Tag: retirement

The Percentage Fallacy: A Modest Proposal

~ purplesage41 ~ 2 Comments

Have you noticed how many financial choices are calibrated, not in dollars and cents, but in percentages?  Raises. Cost of living adjustments. Tips for servers. Taxes. One of the insidious effects of such percentage adjustments is to widen the gap between the haves and the have-nots, hie rich and the poor.

A few examples.  You and a friend go out to lunch, paying separately. You are hungry, she is not. The effort by the server is not proportional to the dollar value of your order.  Your bill for food including tax is $45, hers is $20. You both give a 20% tip. You add $9, she adds $4. Does that make any sense? If you are paying the waiter for his service, shouldn’t the tip each of you pay represent the quality of service and not the price of the meal? I’m not trying to stiff servers here, just being a little more egalitarian.  I don’t tip at drive-in windows or fast food restaurants where the service is minimal, but I will probably tip more at a fancy restaurant than a pizza joint. Perhaps it should be a function of how long we spend sitting there, preventing someone else from claiming that space and generate another tip. Or, if there is a single payer, perhaps the tip should reflect the number of people served rather than the total cost.

Second example. Social Security, or anything that else is adjusted for the increase in the cost of a representative basket of goods and services purchased by the average household.  Let’s take this coming year, where the COLA for Social Security will be 2.7%. The average monthly Social Security benefit in July 2025 was just over $2000. A 2.7% raise is another $54 a month for a single individual.  The maximum benefit is $6000, resulting in a raise of $162 a month.  Don’t these two retirees pay the same price for a gallon of gas or a loaf of bread?  And what if you are down at the lower end of the scale, say a monthly benefit of $1000 a month?. Your raise is a stingy $27 a month. In fact, it probably won’t even cover the increase in your Medicare premium except maybe for those at the top of the scale..

A similar inequity exists when an employer, often a state government, proclaims percentage raises across the board.  The $15,000 a year custodian gets a 5% raise to $15,750 and the $90,000 engineer sees his salary rise to $94,500. Basic costs go up for both, but the difference in COLA widens the income gap.

There is a place for percentages.  I give 10% of my income to charity, a guideline set by Hebrew scriptures that has had remarkable staying power. The tithe embodies the idea is that one has been blessed, the more one is expected to contribute. And I certainly understand the rationale for other kinds of raises, for meritorious performance or to retain a valued employee in a competitive market.  But if it is a COLA, both the poor and the rich see the increase in price of bread, the rent or mortgage for housing, the gallon of gas, the kilowatt of electricity. Wealthier households have more flexibility in adjusting to inflation.

So, what’s the answer?  For tips, it’s a matter of personal preference. If I am taking my daughter and granddaughter to lunch, I tip on the basis of the number served. If it’s just me, I usually tip $4-5 unless the service is exceptional. For a COLA, a solution is even simpler. The average Social Security recipient’s monthly check is $2,000. The COLA is 2.7% of $54 a month. Why shouldn’t everyone get the same dollar amount? should one person get $27 and another $162 and someone else get $27 a month when the basket of goods being priced is the same? In a nation of rapidly rising inequality, why do we let COLAs exacerbate the gap?

Saving Social Security

~ purplesage41 ~ Leave a comment

There are a lot of small steps that could be taken to save Social Security.  Raising the retirement age is not such a hot idea. It penalizes workers who work in more strenuous and low wage jobs, often accompanied by lower life expectancy. It assumes that all potential retirees ae equally able to continue working even if they are in declining health (but not bad enough to qualify for disability). 

Let’s explore a couple of options that would shift more of the cost to those who need Social Security least. First, remove or at least greatly increase the cap on how much of your wages and salary are subject to social security taxes.  Second, put a cap on the amount of your income that is counted toward determining your benefits.  And finally, rethink the COLA.

The first two are not complicated.  There has always been a cap on the amount of earnings that are taxed, although there is no good reason for it. Higher income workers often have additional non-wage, non-salary income that is only subject to ordinary income tax, not Social Security taxes.  Average workers seldom do. Those who don’t work at all but live off their income from capital don’t contribute anything. Whatever happened to the social part of Social Security, which suggests we are all in this together?

For 2024, that cap on social security taxes is set at a wage and salary income of $168,600, adjusted each year based on the percentage increase in average wages. I don’t see any particular need for a cap, other than lobbyists for wealthier citizens appearing to have the ear of Congress. But if there is a cap, it should be set at something like 80th percentile of wage and salary income. (That’s the amount that has 80% making less and 20% making more.)  That way, when people get outrageous salaries for heading a nonprofit, a corporation, a university, or a football program, they will be carrying a fairer share of the cost of keeping our old folks out of poverty.

We don’t want the very wealthy to get more benefits just because they increase their contributions, so the wage /salary base used to compute the monthly check should be capped at some at something like the 60th percentile of the individual’s average wage and salary income used to determine benefits.

Lastly, the COLA or cost of living adjustment , which is based on the inflation rate for the 12 months ending the previous June 30th.  COLAs are a great engine of inequality.  In South Carolina, pension reform a decade ago included a cap on increases..  We state retirees get a one percent increase every year regardless of actual inflation, but there is a cap is of $500. That’s one percent of $50,000. Any pension greater than that gets the same $500 a year raise.

Think about it.  Jane’s Social security benefit check is $2,000, just a shade above the average of $1907.  average, about $1900.  Dick’s check is the maximum of $4873, which we will round down to $4800 for easy calculation. . Both must contend with higher prices for housing, groceries, and insurance. This year’s 2.5% COLA gives Jane $50 more a month while Dick gets an extra $120.  The percentage gap between their incomes is unchanged, but percentages don’t pay the electric bill. The dollar gap has risen from $2800 to $2870, and that gap grows year after year.A cap on the COLA like South Carolina’s (about $5 a month) would be more equalizing. Or setting the cap at the COLA percentage of the average benefit and give that to everyone, which would do ven more fot those at the bottom of the scale. Let’s think creatively here!

After we survive the election, let’s go back to thinking about how a civilized society that believes in fairness would shore up Social Security with more revenue and slower growth of overall benefit, with the scales tipped toward the lower half of the income spectrum.  And January is not too soon to get started. We can call it The Other Project 2025.

The Last of Life III    Relationships and Communities

~ purplesage41 ~ 2 Comments

According to Jacob Schroder, summarizing a number of studies of retirees in Kiplinger Magazine in 2020, money is important to a joyful and meaningful retirement, but so are at least seven other things. He lists the following:

Working at staying healthy, fostering strong social connections, having a clear sense of meaning or purpose, never stop learning, cultivating optimism and practicing gratitude, and having a feathered or furry friend.[i] So far we have explored the transition in terms of meaning and purpose as well as habits and structure, which he doesn’t mention. This week we are focusing on what is for most of us an especially challenging aspect of aging that is exacerbated by retirement—your social and community life.

Many people move when they retire. They may want to be closer to family, move to a less expensive area, get away from the cold (or hot) weather. For some people (especially introverts) it is difficult to build a circle of friends in a new community and stay in meaningful contact with those you leave behind.  Dear Abby probably gets more variants on this question than any other. Some retirees divide their time between two locations (snowbirds) or change their minds as they get older and want to be closer to family and old friends. Retirement advisers recommend checking out your prospective new home—maybe rent for a year or check it out in out with the locals.

Those of us who retire in place have a somewhat easier challenge.  Even if we have good genes, work to stay healthy, cultivate optimism, practice gratitude, pet the cat or dog, and have meaning and purpose, we still must face the loss of friends and family over the years. I have friends who are divorced or widowed and friends with no adult children who find themselves spending more time alone and are looking for companionship. I knew this was ahead for me even though I live in a community with a lot of people I knew before retirement. I became a widow at 74 after a 53-year marriage. Most of my female relatives lived well into their 90s. When I paid my yearly visit to my beloved Aunt Marion the year before she died (at age 96), she said sadly, “I used to have a lot of friends, but they are all dead.” Even in the same community, friends die or move away. Friends from work drift away. If, like me, you move to a retirement community in the same town, you miss the neighbors, although retirement communities are good ways to meet people and make new friends. And if you have had a partner and that relationship ends through death or divorce, you soon find that your married friends are less inclined to socialize with you.

Family can be very important, but we were all taught to take responsibility for our own lives and to raise our children to be independent. Mine are. I am proud of them, but they lead busy lives and I don’t see them all that often, although I know they will be there for me if I need them. The grandchildren are all young adults with busy lives of their own. The last one is in college, and the others are working and planning for their futures. Motherhood is satisfying and meaningful, but it is a job you work your way out of, sometimes with a second shift when the grandchildren are young. So family matters, but most of us want companionship closer to our own age and without all the baggage of hanging out with someone whose diapers you used to change.

Girl Scouts sing this little ditty, “Make new friends, but keep the old, one is silver and the other’s gold.” It’s important to make the effort to keep in touch with old friends, and not just on Facebook (which I divorced three years ago). But it’s also important to have a strategy for making new friends. Living in a small college town, I often find myself a source of advice and suggestions on what to do, where to go, how to find your “people.” I am a religious and political liberal living in the red state South, so I learned early on how to find my people. My oldest daughter, who shares that outlook on life, did the same with different resources. (She has running friends, neighbor friends, and a national network of work-related colleagues.)  Some of these newcomers found me, and some of my newer friends are people I have mentored through the process. My longest-term friend in my current town has been with me for 58 years, knocking on my door to welcome me in 1966 as a fellow wife of a physics professor.  Most of my friends are close in age, most but not all are women.

Where did I find them?  At the time I wasn’t actively looking.  I have church friendships that resulted from wanting to raise my children in a faith community and sing in a church choir. I have friends from doing kid things like being a scout leader and carpooling. I was looking for a way to be active in nonpartisan politics in a very conservative state, so when I arrived in Clemson intent on joining the local League of Women Voters, only to find there wasn’t one—I started one.  Many of my lifelong friends were people I met that way. Intentional communities of all kinds—quilters, bridge groups, book clubs, pickleball—all are ways to meet people. Newcomers’ clubs in many communities help people to make friends. The town just down the road from mine, Anderson, has a group called ABC—Anderson By Choice—people who have moved there from distant places and decided to stay. Adult education programs are another resource—you can enjoy learning new skills and ideas while also meeting people who became friends. Volunteering is another way to meet people and make friends.

I have learned, despite my reserved New England upbringing, to suggest to someone who strikes me as friend material to go out for coffee, or lunch. For most of my life I waited for someone else to take the initiative, but now I sit down on Monday and ask myself, whom do I want to spend some time with this week? I also have a pool of friends to travel with, although there are more and more opportunities for solo travel. I belong to one group that meets weekly on Friday afternoon for wine and conversation and another that meets monthly for dinner and take turns being the speaker. (A bunch of retired academics, as you might guess!)

Some friends just happen, but someone has to take the initiative—first to meet, then to befriend and embark on a voyage of mutual discovery and adventure.  So pick a target and find something simple you can do together. And cultivate the relationship, check in from time to time, suggest an outing or a visit or lunch. Old friends, new friends, new communities will make your retirement life more satisfying and more meaningful for you and for your new friends.

[i] https://www.kiplinger.com/retirement/happy-retirement/601160/7-surprisingly-valuable-assets-for-a-happy-retirement

The Last of Life II Structure and Habits

~ purplesage41 ~ 3 Comments

One of the most dramatic changes in retirement is the loss of external order and structure which has followed us from kindergarten on. Especially if there is no transition, we can find ourselves going from too little free time to too much.  Many new retirees fill their calendars with travel, bridge, volunteer work, gardening, or social events.  That stage lasts anywhere from six months to two years, by which time most people have either figured out a new pattern or, in some cases, gone back to work.

The challenge facing a retiree is to create their own order and structure.  One of the great insights of behavioral economics is that having too many choices is almost as bad as having none at all.  Economist Herbert Simon argued that what suits our human brains best is “bounded rationality”—making our choices about how to use our resources of time and money from a limited set of options.  Defining that set is one of the first tasks of retirement life. (He won a Nobel Prize in Economics for his work.)

There are several ways to create order and structure to free you from constantly fretting over what to do next. The key is to create habits—things that you do on specific days or at specific times. (I play Wordle and do a sudoku puzzle and the daily word jumble to jumpstart my brain each morning).  Exercise is a habit that is time constrained for some, flexible for others.  I used to go to Jazzercise three times a week at 8. During the pandemic I made a permanent shift to a thrice weekly neighborhood cardio class, while the other four days I do Jazzercise online at a convenient morning time.

About three years ago I set out on a determined effort to lose the weight I had acquired from some very difficult periods of my life, including the death of my husband of 53 years and my closest woman friend six months later. I tried a variety of approaches before choosing Noom, a weight management program based on cultivating new habits. Among those recommended habits are a 12-hour overnight fast, drinking more fluids, and only eating when you feel hungry. What I learned from Noon helped me adopt new habits in many dimensions of my life beyond eating, exercising, and weight management.

That broader application of changing habits really registered with me because I had been reading about the role of habits in freeing our attention from distractions and allowing us to focus. It’s kind of like downloading part of the brain to an external hard drive and letting certain parts of your day be driven by autopilot rather than a constant demand for choices. Being faced with too many choices, according to Simon, means either making poor choices or not choosing at all.

I was raised in a culture of habit.  Women like my mother often followed a regular schedule of meals, so they wouldn’t have to waste time each day planning dinner.  If this is Monday, we eat spaghetti.  They also followed a regular schedule of household chores. If this is Monday, it must be laundry day.  Wednesday? The weekly grocery shopping. My mother also made a habit of ironing five pieces a day, but that was before permanent press and clothes dryers. What I learned from her ironing habit was to break larger and more daunting tasks into manageable portions and do them over time rather than all at once.  For example, as a writer, I commit to at least 500 words a day.

I start each day at about 5 or 5:30 by writing in my journal (that doesn’t count toward the 500 words!), reading the newspaper online, checking my email, and laying out my plans for the day. Those plans normally include some practice of my vocation (writing, teaching,  mentoring, and organizational leadership), house and yard tasks and projects, exercise, connecting with others either as individuals or in a group , and learning.  Learning may be taking a class but more commonly is reading or watching a video on Wondrium, the streaming version of the Great Courses. And no, this blog is not a paid political endorsement for either Noon or Wondrium or Jazzercise.  They are just examples.

I make a point to include something that is fun most days—wine with a friend or friends, a walk in the Botanical garden, a play or concert.  Unless I have an evening meeting, I generally quit around five or 5:30 to have dinner, read, and watch television before going to bed at 9. I have always been early to bed, early to rise—no virtue there, just being aware of my biorhythm.

 I have changed my eating habits, but thanks to a friend who taught classes in downsizing I have also picked up a habit that gets me through the more tedious activities.  Set the timer for fifteen minutes and choose a task or a room or a project and do it for fifteen minutes. Cleaning a junk drawer. Vacuuming the rug. Cleaning the car. Weeding the garden.  When the bell rings on your smart watch or phone or oven timer, you can quit, or finish, or set it again.  

Those are my habits. They are probably not yours, although some of them (like the fifteen-minute timer) might be useful.  Rather, the  message is that retirement is an opportunity to identify, reconsider, and adapt your habits in ways that enrich your life. I invite you to create an order and structure that works for you while feeling free to take a day off now and then from part or all of it. Reworking your habits, one at a time, will enrich your life and free you from an externally imposed structure to create one that is uniquely yours Feel to comment with any tips of your own!

In my previous blog, I said there would be only two in this series.  I was wrong.  It is three. Or maybe four. Watch this space.