Retirement Remix - Chapter 2: Old-School Retirement Isn’t Working

In chapter 2 of The Retirement Remix, adviser Chip Munn explains rethinking your career plans to include an extended ability to generate cash by being productive in your mature years.
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Retirement isn’t working. I know there’s a pun in there. For decades, “retirement” has meant, “isn’t working.” As in, “not employed anymore.”

Chip Munn

Chip Munn

The meaning I’m using refers to our system of retirement. All across America, there are millions of men and women who are just like Ted. They’ve worked in the corporate world for their entire adult lives. It’s been a full-time, full-focus endeavor. Nothing else has mattered except career success. Then, when they reached their mid-sixties—the exact age is variable, but usually around age sixty-five—they retire and go home, never to darken the door of the office again. Sometimes, they plunge into “recreational retirement” where, like Ted, they escape the house to play golf, or they hang around at the mall. If they have enough wealth, they travel. Basically, they stop being producers of value and become full-time consumers. They stop making meaningful contributions to their community. They spend money buying stuff and amusing themselves. For a while this seems very attractive, especially if, like Ted, they view their former careers as being caught up in the rat race. Who wouldn’t want to escape from that?

When Ted retired, he envisioned a clean, dramatic transition from the grind of work to a no-pressure, paradise of relaxation. That might have made sense back in 1935, when President Franklin D. Roosevelt signed the Social Security Act into law. In that year, at age fifty-eight (for men) and sixty-two (for women), the average worker was dead. So retiring at age sixty-five was pretty sweet—if you lived long enough to see it!

Today though, Ted can expect to live over seventy-eight years on this earth. That means thirteen years, or more, of hanging around the house and playing golf.

Even if you love golf, it doesn’t sound very appealing, when you really think about it.

Retirement Is a Relatively New Idea

The concept of “retirement” is a recent invention. For thousands of years, it didn’t exist.

After many millennia living as nomadic hunter-gatherers, around 12,000 years ago we humans gradually became a species of farmers. Instead of being migratory, we settled in defined areas of land, where the primary center of wealth-building was the family farm. People worked out of their homes, and their commute was no longer than the time it took to walk to the field, orchard or rice paddy.

One of the most important characteristics of pre-industrial farm life was that there were many jobs that anyone who was able-bodied could accomplish. Children and old folks alike could pick vegetables or clean stables. As soon as you were old enough to walk, you could help with a chore, and likewise, you could still help out on the farm well into the twilight of your life.

If a person survived childhood, he or she had a life expectancy of forty or fifty years. Decline and death, usually from infection or disease, came quickly. Very few people lingered for years as invalids. You literally worked until you dropped.

This meant that for most of their lives, people were engaged in productive labor, with one day off per week to rest. There was no time to sit idle. That’s just the way the world worked.

That is, until the Industrial Revolution.

Beginning in the eighteenth century, and quickly spreading from the United Kingdom to America, the era of mechanization led to the construction of factories. The first factories served the textile industry, and the advent of mechanized cotton spinning, powered by steam or water, vastly increased the output of a worker. What one person could spin by hand on the family farm was trivial compared to how much the same worker could spin in a textile mill. Soon workers began to leave their farms to take up jobs in factories. By the mid-nineteenth century, half the people in England lived in cities, and by 1900, this change had spread throughout much of Europe. This great migration was amplified by improvements in agriculture, which all but ended the periodic famines that had kept down European populations, leading to explosive population growth.

At first, the rise of cities enabled the spread of infectious diseases such as cholera, but better public health conditions and rising incomes gradually increased life expectancy. But while just about anyone at any age could find work on a farm, the same was not true in a factory. Assembly-line work was best performed by young people, and in fact, children were the preferred workers in many factories until child labor laws were enacted.

In the late nineteenth century—after humans had been walking the earth for roughly 200,000 years—the concept of “retirement” was invented. It was seen as sort of parallel to the farming idea of “putting a horse out to pasture,” which meant to retire a workhorse by allowing it to live out its days grazing contentedly on clover. When the employee got too old to work with the speed required by the factory, they were sent out the door.

Because even factory owners were not entirely heartless, the idea of the pension was born. While for centuries there had existed various funds for widows and teachers, the modern industrial pension was introduced in Germany as part of Otto von Bismarck’s social legislation in 1889. The Old Age and Disability Insurance Bill was designed to be financed by a tax on workers and provided a pension annuity for workers who reached the age of seventy years, though in 1916 this was lowered to sixty-five years. At that time, the life expectancy for someone who survived childhood was seventy years, so this plan was designed to benefit people who were truly elderly, unable to work, and not expected to live much longer.

In the United States, Congress passed legislation in 1862 to provide annuities to Union soldiers who were disabled in the Civil War. In 1875, American Express, then a railroad freight company, introduced a pension plan for its employees. In 1920, the federal government established a plan for its employees.

In 1935, President Roosevelt signed the Social Security Act into law. Four years later, amendments to Social Security added benefits for spouses and dependents. Later, amendments increased benefits, and then automatic cost-of-living adjustments were added to benefits in payment status in 1972.

Remember, when all of these various retirement and pension plans were first introduced, the assumption was that a retired worker would live maybe five years after retirement (at most,) until he or she was either dead or sent to a “nursing home,” which was the last stop before the cemetery. It was also assumed that some workers would die before retirement, thus easing the burden of payouts. Therefore, funding programs like Social Security didn’t seem like such a big deal because there were plenty of workers paying into the system and relatively few retirees taking from it.

World War Two was followed by the post-war baby boom. The American economy surged, and tens of millions of people entered the modern workforce. Retirement planning became an industry, boosted by the passage of the Employee Retirement Income Security Act of 1974 (better known as ERISA), which introduced the individual retirement account (IRA). This portable retirement account allowed tax-free contributions from the workers themselves. Then, the Roth IRA was established by the Taxpayer Relief Act of 1997. In contrast to a traditional IRA, contributions to a Roth IRA are not tax-deductible, but a Roth IRA has fewer withdrawal restrictions than traditional IRAs.

Today, millions of baby boomers are retiring. According to Statista.com, the number of retired workers receiving Social Security benefits increased from approximately 32.27 million in 2008, to 43.72 million in 2018. Over the decade, this number increased at the same rate year-over-year, and it’s likely to continue into the future.

Social Security statistics show the ratio of workers-to-beneficiaries has been narrowing. In 1940, there were 159.4 workers for each beneficiary, so paying benefits wasn’t a problem. After the war, this ratio quickly narrowed, and by 1970 it was down to 3.7 workers per beneficiary. This was acceptable, and the solvency of the Social Security system was not questioned. The ratio held steady until 2008, when, with increasing numbers of baby boomers retiring, it dropped to 3.2 workers per retiree. The ratio of workers-to-beneficiaries kept dropping and, according to Mercatus Center, “as of 2013—the most recent year for which data is available—there were only 2.8 workers in the system for each retiree collecting from it”. By 2034, many experts say the best-case scenario is 2.3 workers paying for each retiree, and the worst-case scenario has just two workers paying in for each retiree taking out. This imbalance is leading many to predict that by 2034, Social Security will have run out of cash to pay all of its beneficiaries. The only other option is to squeeze more money out of those 2.3 workers to support each retiree, which means raising the Social Security payroll tax, which is a political non-starter.

That’s all the more reason for you to rethink your career plans to include an extended ability to generate cash by being productive in your mature years.

To look at the big picture, what’s important to you is how long you can expect to live through the traditional age of retirement, and how much money you’re going to need to support yourself. According to population data, if you live to be sixty-five you can expect to survive another twenty years, and if you make it to seventy-five, you can expect to live another twelve years, on average. Therefore, if you retire at age sixty-five, you could very well be doing what Ted’s doing for nearly thirty years, assuming boredom doesn’t kill you first.

By any yardstick, that just seems crazy. You work your tail off for forty years to accumulate wealth, and then you quit your job, turn into a consumer, and for the next twenty or thirty years you spend your hard-earned cash on stuff that you buy? There has to be a better way.

Gary and Julie Sail the Caribbean

Two pioneers in redefining retirement are Gary and Julie Pierce. Their dream began in 1989, when, as Gary told The Interview with a Cruiser Project in 2011, they were in St. Thomas on a cruise ship. They took a shore excursion on a 36-foot sailboat, and for Gary, who had never before been on a sailboat, “it was love at first sight.” When the cruise ship left St. Thomas that evening, he looked down at the sailboats resting at anchor and resolved that one day he and Julie would be in one of those boats, watching the big luxury cruise ships come and go from the harbor.

At age forty-nine, Gary retired from his job as a commercial real estate broker. He and Julie were not extraordinarily wealthy, and—perhaps most daunting—had zero experience on the water. But they had a positive attitude. Gary and Julie concluded that sailing on the open ocean was simply an acquired skill, like any other, and with the proper mental discipline they could learn it. So they read every issue of Sail magazine and Cruising World, and devoured every book they could find about sailing. To gain practical experience they enrolled in sailing classes on Clear Lake near their home in Houston, Texas and took crewed charters, where students sail the boat under the watchful eye of the captain. “It was a crash course,” Gary told The Interview. “I was still green when we left for the Caribbean.”

In May 1994 they were ready to take the plunge, and they bought a 36-foot sailboat named Shadowtime. The boat cost them $118,000. The vessel’s living space was about fifty square feet. By comparison, their two-story, 1,800-square-foot home near Houston seemed like a mansion.

They funded the boat from their “meager” savings (as Gary put it) they had accumulated in their working careers. But, he pointed out, once you’re in the Caribbean, sailboat cruising is a very frugal way to live. He estimated they spent about $1,000 a month when they were in the islands.

In November of 1994, they sailed from Kemah, Texas, and twenty-two days later made port in Jost Van Dyke in the British Virgin Islands. For eight years, Shadowtime never left the Caribbean. Gary and Julie sailed from the Virgin Islands in the north to Venezuela and Trinidad in the south, up and down the Windwards and Leewards. They spent six to nine months a year on their boat, taking it out of the water during summertime, which is hurricane season.

How did they survive on $1,000 a month? As Gary told International Living, “We copied the locals. In Venezuela, the local bus cost seven cents. You can share a cab with a few other sailors to take island tours and go to the weekly farmer’s market. We found local doctors and dentists were excellent, and that the only difference between them and US doctors was the price. You can eat most meals onboard, and anchoring is free.”

Today, Gary operates a website called Frugal-Retirement-Living.com. He gives advice on—you guessed it—ways to redefine retirement and achieve the dreams you may not have thought were possible. He writes, “It is 2019, and some folks wanting to retire just think they cannot retire. We are here to help you realize you can, if you choose low cost ways of living. We are not hippies, daredevils, or anyone out of the ordinary. We would rather be retired on less than working to acquire more retirement dollars.” And he added, “We discovered that sailboat cruisers in general love the lifestyle so much that they would do anything to avoid returning to work. It did not take us long to adjust to the pace of life in the Caribbean. We found our floating home to be comfortable, quickly forgot our former life, and congratulated ourselves on a daily basis of our wisdom for exchanging the rat race for a laid-back lifestyle.”

You may wonder how Gary and Julia live when they’re on terra firma. In 1998, after owning Shadowtime for two years, they sold their house and bought a recreational vehicle—a 40-foot 1992 Foretravel RV. It looks like a big white bus, and they drive it all over the country. As Gary says, “If living aboard a sailboat is not for you, this is something you should consider. You won’t get seasick, that’s for sure.”

As of this writing, Gary and Julia have been retired for twenty-four years, and they’re a source of inspiration for anyone who wants a retirement remix!

* Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

The above article originally appeared as a chapter in The Retirement Remix and is reprinted with permission from the author Chip Munn. No parts of this article may be reproduced without correct attribution to the author of this book.

You can find the full book here.