Retirement : A matter of choice

 

     Lots of people (especially in the higher paying segments of the work force) dream of retirement -- the earlier the better. But what is retirement, really? For many people, they are more active after that change-in-subject-title than before. For others, it can mean doing virtually nothing. So, retirement is not a matter of activity.

    For me, retirement is closely related to the division between work and play (which also relates back to a work life balance). Work is what you "have" to do. Play is what you "want" to do. For some people, work and play are the same thing as they enjoy what they are doing so much that, even after "work hours", that is the first thing that they would choose to do. For others, work and play are quite separate.

     So, what is the distinction between work and play? What marks the boundary between our work periods and retirement? Before retirement, it is required that you perform certain tasks in order to be able to live within our society -- that is called "work". You may get paid money or not -- but doing those tasks allow you (hopefully) to eat, sleep in comfort, be entertained, and continue to live and grow (though not everyone does that well).

     There are those who just have to exist -- which, to me, would be extraordinarily boring. Their ability to avoid ongoing "work" is established by the economic rules and/or their family/friends/relatives. The work that has been needed for them to survive is one (or two) steps removed. At some point in the chain which allows them not to work, there are multiple people working to support them. I went into the details of that in an earlier blog.

     So, I propose that the main distinction of play or retirement, is that a person no longer has to perform specific tasks to survive in society. Whether or not to do specific tasks are now a voluntary choice. (Yes, there are personal tasks still needed -- sleep, eating, and so forth.) Maybe you love what you have been doing -- you continue to do such (possibly now unpaid) but as a choice. Perhaps you have wanted to do something (and may, or may not, be good at it) but realized that the chances were good that it would not have been sufficient for society to allow you to live (that is, it wouldn't earn enough to pay the bills). (Sometimes people take the leap and it works -- they become that 1 in 10,000 person who makes a living at those tasks.)

     Some people, never reaching the situation where they do not have to continue working -- day to day -- to survive, will never retire. Some people believe that they have reached that point and circumstances change such that they have to return to the working side of the boundary. But, in all cases, a person will be able to recognize that they have achieved retirement if they now are choosing whether or not they will perform those non-personal tasks.

Crazy Rich Richard Cory

     People have always been fascinated by how the "rich" live their lives. From "Lifestyles of the Rich and Famous" to "Crazy Rich Asians" to "Sullivan's Travels" and more (look them up in IMDb or RottenTomatoes if you are not familiar with them), there is a huge appeal to the illusion of being able to peek into the lives of those who just don't seem to have a single financial care in their lives. Of course, there are many different levels of "rich" (and "poor", as discussed in others of my blogs).
     There is one stage of "rich" that has to choose between various excesses -- not enough for all things without consideration. Another yacht or that huge diamond? A private jet or another 6,000 square feet in the mansion? At this stage, the operative word is "or". They have a lot more money than they need, and even have to work at spending it all, but they still know how much things cost to make choices. Although they may not know what a gallon of milk costs, it is very likely that they know how much they are spending on groceries per month (but the total percentage may be insignificant).
     The penultimate stage is only a matter of "and" -- "or" is unnecessary. They don't know how much things cost because it doesn't matter. In a lot of cases, they don't even know how to pay for things because others do it for them; their activities, including purchases, just happen without their awareness of what happens in the background. This is particularly true for those from inherited wealth. These politicians, and other wealthy individuals, couples, and families are truly ignorant of the realities of life for the 98% of the population.
     So, they should be happy, shouldn't they? As Paul Simon said in his song, Richard Cory, written in 1965 and recorded in the album, Sounds of Silence, by Simon and Garfunkel, it isn't quite so straight-forward:

They say that Richard Cory owns one half of this whole town,
With political connections to spread his wealth around.
Born into society, a banker's only child,
He had everything a man could want: power, grace, and style.

.

.

.

He freely gave to charity, he had the common touch,
And they were grateful for his patronage and thanked him very much,
So my mind was filled with wonder when the evening headlines read:
"Richard Cory went home last night and put a bullet through his head."

     When an individual, or group, no longer has any survival needs to satisfy, they have to find, or create, anchors to reality. This can be seen by the situation of many famous artists who are catapulted into riches and fame and end up killing themselves via unregulated excesses. I cannot speak to the mind of Paul Simon about how he envisaged the person behind Richard Cory but it is apparent that Richard Cory did not have sufficient reasons to keep going.
      When the great imbalance in income inequality occurred prior to, and precipitated, the Great Depression, many suicides occurred because they did not know how to function as merely "rich" (losing 90% of $100 million still leaves $10 million).
     Some people create anchors that are not particularly healthy -- and which have the danger of being accomplished and no longer sufficient. This includes greater and greater accumulation (of wealth, property, power, ...) which never satisfies and is, at heart, an addiction -- treating the economic system as a game in which they want to come out as "winners" (and create the most "losers"). Sometimes it is internal political intrigue such as happened with the Medicis of Florence (now part of Italy). Many times an income overflow includes visible excesses.
     Healthier options attempt awareness of the lives, and needs, of the rest of the population. This may be anchored via religious, or spiritual, beliefs. It may be from an intellectual recognition of needs and realities. Or it may arise from a conscience which realizes that their fortunes are based solely on the efforts, and labors, of others.
     No matter the basis of the anchor, it is needed to redistribute the excess in order to stay healthy. Foundations, charities, donations, university chairs, inheritance taxes, properly progressive tax structures, and increasing employee wages and benefits to living wages are all part of the pool of methods to relieve the pressures that build up with income inequality and concentration.

A level playing field -- the desirability of regulations.

     I am a firm believer that MOST companies want to be a good neighbor. They want to have fair and equitable wages and benefits for everyone. They want to do their share in the local economy so that they give as much, or more, than they take. They want to leave the world in as good of, or better, condition than how they found it. They want to produce safe products than are of benefit to people. The guiding forces of those companies want their children, neighbors, and communities to be proud of them, what they do, and how they do it.
     Alas, within the business world, what is desired is not always what can be done. This is especially true for public corporations which are in the public eye and which are often constrained to a short-term view to the next quarter's earnings. A company must be competitive if they want to continue to enable jobs, give dividends and earnings to stockholders, and continue to grow, innovate, and produce.
     When I was growing up, we had a large lumber and pulp mill as the primary economic force for the town. To the best of my knowledge, they produced high quality goods and treated their employees reasonably well. But one day I neglected to wipe off my glasses immediately after a brief shower. Later in the day, when I was cleaning them, I found that the rain had etched permanent spots in the lenses. The rain was highly acidic. Some of my friends, who had houses much closer to the mill, knew that they would have to paint their entire house at least once a year because the paint would not last longer than that. The town just considered it as part of the side effects of the company but I doubt that anyone, within or without of the company, truly liked or wanted the acid rain.
     Sometimes, doing things, that seem to be more costly, prove to be cost-effective in the long run. Thus, after examination and real-life testing, up front costs sometimes prove to be long-term savings. One example of this is a well-known bulk goods company that has a higher-than-average salary structure as well as better benefits than the general industry. Many would think that this would put them at a competitive disadvantage. However, the long-term result of this has been shown to be higher productivity, much less turnover of staff (which is very costly), and a more welcoming atmosphere for the ongoing customer stream. And all of that saves money and makes the company more competitive and profitable.
     In other cases, doing right cannot save money -- it costs money. One company that dumps all of their wastes directly into the local river or lake will have lower costs than a company which minimizes their wastes and treats remaining wastes such that they do not damage the environment. Unless the environmentally friendly company has other areas in which they are more efficient, they will not be competitive against the toxic company. (Note that the process of minimizing wastes often saves money -- but requires initial investment of time, effort, and money.)
     And this is where regulations come into play. If all the companies have the same positive requirements in place then meeting those requirements does not affect the competitive landscape of the business. All the companies can (and are indeed forced to) do the "right" thing without putting themselves into a poor competitive position.
     The regulations, in themselves, have a net neutral effect on companies' profits and cost of doing business. However, the monitoring and enforcement of those regulations do have a cost and sometimes that is a significant cost. This is the "burden of regulations" that is often discussed in political arenas and in public and social media. It is real and it can hit small businesses harder than large businesses because the gross amount is similar for the small and the large business such that, as a percentage of invested profit, it hits the small business much harder. In other words, if I make $100 profit, and I must use $35 to fulfill the needs of regulations, it will hit me much harder than a company that makes $100,000 profit and must use $5,000 to fulfill the needs of regulations.
     Regulations create a level playing field and are usually of benefit to everyone -- within and without of the company. We need to determine methods to keep that level playing field and that means ways to minimize, or distribute, the costs of monitoring and enforcement.

Living Wages are not only affordable -- they help businesses

    It is often said by spokespeople for businesses that "we cannot afford to pay our workers living wages". However, there seems to be no difficulty in paying for increased costs for materials, or energy, or advertising, or increased costs of real estate, or any other such item. As I discussed in my blog about "supersizing", there are a number of things that go into the cost of an item versus its price.

    The composition, or gathering of different parts, of the cost of an item will vary depending on the item. Some things are "labor intensive" which means that labor costs are a higher percentage of the cost. Others are based on scarcity -- or an aspect of "we have what you want -- who is willing, and able, to pay the most for it". In general, for many items, the amount of labor cost within the total cost for things that are actively made by people is a minority of the cost -- call it 30%. For stores that have high "turnover" (things sold quickly and new, replacement, items put on the shelves for sale again), labor costs are much less (such as for mass merchandizing stores) -- perhaps 10%.

    For our discussion, let's just say that labor costs are 25% of the cost of the item.  Doubling the labor costs would NOT double the base cost of the item to sell. It just adds an extra 25% -- so the base cost is now 125% of the former price. Let's say that the retail price (price charged to a general customer) was twice that of the base cost -- or an extra 100%. This means that the price is 112.5% of the original price (100% original cost + 100% original profit + 25% extra labor costs gives 225% which is "normalized" (brought down to a comparison against 100%) to 112.5%.

    Now it is possible (even likely) that the merchant might want to keep their percentage profit rather than the actual amount. So, in the above comparison, the merchant got the same amount of profit as base cost. If we increase the base cost by 25%, the total amount doubled ends up at 125% of the original price (100% of original cost + 25% extra labor costs is equal to 125%; doubled gives us 250% and normalized brings it back to 125%).

    We can see that even doubling the labor costs does not add a huge percentage to either the base cost or a retail price without penalizing the retailer. It can be argued that a 25% increase is still something that people are not willing to pay. After all, people do comparison shopping and retailers have sales, and price cuts (temporary or permanent). If Item X is sold at one store for $1.25 and the very same item X is sold at another store is sold for $1 then many people will choose to buy for $1. What would make people able, or willing, to pay more for products?

    The first reason is that the above analysis is a simplification. Labor costs are NOT the same as wages. Although the blog on "supersizing" uses labor costs as a lump sum, labor costs are actually a combination of wages, benefits, the cost to find someone to work at the job, training, and other matters. Thus, doubling wages does not double labor costs. In reality, it will reduce "turnover" within the workplace and reduce the amount needed to find people to do the job and the training. So, a doubling of wages may actually only cause an increase of 20% overall (these numbers are all examples but probably in a reasonable range) so the product would only cost $1.20.

    The second reason is what do people do when they make more money? Well, hopefully they will save some more. But almost everyone would also spend more. The products may cost a bit more but the business is also creating more customers and a percentage will buy from their store.

    A third reason is that it creates a positive image. I am sure you can think of a company who does not treat their employees well and relies on charities and the benefits paid by taxpayers to subsidize the wages of their employees. Similarly, we can also think of companies who pay their people more than what is "required" and are known for treating their employees fairly and well. Because of these three reasons (and other reasons) these "good neighbor" companies often make a better profit than the ones who sponge off of the taxpayers to increase the owners' wealth.

    The last reason leads into a future blog (maybe the next one). And that is -- it isn't always a matter of "nice people finish last". The above three reasons come into play to help people who do the good, proper, thing benefit financially. Regulations also help -- because the companies who care about people (and environment, and health, and ...) are not penalized because they operate "on a level playing field". That is, if everyone is required to do something good then no company is at a financial disadvantage for doing what is good. Everyone has the same requirements.

    Can you think of other benefits to a company for paying living wages?