Schafer: Retirement trends show that work just might not be worth it

Fidelity Investments' report that there have never been more 401(k) and IRA accounts worth more than $1 million seems to be all the explanation one needs to hear to understand why the pace of retirements picked up in the last year.

In a year with an infectious disease pandemic and a sharp recession, and now with more savings than a year ago they thought possible, workers can hardly be blamed for packing it in.

Unfortunately, though, that simple explanation of lofty asset prices letting people retire early doesn't hold up perfectly when looking more closely at some of the data.

Yes, affluent people with a lot of retirement savings are likely better off now than they were before the pandemic, provided their health held up. But more people approaching normal retirement age who quit the workforce were lower down on the wage ladder.

Maybe they don't have all that much in savings set aside, retiring with a financial plan that's based at least in part on hope.

And it's important to understand why that's been happening. It might be the same reason there's an apparent shortage of people willing to work restaurant and other service jobs as the economy gathers steam.

The retirement of the big baby-boomer generation might seem like an old story by now, as the senior members of this generation turn 75 this year. The most noteworthy recent pickup in retirements, though, came from the young end of that big generation and the oldest of the Gen Xers, people now age 55 to 64.

In a way this should have been expected. Recessions usually lead to more retirements, when the prospects don't look great for getting a new job or launching a new business that paid as well as the one that might have disappeared in the downturn.

In our do-it-yourself retirement finance system, the strong bounce back in the financial markets certainly has helped make an earlier retirement possible.

Last year, when tens of millions of Americans were suddenly out of work and the markets underwent a sharp bear market, the broad S&P 500 stock market index recovered enough to end the year with a total return of more than 18%. The Nasdaq soared 45%.

The total number of Fidelity Investments "retirement millionaires" has climbed to 365,000 of the 401(k) accounts and an additional 308,000 IRA accounts. Fidelity has twice as many million-dollar retirement accounts as it had last year at the same time.

Only a small percentage of Fidelity accounts have inched passed $1 million in value, though. If you look at the average 401(k) account balance for baby boomers, a generation with the youngest turning 57 this year, it's only about $234,000.

A rule of thumb for retirement income is taking 5% of an account balance as a distribution every year. A retirement balance of $200,000, if retiring now, is only enough for about $10,000 per year in cash, plus Social Security benefits when eligible.

A Fidelity spokesman, via email, cautioned against drawing too sweeping of a conclusion, as many workers might get their first Fidelity 401(k) account at a new job relatively late in their career. These workers could easily have IRA accounts or other savings stashed away.

The average age of Fidelity retirement account holders with at least $1 million is a bit older than 58. And 58 happens to be the age of the 3M Co. manager featured in a recent Bloomberg article who retired in March, under the headline of "Affluent Americans Rush to Retire in a New 'Life-is-Short' Mindset."

It's articles like this one that helped form the impression that the well-off boomers caught a break in the recovery of the stock market and now get to quit work. But that isn't the whole story, not after the economist Jed Kolko of the internet jobs board company Indeed dug into the numbers.

He analyzed information from the same federal surveys that give us the unemployment number issued every month. Retirements surged early in the pandemic last year, he concluded, well before the stock market bounded to new highs and we saw big jumps in the value of residential real estate.

That isn't what you would've expected based on the argument that the recovery in retirement savings led to people retiring.

Instead more people were leaving the workforce just as the pandemic really hit, back when businesses were getting shut down and workers were getting furloughed or laid off. Odds are many of these retirements weren't really by choice.

Another of his observations is that a jump in the retirement rate for those age 55 to 64 wasn't everybody, but only for workers without a college degree.

That matters because college-educated workers are more likely to do office work — maybe working from home in the pandemic — and get paid a lot more, too.

And if the retirement rate for 55- to 64-year-olds with a college degree didn't really change, it's probably safe to skip reading any more articles about the effects of a booming stock market on retirement finances. The biggest beneficiaries of that big asset price boom are likely still working.

You could also find stories this spring like that of a 64-year-old Olive Garden server, featured in the Washington Post, who after nearly four decades of restaurant work last year got furloughed and then decided he's done. His job didn't pay enough and his workplace wasn't safe enough.

His thinking somehow seems to be closely related to what's behind the worker shortage, particularly in some service industries. Bear in mind that it never makes much sense to talk about a shortage of anything without also discussing its price — in this case wages and benefits — as a price increase often does wonders to ease any shortage.

Higher wages might entice some of those younger retirees who left their jobs last year to come back to work.

But this peek into retirement trends made me wonder once again if during the pandemic year, Americans simply reworked their basic calculations on the costs and benefits of work.

And if the costs have gone up, the pay had better go up, too.