The New Retirement? Working…If You Are Lucky

What’s Your Retirement Plan?

A recent study by Transamerica’s Center for Retirement Studies concludes that for a large portion of folks, “never retiring” is their plan A. Alas, a significant percentage of the eager-to-keep-working population is unprepared with a plan B in case they find themselves involuntarily removed from the workforce. And as Catherine Collinson, President of Transamerica’s Center for Retirement Studies points out, “Planning not to retire is simply not a viable retirement strategy.”

Here are the three stats from this extensive TCFRS survey that struck me smack in the gut. I’ll follow them up with some action steps that you can take to make yourself a role-model for preparing for the new retirement realities.

  1. American workers estimate their median retirement savings needs at $600,000. Unfortunately, a mere 30% currently have over $100,000 saved in retirement accounts. With a $600,000 nest egg, you could withdrawal $24,000 a year (based on the 4% rule). Add to that Social Security which right now could run from say $13,000 – $23,000 a year depending upon your household composition and work history and you are looking at retirement income in the range of $37,000 to $47,000. That works.  But at a level of savings below $100,000 you are looking at something closer to $22,000 in annual retirement income (using midpoints). Ouch. Not nearly as pretty of a picture.
  2. Just 9% of workers frequently discuss saving, investment, and planning for retirement with family and friends. This topic is the massive pink elephant in the room. If you are not talking about it, you are likely not taking action steps toward preparing yourself for it. Would you expect your kids to make wise career decisions if you never talked about the subject with them?
  3. Only 10% of workers have written out their retirement strategy. Would you attempt to build a house without plans and blueprints? Of course not. The same goes for you retirement planning. A little advance preparation can go a long way.

So yada, yada, yada – you might very well be thinking. What the heck, Manisha, can I actually do about this in MY LIFE TODAY?  Here are my top 3 tips for you, inspired by Catherine Collinson’s extensive and excellent work on the topic.

  1. Teach yourself to financially fish. Just like you seek out an expert guide with your physical health or your spiritual development, commit to educating yourself about the basics.  You can take the inexpensive online financial literacy course I offer, Money Rules… For Women (meant literally & figuratively) for $39… or go to your library and read one of the many wonderful personal finance books and magazines available. One of my favorite’s is Michael R. Piper’s CAN I RETIRE? I also strongly recommend reading Mark Miller’s wonderful blog, Retirement Revised. Two websites I love with great retirement calculators are EBRI’s Ballpark Retirement Calculator and FIREcalc’s.
  2. Participate! If your workplace offers a 401k, 403b, or 457 plan – contribute the max you can afford.  And if not offered, remember you can open up an IRA on your own at the financial institution of your choice. While participation rates are creeping up, 1 in 5 eligible employees still are not participating in the valuable employee benefit.
  3. If you are over 50, take advantage of catch up contributions & consider intergenerational or multi-inhabitant households. For many people over 50, the math of a the “traditional” retirement just doesn’t work.  And if you have loved ones – and especially young working women in your lives – please share with them this recently released data from a Capital One survey which disturbingly shows recently graduated young men are kicking our female toushies when it comes to higher saving rates, increased use of mobile/email alerts, and regularly checking credit reports. These are key steps for 20, 30, and 40 somethings  – and especially women – to take to avoid much of the potential pain heading the way of baby boomers (see my last post on The 77/11 Effect and the implications for working women).

What about you – do you talk about retirement planning in your household?  Do you have any tips to share with fellow readers about what has worked well for you?  We’d love to here your thoughts!

14 Replies to “The New Retirement? Working…If You Are Lucky”

  1. Great post! I’ve told my friends to save 25 percent of the after tax income because when they calculate the number they need to retire it’s way too taunting! If they start young and focus on that, the will be in a good place. To your point, no one really talks about how much they should be saving, and everyone is under saving for the most part. I love Mike Pipers stuff too 🙂

  2. I encourage my generation and the younger ones to save the most in their 20/30s before they settle down in 30s/40s with kids/house and etc.  I let them know about living below their means and do not get caught up with the jones.  One last thing, as you get older salaries do not go up, it is a rollcoaster.  Plan according.  I am the suga-mama for our household.  We have a retirement plan in excel and on I monitor on quarterly basis.  If all goes well, we will be ready to retire by 60 oppose to 67.

    1. The folks in your orbit are VERY lucky – that is such excellent advice. All too often I hear people saying the opposite – that they will save later when they “are more settled / have more money.” And congratulations for being so on top of your retirement planning. It’s the rare household that will be able to retire at 60. I’m so glad you shared this so readers know that if you save early and often… retirement is possible. What an inspiring example you set. Thanks for writing in!

  3. In tandem with the tweaked article which ran in Forbes in which you state:  “if you make $50,000 a year and want to maintain that standard of living in retirement, you’ll need a nest egg of at least $1,250,000”, I find it absolutely absurd that a financial “expert” would choose to ignore basic socio-economic facts:  there is ever only 1-2% of the population worth $1,000,000 or more at any given time. That face, coupled with the fact that 50% of the population is poor (by gov’t definition: earning $22,000 or less per year), and 80% of the population earns $55,000 or less… I guess this article, and those like it, are written only for the upper 10% who need not actually worry about saving for retirement?  Care to comment? 

    1. Thanks for writing in – you are not alone in being frustrated with me for making that point :). In retrospect I should have added much more color around the example. The main point I was trying to highlight (which given the deluge of angry emails I’ve received, I clearly failed at doing!!) was that right now many of us are set up for unrealistic expectations of what retirement will be like given our current net worths.
      And for many hard working, well-intentioned Americans a key culprit has been not starting to save early enough. As I talk to folks in their 20s, 30s, and 40s – prime years for savings — many of them tell me they are still living paycheck to paycheck because they just weren’t encouraged to live beneath their means right out of the gate. They tell me had someone given them this encouragement they would have rethought spending behaviors. For example, during my first decade plus of working I drove a used car purchased from CarMax and many people made fun of me. But I wanted to have enough wiggle room to save – as early on my parents sat me down and showed me how powerful compounding is. So I took those savings funds from “transportation” instead of driving the latest snazzy set of wheels to consciously save for retirement even when my just-out-of-school income was below $50,000.
      I picked $50,000 as it’s the median household income (http://www.census.gov/compendia/statab/2012/tables/12s0692.pdf). The point I wanted to highlight was that if you want (and you may not want this…) to keep that standard of living over the course of your life you’d be best served by starting to save at least 10% of that income as early on in your working years as you can. And that will mean tradeoffs. The alternative (which doesn’t have to be negative) is that you’ll have to adjust your spending over the years to match your funding available as you approach retirement.
      As for the 7% point – in cruddy market periods like the one we are in many people feel angry at looking at historical average. That figure is based on historical Ibbotson data – but I hear you loud and clear that stock and bond aren’t the only investments, and I encourage people to invest in the way that feels best to them.
      So bottom line, I just wanted to highlight the power of savings & the degree to which having had nearly 2 decades of single digit savings rates (even dipping to negative) in this country has put a lot of people in a long run financial situation that may be more tenuous than they thought.
      Thanks again for making some excellent points and calling me to task on not being crisper with the points I was making and why. Wishing you a very happy & healthy 2012!

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