Labor Day Past, Present, and Beyond

Labor Day 2022 - What Does the Future Hold for American Workers?

by Don Drake, Connelly Law Offices, Ltd.

It's upon us already, Labor Day weekend, traditionally signaling the end of the summer season. Much has changed through the years since Labor Day first became a holiday, including for those who retire after decades of work hoping to live comfortably in retirement. "At one time, workers earned barely enough to squeeze out a meager living with no such thing as retirement, meaning most worked right up to their deaths," said certified elder law Attorney RJ Connelly III. "As unions gained a foothold, negotiated contracts with business owners guaranteed many a pension plan as the reward for years of service to that company. But these pension plans proved to be a financial hardship for many organizations as they were forced to pay for those in retirement while at the same time replacing that worker with another salary."

As the American health system improved and people began living longer, these pension plans became unsustainable, forcing companies out of business or to move their plants offshore to avoid unions, high taxes, and oppressive regulations. "Today, things have changed yet again, as unions no longer hold the power they once had with pension plans proving to be financial backbreakers for the few who still have them," said Attorney Connelly. "Because of this, most Americans now save for their own retirement to supplement the social security check they receive monthly. Unfortunately, we are also facing a social security system that may also run out of money in just over a decade. So, it's more important than ever to prepare yourself for the future."

"...most Americans now save for their own retirement to supplement the social security check they receive monthly." --- RJ Connelly III

What we will discuss in today's blog is how Labor Day started, how the face of employee and employer relations has changed through the years, planning to protect your assets and the best and worst states in the United States for retirees.

The Genesis of Labor Day

The mid to late 1800s was the height of the industrial revolution in this country where the average American had to work 12 hours, seven days a week, just to barely survive. Even worse, children as young as six or seven years old were working in factories and mines across the country, earning even less than adults (see the story below about Rhode Island's contribution to child labor during this time).

With the onset of unionization, those who represented workers began to seek basic rights, safe workplaces, and livable wages for the employees. Management, who wanted to keep their high-profit margins, refused to give in. This led to massive strikes at locations across the country.

Children working in Pawtucket's Slater MIll

Then on September 5, 1882, New York City union leaders organized what is now considered the nation’s first Labor Day parade. Over ten thousand workers marched along city streets in an event culminating in a picnic, speeches, fireworks, and dancing. They continued to host the parade in the years after, and in 1884 the event was set to occur on the first Monday of September from that point forward.

In May of 1894, the employees of the Pullman Palace Car Company in Chicago went on strike about wages and the firing of a union representative. The strike carried on into June when a union rep ordered a boycott of Pullman rail cars crippling railroad traffic and commerce nationwide. In response, the federal government sent troops into Chicago to break the walkout unleashing riots and the deaths of more than a dozen workers.

The "Pullman" riots led to the federal holiday

In the wake of this massive unrest, President Grover Cleveland, and Congress, in an attempt to repair ties with American workers, made Labor Day a legal holiday. Although this is the official beginning of this holiday, others say that the founder of this special day was Peter J. McGuire, the leader of the Carpenter’s Union and the co-founder of the American Federation of Labor (AFL), who suggested the holiday to honor those "who from rude nature have delved and carved all the grandeur we behold."

How Things Have Changed

Throughout the years, Labor Day has undergone a change in how the holiday is celebrated. Its origins saw massive parades, political speeches, and huge festivals where families would celebrate the American Dream. Today, it has moved away from such festivities to a more modest celebration featuring back-to-school sales, end-of-summer events, and small family gatherings.

As we celebrate this day by honoring American employees, we cannot ignore the changes that have occurred in the American workplace. The days of pension plans and other employer-sponsored retirement packages are quickly going the way of the massive Labor Day celebrations. Because of this, it is important that Americans understand the importance of estate and retirement planning.

"The days of pension plans and other employer-sponsored retirement packages are quickly going the way of the massive Labor Day is important that Americans understand the importance of estate and retirement planning."

Baby Boomers and Retirement

With the decimation of the economy because of the pandemic, the massive inflationary period we are in, and a government that seems to be out of control with its spending, Baby Boomers, who thought that retirement would end up being a life of leisure, are seeing this dream dashed by a much different American landscape. Many industrial giants have moved their factories off-shore and the workplace has shifted to a service-oriented economy dominated by small businesses, many of which have disappeared and will never come back due to the COVID shutdowns. Much has changed in four short decades.

Pensions are no longer a part of retirement

In the early 1980s, over half of this country's workers were promised a pension by their workplace with eight out of ten expecting a pension that was supplemented by their social security payments. Since then, pensions have quickly disappeared as city, state, and union pension plans have gone broke threatening the well-being of those retired or heading for retirement. Private company pension plans are all but extinct and are being replaced by 401(k) plans or several other investment strategies.

"Poor planning and employers who have not helped employees understand this new reality of retirement have forced retired Americans to work well into their seventies and beyond," stated Attorney Connelly. "This, accompanied by rapidly rising healthcare costs, low-interest rates for fixed income investments, traditional savings showing little or no return for their investments, high costs of fuel and utilities, and now ballooning inflation, are causing many to dial back their retirement expectations."

"Poor planning and employers who have not helped employees understand this new reality of retirement have forced retired Americans to work well into their seventies and beyond." --- RJ Connelly III

The group that will be affected most by the rapidly changing economy are the millennials, those born between 1982 and 2000. For this group, it is imperative that they begin planning for retirement today. "Successful retirement includes planning for investments using smart tax strategies, having a safety net in place in case of a major health crisis, and even where to retire to, as some states are much more friendly than others to retirees," said Attorney Connelly. "Retirement now involves a lot of advance planning and doing your homework."

The Best States for Retirement

According to the RetirementLiving website, the five states listed below are the best ones to retire to in 2022:

  1. Florida: This year, Florida again takes the top spot as the best state for retirement. Twenty-one percent of the population is over the age of sixty-five, and state parkland is abundant. You’ll find senior communities and activities plentiful in Florida. Florida state taxes are affordable since there’s no income tax, but the sales tax rate is slightly elevated. Home prices rose over the past year in Florida, but this reflects a trend across the country. The median home price is in the middle of our top states. Health care availability is average. Florida is a popular destination for family vacations and “snowbirds,” causing crowding in some areas, potentially disturbing Florida’s tropical paradise appeal. We recommend avoiding Broward, Orange, and Seminole counties if you prefer to avoid crowds.

  2. New Hampshire: New Hampshire is ideal for active retirees, offering beaches, lakes, mountains, cities, and countryside. Health care resources are readily available even in rural areas. Seniors make up 20% of the population, so retirees can find many peers with similar interests. Home prices are affordable for most people, but the state has one of the country’s highest real estate transfer taxes. There’s no tax on retirement income, so New Hampshire’s affordability index is above average. New Hampshire’s four seasons provide a welcome change, but winter snow and ice can be hazardous. If you choose to live in a city, you may have to deal with some crowding. Independent living communities are readily available in most areas.

  3. Arizona: Arizona rose from the ninth spot last year to the third-best state for retirement for 2022. The state offers affordable living and a warm, dry climate that draws many retirees. The typical Arizona retirement community is established on a golf course and includes a gym and pool. Arizona is one of the few states where you can go skiing and swim outside on the same day. Activities include civic events, art fairs, skiing, golf, biking, and hiking. Whether you walk or drive, you can visit beautiful landscapes from the mountains to the Grand Canyon. Property taxes are reasonable, although there is a tax on retirement income. If you’re uncomfortable with hot temperatures, you may want to consider another state. The overall state crime rate is down, but you should investigate a home security system if you live in the city.

  4. North Carolina: Retire to North Carolina for a comfortable climate that’s not as warm as Florida. History buffs, hikers, and beach bums can easily find recreation in the state. North Carolina colleges offer residents over age 65 free college classes. The median home price is lower than most states, and North Carolina does not tax Social Security retirement benefits. Other retirement income is taxed at a flat 5.25% rate, and the sales tax is low. Establishing friendships with other retirees is not difficult, given that they make up over 17% of the population. Our readers love retirement life in North Carolina (reflected in the high RL Rating), and you’ll find plenty of senior housing options. Stay out of cities if you want to keep your cost of living down and consider another state if you prefer snowy winters.

  5. Alaska: While retiring to Alaska isn’t for everyone, our readers living in the state give it high marks. The median home price across the state is affordable, although it’s higher in cities like Juneau and Anchorage. Alaska is one of the few states with an extremely low poverty rate. If you’re considering working after retiring from your career, you’ll pay no income tax in Alaska. There’s also no state sales tax and no tax on unearned income. Alaskan residents receive an annual payment from the Alaska Permanent Fund, funded by state oil revenues. Alaska is appealing to those who enjoy the great outdoors. There’s no shortage of day tours, multi-day adventure tours, sightseeing via airplane, fishing charters, dog sledding, and more. The downside is traveling to the mainland can get expensive. Of course, we only recommend retiring in Alaska if you like cool weather

Where Do We Stand?

According to the Facty website, let's see where our southern New England states rank.

  • Connecticut: As part of New England and sandwiched between Massachusetts and New York, Connecticut may seem an ideal retirement destination. Think twice. While Connecticut ranks #3 in quality health care, its infrastructure, such as bridges and roads, is ailing, and traffic is rated as the worst in the country. The cost of living is high, and depending on the area, crime can be an issue. The Nutmeg State is ranked as the fourth worst place to retire, largely because of its high taxes—even Social Security income is taxed. Yes, towns like Mystic, Old Saybrook, or Greenwich are captivating, but living in Connecticut on a modest retirement income is almost impossible.

  • Massachusetts: Retirement in Massachusetts may seem tempting. It's a beautiful state with historic significance and an elegant cultural scene. Before you choose, remember those brutal, bone-chilling winters. Massachusetts is the third most expensive state in America. Only Hawaii and California are more expensive—and they've got much milder climates. Massachusetts also has high taxes at 12.79%. Housing is expensive; the median price for a single-family home is $508,000. On the plus side, the Bay State has a higher life expectancy, especially for those who are wealthy, and its health care is rated highly.

  • Rhode Island: Although the state’s health care rankings aren’t as bad as others on this list, its affordability rating is what landed it here. The Ocean State earned slot number 47 due to its excessive cost of living. Groceries, housing, and utilities are between 5% and 24% higher in Rhode Island than in other parts of the nation. The state’s health care ranks in the middle at number 25, but it’s still around 7% higher than the national average for medical treatment. The state does offer an amazing coastline and excellent seafood, but the sales tax is high, and out-of-state pensions and social security benefits get taxed.

The Importance of Estate Planning

There was a time when estate planning was considered to be only for the rich. Today, given the tax burdens placed on those with even moderate assets, estate planning has become a necessity. Most families work hard and save so to pass on what they have built to their loved ones. But increasingly, states have tried to tax these assets even though taxes have already been paid on these earnings. Fortunately, there are ways to protect this money.

Estate planning is necessary for almost everyone

"Estate planning is really about protecting those you love," said Attorney Connelly. "There are many aspects to estate planning, one of which is transferring assets to your heirs with limited tax burdens." But what if you don't have much?

"In many cases, this is even more important for families. Just a bit of estate planning can reduce much or even all federal and state estate and inheritance taxes," continued Attorney Connelly. "There are also ways to decrease the income tax that beneficiaries may need to pay. With a small estate, not having a plan could mean a significant portion of the assets will go to the government, which has already taxed it multiple times, in some cases."

Planning for Medical Needs

The country's population is aging. Today, there are more than forty-six million older adults aged sixty-five and older living here. In just 30 years, that number is expected to grow to almost ninety million. And in the next ten years, the last of the baby boomers will reach the age of sixty-five, adding another eighteen million people to this group. This means by 2030, 1 in 5 Americans is projected to be 65 years old and over. And with age comes physical breakdown, including heart ailments, Alzheimer's disease, and other conditions of aging. This needs to be planned for as well in order to keep assets protected.

Spending on nursing home care deletes savings quickly

"Every senior over 65, and preferably those over 50, needs to have an estate plan or update their estate plan to include long-term care considerations with an effective Medicaid plan," stated Attorney Connelly. "If this is not in place, and you end up needing long-term care, you will likely spend everything you have saved over your lifetime in a very short time to provide for that long-term care meaning that what you wanted to pass on will be spent on nursing home care."

"Every senior over 65, and preferably those over 50, needs to have an estate plan or update their estate plan to include long-term care considerations with an effective Medicaid plan." --- RJ Connelly III

Just how expensive is this care? "The numbers are not good and rising quickly as inflation continues to affect these facilities," said Attorney Connelly. "According to the 2021 Genworth Cost of Care Survey, the national average monthly cost of a semi-private room at a nursing facility was $7,908. In Rhode Island, the average monthly cost is $9.429.00. In Connecticut, that amount is $13.764.00, and in Massachusetts about $12.623.00. Again, this is an average, some are higher, and some are lower, but in any case, these are significant expenses that will rapidly deplete a family's assets."

"With the cost of long-term care, even substantial estates are at risk," stated Attorney Connelly. "Without appropriate planning, these costs will quickly wipe out a family's assets, nullifying plans for the succession of their estate to heirs. And for a married couple, inadequate planning around these costs can cause the spouse who continues to live at home to become impoverished and without sufficient assets or income to provide for their own needs."

To wrap up, please enjoy your Labor Day and prepare for the upcoming autumn and winter months. But in doing so, consider two things. First, why the holiday was put in place and the sacrifices American workers made during the industrialization of this country, and second, developing an understanding that retirement has changed drastically through the years meaning that today, you are responsible for your own future and that planning needs to start immediately.

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