Flailing toward retirement

A recent opinion piece in the NYT by Teresa Ghilarducci, professor of economics at the New School for Social Research, asserts most Americans who are approaching retirement are completely unprepared for it. Says Ghilarducci

Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts. The specter of downward mobility in retirement is a looming reality for both middle- and higher-income workers. Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day.

There are many, many people who are flailing toward retirement. With IRAs and annuities gutted just to put food on the table now, many will feel the need to work long past planned retirement just to break even later.

Does Ghilarducci offer a solution? Indeed she does:

First, figure out when you and your spouse will be laid off or be too sick to work. Second, figure out when you will die. Third, understand that you need to save 7 percent of every dollar you earn. (Didn’t start doing that when you were 25 and you are 55 now? Just save 30 percent of every dollar.) Fourth, earn at least 3 percent above inflation on your investments, every year. (Easy. Just find the best funds for the lowest price and have them optimally allocated.) Fifth, do not withdraw any funds when you lose your job, have a health problem, get divorced, buy a house or send a kid to college. Sixth, time your retirement account withdrawals so the last cent is spent the day you die.

Is it just me, or does this sound like it will not be so easy if a person is already at the age of 50? Saving 30% of every dollar for retirement?

Should be easy to lose weight since we will not have any money for groceries…

Click here to read the original article.

Marty Duren

Just a guy writing some things.

  • I’ve never been accused of being a planner or a forward thinker, but when the small business I worked in installed a SIMPLE plan about 15 years before I retired, I immediately started putting in the max for their matching funds. It wasn’t all that much, but it grew into a nice nest egg that’s been there for us. And, we’re basically living within Social Security, so the SIMPLE plan money is still there, as it’s in annuities which have thus far grown a little faster than our Required Minimum Distributions.

    I think the problem with a lot of folks is that they just don’t get around to starting anything of substance, and retirement sneaks up on them and they’re unprepared.

    • Marty Duren

      Bob-
      I agree. It’s awfully easy to allow expenses to always push out retirement planning.

  • Jeff Senkbeil

    Having attempted to be an amateur sociologist over the years, I have determined the biggest obstacle to retirement planning is over indulgence. People always seem to want the latest, greatest, newest item. Getting needs and wants out of sync and living outside your means guarantees that no funds will be available for retirement savings.

    7% won’t get it and neither will a net 3% return. You really need to be closer to 15% and a net of 5 or 6% over inflation. 15% of income from age 22 forward will guarantee that you will not have any financial issues in retirement. The other point not mentioned is that one of the greatest gifts you can give your children is the gift of a college education with neither of you incurring debt to do so. Due to the size of the average student loan payment these days, children are choosing college over retirement saving. While I don’t disagree as to the benefits of an education, these benefits are greatly decreased by the student loan repayments. Again, a hallmark of the conspicuous consumption that we live among.

    We need to get out of this short term mentality that permeates society and get into making smarter decisions and thinking more long term. There is a Christian allegory here but I’ll not raise it at this time.

    • Marty Duren

      Agreed on all points. Although, if a person gives 10% or so to church/ministry then saves 15% for retirement, then, assuming an average student, another 5% saving for college (and don’t forget weddings), seems a salary of 6 figures would have to be earned to make sure the family did not starve before college and marriage. Am I far off there?