job and enjoys her work, she isn’t counting on being there until 65. With a goal of retiring by 55, she contributes the maximum permitted to her company-sponsored, tax-deferred 401(k) plan and invests heavily.
“I don’t think you can plan on having a 30- or 40-year career,” the New Canaan, Conn., mother of three said. “Even if you can, most companies have passed the responsibility for retirement investment to their employees.”
Even Morrissy doesn’t see the same opportunities for his five children and two grandsons.
“I think they’ll have a tougher time. I think they’ll have to fund more of their own retirement,” he said.
His is almost a textbook example of early retirement at its best: Morrissy, 61, and his wife, Mary Lou, 60, a retired teacher, live comfortably on a generous lump-sum payment from General Foods, their pensions and extended medical benefits, as well as accumulated savings. Their house is paid off and worth at least 10 times what they bought it for 28 years ago. Within the next two years, they’ll also start collecting Social Security. (The earliest you can collect partial benefits is 62.)
That leaves the Morrissys free to play golf, travel and perform community work. Mary Lou Morrissy started a special tutoring service for disadvantaged children, to which her husband regularly volunteers his time.
*
The couple, and many others like them, will likely have plenty of years to remain active--something retirement experts call a second middle age.
The average life expectancy today is about 75 and rising. That’s about 60% longer than at the turn of the century, when life expectancy was about 47.
To maintain their lifestyles, most individuals will need to generate an annual retirement income of between 60% and 80% of their pre-retirement earnings (average income during your last five years of working), financial advisers say.
Right now, Social Security and company pension plans replace about two-thirds of pre-retirement income, with the rest coming from savings. But many experts believe that by the next century, individuals will have to supply the larger share.
“During merger mania in the ‘80s, some companies canceled traditional pension plans . . . in favor of defined contribution plans like 401(k)s,” said Robert C. Atchley, director of the Scripps Gerontology Center at Miami University in Oxford, Ohio.
Atchley believes Social Security will be around in the future, but “there probably will be some jockeying around of benefits,” with either a reduction in cost-of-living increases or a higher eligibility age.
Individuals who regularly set aside money for retirement, either through a 401(k) or Individual Retirement Account, will withstand these changes the best, said Jonathan Pond, a financial consultant in the Boston area.
Unfortunately, he said, most people don’t. A recent survey by the KPMG Peat Marwick accounting firm found 89% of employers with at least 200 workers offered 401(k) and other retirement programs last year, but only 61% of eligible workers participated. What’s more, the average employee contributed only half the maximum amount allowed.
“The odds are you’re going to live quite a while into retirement. If you don’t plan for it now, you just better . . . hope you die before you retire,” Pond said. He echoed some of the warnings used by many financial firms to get people to invest for retirement.
Pond said early retirement can be achieved by many, although individuals need to start planning in their 30s and 40s.
Most people may have to buy a smaller house in a less expensive part of the country, buy used cars or forgo an Ivy League education for their kids--and, of course, save more, he said.
“Early retirees make a lot of sacrifices during their working years. They consciously decide to not save 10% of their income but 20%,” Pond said.
Westbrook said early retirees of the future may decide to work part time, either because they enjoy working or need the extra income. “This is sort of a middle ground,” he said.
Such was the case with Don Trinite of Great Falls, Va., and Phil and Carol Baily of Temecula, Calif.
*
Since taking early retirement from Mobil Corp. three years ago, Trinite, 60, started a small accounting business. He’s busy around tax season, but the rest of the year he makes his own hours, in between volunteer work.
The Bailys are also easing into retirement, although they’ve been at it longer. The couple, in their early 50s, dropped out of the traditional work force about a decade ago and put their life savings into a 15-acre spread in the heart of Southern California’s wine country.
The small winery and restaurant they’ve opened are just starting to make money. Eventually, they hope to hand over all business responsibilities to their sons and spend their days enjoying their dream home.
“We’re doing the things we like to do,” Baily said.
