Luke: "I am not afraid"
Yoda: "Oh, yah. You will be!"
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October 30, 1997
Retirees Don't Even Blink
As Market Takes Wild Ride
By ELLEN E. SCHULTZ
Staff Reporter of THE WALL STREET JOURNAL
That bungee cord known as the stock market is down 7% one day, up
5% the next. Most baby boomers and Generation Xers are keeping their
cool, confident that their 401(k) plans will be fat by the time they stop
working. But the elderly are deeply concerned, because they must
regularly cash in some of their shares just to get by in retirement.
Right?
Yes, except for the last part. In fact, many older folks are far less touched
than their children by the market's vagaries.
Bonds and CDs
Today's elderly are likely to be the last generation to benefit so widely
from fixed, old-fashioned pension plans. Many of them still work, at least
part time, and if they need to withdraw some of their assets, they often can
rely on conservative bonds or certificates of deposit. As a result, a lot of
them don't feel compelled to hang on every word of Peter Lynch -- the
noted former manager of Fidelity's Magellan Fund.
For which Bradford Estep, a 67-year-old retired engineer from
Murrysville, Pa., is grateful.
Mr. Estep receives a combined $50,000 a year from two pensions, one
from Westinghouse Electric Corp., where he worked for 26 years, the
other from the government. Unlike his adult daughters, who have
401(k)-style retirement plans through their employers, Mr. Estep's budget
is largely unlinked to the stock market. He wouldn't have it any other way.
"If I had to invest it, I probably wouldn't have done as well and would
have been terrified of the market and made stupid decisions," he says.
Fewer Pensions
Of course, many Americans, young and old, have been lucky to be
dependent on the market, as they have seen their stock-linked accounts
skyrocket in recent years. But when the market takes a gut-wrenching
turn, as it did Monday, it can send shivers among those who aren't
expecting to benefit from a guaranteed pension plan someday.
Government data spell out what is going on: One-quarter of workers
under age 65 are earning a traditional pension, as companies adopt 401(k)
plans that shift the investment responsibility to workers. But of retirees
over 65, 60% receive a pension or something similar, says the Bureau of
Labor Statistics.
Mr. Estep accepted a sweetened pension 14 years ago when he retired
after 26 years with Westinghouse, where he worked on hydroelectric
projects. He then spent a decade working for the Small Business
Administration. Retired four years ago, Mr. Estep receives a pension from
both jobs.
Pensions like Mr. Estep's are guaranteed, no matter what the market does.
The risk falls on his former employer -- or, failing that, a
quasi-governmental agency designed to back up pension plans.
Mr. Estep and his wife, Dorothy, also receive Social Security income, and
he has money from a 401(k) plan he contributed to during the last 10
years of his working life. While he doesn't rely on that money, "it's helping
with inflation. I couldn't have done better," he says.
His children's retirement is far more tightly pegged to the market's ups and
downs. One of the Esteps' daughters, Megan Johnston, 40, a hydrologist
with the Fish and Wildlife Service in Denver, participates in the federal
government's version of a 401(k). The money she had in a stock-fund
investment plunged this week, though she doesn't know by how much.
But Mr. Estep says he believes that Megan is more fortunate than her
42-year-old sister, who works with disadvantaged children in a
Pennsylvania public-school system. Her modest salary makes it difficult to
set aside much in a retirement plan. Without a pension, "she'll be poor
forever," he says.
Real-Estate Gains
Meanwhile, the fantastic appreciation in housing prices from the 1960s to
the 1980s turned homes into gold mines for many in Mr. Estep's
generation. He has just sold his latest home and has been able to purchase
another house and have plenty left over -- free of capital-gains taxes,
thanks to the recent federal-tax overhaul.
He is thinking of putting more into the stock market. "So the tumble will be
good news. The further down it goes, the better I'll feel," Mr. Estep says.
Andrew Samwick, an economics professor at Dartmouth College, says
based on his analysis of wealth by age group, people over age 60 have
relatively less of their assets in stocks. And older householders are less
likely to have 401(k)-type plans as the basis of their retirement income.
Some retirees have also benefited from the corporate downsizing of recent
years. They are getting the pensions they expected, plus additional pots of
money offered by companies cutting jobs held by older employees.
Still Working
Like many his age, 61-year-old Bill McClury has chosen to work during
his retirement. The income supplements his retirement savings from Allstate
Corp., where he worked for 29 years, but that isn't his main motivation for
continuing to work. He simply isn't the type to spend his golden years
relaxing.
So, he works part time as a real-estate broker in Bonita, Calif., a suburb
of San Diego. The added income enables him to live without dipping into
his retirement principal, which consists of a profit-sharing retirement plan
rolled into an IRA.
When the market dropped this week, Mr. McClury says, he calculated he
had lost $50,000. "I'm not concerned about it," he said. "I think it will
come back. Hopefully, I won't have to touch my retirement money for a
couple of years."
Retirees with IRAs typically look for low-risk investments, and half of Mr.
McClury's money is in bonds. "The market has had a fantastic run, and
just by being there, with absolutely no knowledge on my part, I've done
well," he says.
Gene Pockers, 67, who lives in northeast Philadelphia, has a part-time
job, which he feels he needs to get by. He gets a pension of $250 a month
from a drafting job at Eaton Corp. that ended 12 years ago. He held
several jobs after that, but accumulated little retirement income because he
kept moving around.
So, he is working during a time when he once thought he would be fully
retired. One result is that he will have fewer years to provide for on just his
pension and savings alone. His wife works, too. What savings they have
are invested in CDs. "I don't own a share of stock," he says. |
