Tuesday, April 01, 2008
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 of other aspiring retirees, the good Doctor is now a couple hundred thousand dollars less wealthy than he was back then.
Along with millions and millions of other homeowners, who are now facing losses in their stock market 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 today:
Americans Delay Retirement As Housing, Stocks SwoonYou hear more and more stories about how, in recent years, some baby boomers tried to play "savings catch up" in real estate by adding some "investment property" to their retirement planning mix - that's probably not working out as they'd hoped.
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.