Retirement, Recalibrated

I love shocking statistics.  Especially when they relate back to personal finance. So as I was reading a recent column by the always thought-provoking Scott Burns, this line jumped out at me:

“The fastest-growing population group in America isn’t the young: It is people at least 100 years old.”

A hot topic in personal finance circles these days is whether this recession will result in lasting changes in consumer behavior.  Much has been made of the rise in our nation’s savings rate to it’s current 5.7%.  While this is a step in the right direction, the statistic above suggests it may not be enough.  The way the math works out, you need to save at least 10% for retirement year in and year out (plus ideally another 5% for other big-ticket expenses you’ll incur along the way…) if you want to have a fighting chance of maintaining your standard of living in retirement.  (Oh, and invest that retirement savings wisely – more on that another day).

With our longer life spans, many people in their 20s, 30s, and 40s today will spend as many years in retirement as they did working.  Think about that.  For each year you work – you’d conceivably need to be saving to support yourself for a year of retirement.  This requires some serious planning and trade-offs.  Alas, while younger consumers may be trimming back on their entertainment and clothing budgets – I’m worried that the types of longer term changes necessary to prepare for this reality are decisions that many have yet to make.

A June survey by Charles Schwab & Kelton Research revealed that 4 out of 10 Americans are still not saving anything for retirement while a whopping 6 out of 10 Americans have not readjusted their thinking about their retirement plans despite the swoon in global financial markets and prolonged recession.  The reason this is noteworthy is that we appear to be in the midst of one of those rare, defining moments – where as a society we can re-think our beliefs about spending and saving.  Our longer life spans will require us to be even more vigilant than in years past about our personal finances.  The collective consumptive wake-up call that has been this recession may prove to be the gift that keeps on giving… if we pause and recalibrate our thoughts, especially about the inter-related forces of longer life spans and retirement.

2 Replies to “Retirement, Recalibrated”

  1. Mr. Burns statement is directly in-line with the fact the life insurance companies and the NAIC increased mortality tables to the age of 120 years back in 2006 due the number of citizens living beyond age 98 (the previous end date of permanent insurance). I find it astounding that young Americans do not accept or want to accept that they will live possibly 30+/- years in retirement except in case of self-employment, after retirement employment (happening more and more) and pre-mature death. My husband and I personally are saving 15% a year cut back from a higher number due to our economic situation and I feel it’s just not enough but then we can always keeping on working, yes?

  2. Wow…very provocative thoughts. I turn 50 this year and started saving for retirement back in my 20s. But since I began working for myself 7 years ago, I haven’t added to those savings. And now, after a divorce and then this economic crisis, my business is still OK, but I’m struggling to pay off about $8,500 in unanticipated expenses this year, as well as my tax bill. That means no retirement savings this year either, most likely.
    I count myself lucky compared to others in my age group who have paltry retirement savings, but when I look ahead and think about retirement at age 70ish…it looks bleak. Health care costs are through the roof. Social Security is not something I’m counting on, despite all my years of paying in. My retirement account is down 30+%…that’s a lot of ground to recover and surpass in the next 20 years. I have a 30-year mortgage, so I’ll still have 10 years left on it when I’m 70. Ugh, ugh, and ugh. But right now, just holding body and soul together while staying out of serious debt is challenge enough.
    The one bright spot in all of this is that I do know how to save. I understand frugality and budgeting. I’ve always watched my money carefully. I don’t consider shopping a pastime, and I could care less about the Joneses. In many ways I have enough, right now. It’s all those years of retirement ahead that spook me.

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