I never know where the personal-finance lessons are going to come from. Today, I heard two stories about retirement from my own family. First, my wife told me that her retirement program at work might be cut. Next, I learned that my family’s box company has had a bizarre retirement crisis of its own.
Don’t count your chickens
Kris came home frustrated tonight. She’s worked for the state government for almost twenty years (eight of those as a high-school science teacher), and though she’s proud of the hard work she’s put in, she hates how she and her colleagues are often caught in the crossfire of political battles.
This year, public employees are feeling the pinch again. There are no fewer than eight legislative proposals to alter the Oregon public-employee retirement system. In other words, the retirement rules that Kris (and her co-workers) have been playing by are about to change — perhaps drastically.
Fortunately, Kris has been a diligent saver all her life. She’s squirreled away far more than the minimum so that her retirement isn’t left to chance. In fact, just a few weeks ago, she proudly announced to me that she’s saving 30% of her income through various sources. That’s impressive. So while the proposed cuts to her retirement benefits make her cranky, and while they’ll hurt her savings rate, they’re not going to thwart her retirement.
What’s the moral here? Be prepared. Your retirement benefits can change at any time. And it’s not just public-sector employees whose retirement programs can be suddenly altered. The same thing can happen with private businesses, too.
Thinking outside the box
My family owns a small business that manufactures custom boxes. In 1995, just before he died, my father established a profit-sharing program so that the employees (most of whom were family members) would be able to have the retirement savings he never did.
Here’s how our plan worked: Every tax season, we looked at how much the company earned the previous year. If times were flush, the company would contribute up to 15% of each employee’s earnings into a profit-sharing account. So, if I earned $30,000 in 1998 and profits were high, then the business might set aside $4,500 into my retirement account. When times were lean, we set aside nothing. Most years were between 0% and 15%.
Soon after I quit my job to blog full time, the business made some adjustments to the retirement plan. I’m unclear on the details (because I wasn’t involved with the process), but it seems that things were juggled so that employees could have direct control of their retirement investments. As a side effect, it also became much easier for them to withdraw the money from the profit-sharing plan. Which they did.
In fact, many of the employees yanked all of the money out of their retirement to go on trips, buy new cars, and so on. (They did this even though they suffered a 10% early withdrawal penalty and, I assume, had to pay taxes.)
When the company funded the profit-sharing plan the following year, these same employees promptly pulled the money from their accounts — again taking the 10% hit — and spent it.
The company’s solution? They simply stopped funding the profit-sharing plan. Now they give the employees cash bonuses at the end of the year instead, which averts the 10% penalty. But this hurts the folks (like my mother) who hadn’t been cashing out their retirement plans. And if I were still with the company, this would hurt me.
This is another situation where an existing retirement program has suddenly had its parameters changed, and it’s an example of why it’s important to take as much control of your personal finances as possible.
The moral
Remember, folks: Nobody cares more about your money than you do — and that includes your retirement. You’ve heard all the horror stories about the future of Social Security, but your other sources of retirement income are also subject to change. It’s up to you to take an active role in saving for the future.
Here are some steps you can take to make sure you save enough for the future:
- Diversify your savings. Though much of Kris’ retirement savings has been through the public-employee retirement system, she’s been diligent about pursuing other options. She has a Roth IRA. She has an ING savings account. And she has her mutual funds, which are regular taxable investments.
- Save early. Over the past few years, pension plans (public and private alike) have taken a hit. Employers aren’t funding retirements as much as they did when times were flush. People who waited to start saving are missing out on the generous employer matches of the past. (Plus, by waiting, they also sacrificed the extraordinary power of compounding!)
- Save often. Obvious perhaps, but the more you save now, the more you’ll have in the future. In fact, the number-one thing you can do to boost your retirement income is to save more when you’re earning money. Nothing else is nearly so important.
- Pay attention to your investments. As Robert Brokamp will share tomorrow, it’s important to watch what your money is doing. You shouldn’t monitor it every day, but it certainly pays to look in yearly (or even quarterly) to be sure everything looks the way it ought.
- Don’t touch the money until you need it. The employees at the box factory were perfectly happy when they couldn’t access the funds in their retirement accounts. To them, it was like money they never had. As soon as they had access, though, they found reasons to spend it. Don’t be that way. Pretend your retirement funds are locked in a vault that cannot be opened except by Father Time.
I’m almost afraid to ask, but: Have you heard any retirement horror stories lately? I know people who have cashed out retirement accounts worth $100,000 in order to get at the money early. Is this common? What other dumb things do people do with their retirement savings?
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Can anyone answer a question for me? I am a private employee but have considered working in the public sector in the future so I am curious. If I sign on to a pension plan, under X and Y terms today, then work for 20 years — am I guaranteed to get what I’ve earned so far? Kris’ “rules changed” but I don’t know what that means. Could her pension she’s accrued so far just simply disappear if her employer wanted it to (or public finances were bad enough)? Or does this “rules change” just affect what she’s earning from now on?
I know this is a vague question but I don’t really understand how pensions work.
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I use my employer plan to get the full match and max out my Roth equivalent on top of that. This puts me at over 25% of gross income for retirement. If that’s not enough (in my early 30s, have been since 28 or so) then I’m willing to accept having a better life as a younger person than when I’m too old to enjoy a wonderful trip because of mobility or health problems.
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@39 Amanda -
Yes SS has a disability benefit. In my area, the wait to start receiving benefits is close to 2 years, just because of application backlog. So if I were disabled suddenly and unable to work, and dependent on Social Security, I would have zero income for two years. Zero. So no, I will not be counting on Social Security for anything; whatever I do get will be a pleasant surprise.
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My mom worked for the same company for 24 years, and had a pension program based on her salary. Three years before her expected retirement date, they tried to demote her and cut her salary. She had to sue to keep her pay rate, but ended up taking the demotion (at the same pay). What was funny was that she was a sales manager, so at the lower level position she nailed all of her sales goals and made a fat lot of bonuses. Bittersweet, but I was happy for her. Now she is retired and loving it, WITH her pension, thank goodness!
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I too am a public employee (WA community college professor), and opted into the TIAA-CREF system where the state matches my 7.5% contribution (10% at age 50) but provides no defined-benefit plan. This means that for the last 15 years I’ve had to be the ONLY one in control of my retirement, saving extra, allocating investments, etc. I currently save about 28% of my gross pay (35% of net), most of which goes to retirement. And yet I still feel like I’m going to be short. This is despite the fact that I have a second job working for a private University. I’ll be OK, but I wonder how most people out there actually do it if they have a limited income.
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Hello there.
I live in a small town in norther Ontario a very rural mining and papper mill factory kind of town Pop 5000. With the demise of the news paper industry the mill declared Backrupsy and closed its doors. all the employees lost ALL of the money from the mandatory pension plan. some empployees where less then a year away from retirement and lost well into 100,000$ from there own money. The town then lost 2000 residents and have never recovered over the last 2 years.
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My mother also didn’t realize some ramifications of retirement based on where she chose to work. She worked part time as a college instructor in IL where she contributed to their state pension system. Although she is eligible for social security through both other jobs she’s had and having been married to my Dad, any social security she takes, her pension is reduced by the same dollar amount. It basically means her retirement benefits are cut in half. Even though she has worked all her life (sometimes full time, sometimes part time), she is only eligible for 500 a month retirement benefits. So, after retiring she went back to work. But she is 68 and not in the best of health, so not sure how long she will be able to keep it up.
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Great post with many good points.
The only thing I’m confused about is the statement that your mother (and other employees) are worse off now because they are getting end of year bonuses instead of profit sharing. What is the difference?
You can still save those bonuses for retirement if you have a mind to.
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I too am faculty at a state university. I chose not to go into the state pension plan because I have pension plans littered all over the globe where I’ve move jobs in academia. Our state governor has just released the upcoming year’s budget plan – we are again looking at about $30 million in cuts – on top of the $100 million we’ve lost already in the previous two years – I foresee that the university, which only makes a paltry 5.5% match currently, 11% if you are in the state pension plan will probably see this as an easy way to save cash and the match will disappear, never to return.
I think the most important thing for me from JD’s story is that you need to diversify your retirement planning. I have a Roth IRA, Tiaa-Cref 401(k), other non-stockmarket investments and cash savings. Once the mortgage is paid off next year I’m going to diversify even more.
It is more than diversifying within a single plan, it is diversifying your whole approach to retirement savings so that if one plan changes its rules your eggs aren’t all in one basket. I think that is pretty much the only way to give yourself some protection.
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The husband and I are 32 and 29, and we just started funding a 401k last year (d’oh). However, we’re funding it pretty aggressively now, getting a good employer match, and we’re also planning on having our mortgage paid off in 10 years. I’d say that’s my biggest “retirement plan”, is to not have any housing expenses beyond taxes and utilities. I feel like, if we can get our “bare minimum” living expenses down to $1k/mo (or equivalent with inflation), then we’ll be just fine by the time we’re in our 60′s. It’s a lot easier for me to get my head around that than all the calculators that tell me we need a certain dollar figure at 65 to “maintain our lifestyle at 70%” or whatever.
Now, as for horror stories…. my mother is a public school teacher, and an undiagnosed, untreated bipolar (in my opinion, anyhow). She’s made every bad money decision it’s possible to make and still have some sort of roof over her head. If they’d allowed her to take money out of the pension, at any penalty, she wouldn’t have hesitated. She’s already complaining long and loud to anyone who’ll listen about how “little” she’s going to have to live on once she hits 65 ($30K/year for a single woman in a small, low-cost-of-living town? doesn’t sound impossible to me…), but she’s never saved a dime in her entire life, and she’d be working till she dropped dead without that safety net under her.
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I’m a young person in my late 20s, but I don’t see what’s hard about saving for retirement unless you’re disabled or have health issues.
Way too many people spend it too many wants, too big a house, or other silly things like designer clothes and shoes that costs hundreds of thousands of dollars.
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I had a friend who was an hourly worker and had worked for the same Fortune 500 company for about 30 yrs before she was laid off. She was able to cash out her 401k without penalty, so she did so and ended up spending it all. Unfortunately, she was unable to find another job with similar pay (even after going back to school). Luckily she has a pension which helps, but she is barely scraping by. She tells everyone that cashing out her 401k was a huge mistake!!!
I have been trying to max out 401k and Roth IRA Contributions and I do not plan to touch the money (including loans!!!!) until retirement. I had signed up for the “Portable Pension” at work (meaning, you could take a cash sum with you when you leave and roll it into an IRA), but it turns out it’s not so “Portable”. The pension fund is underfunded now, so we can only get half in cash and get an annuity for the rest. So I’m glad I’m not really relying on that for my retirement!
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Nancy L: just take an envelope, label it “retirement,” put all your papers in it and keep it with your will or somewhere safe. Then when the time comes you have all the records of all your little pensions.
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@honeybee, in my plan, the amount we contribute is ours–we either leave it in to get the pension or we can take it out. The employer match can never come out, though, except as part of the pension. Apparently all that money contributed for people who subsequently withdrew their money from the system is subsidizing the people who don’t. In my plan, both the employee and employer contribute about 6.5%.
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In “The Gospel of Roth- The Good News About Roth IRA Conversions and How They Can Make You Money” by John Bledsoe it clearly states in the book that NO ANALYSIS is needed and that everyone should convert to a Roth IRA regardless of income. There is NO risk! The IRS is giving us a year to recharacterize or “undo” the conversion. This book gives the ins and outs for Roth IRAS! It really helped answer all my questions.
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@57 partgypsy
That change to the IL pension/ss system was actually made relatively recently to correct a weird nonlinearity such that that people who worked outside of the IL state government for the minimum number of years who a Social Security payout who were making out much better than those who had worked in IL alone or outside of the IL system alone because of the progressivity of Social Security payments.
Basically, poor folks get a larger percentage of their income reimbursed via social security, and if you only work a few years outside the IL system, you look like a poor person to social security even if you’re not. So those years outside IL were counting more than the ones working for IL.
She’s actually now just as well off as anybody contributing to either Social Security or to the Illinois system alone for the years she has worked.
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Similar is people taking social security as early as possible. That includes my dad – the minute he hit 62, he started taking payments, regardless of the long term effect it will have on his finances.
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#51 Honeybee asked
“If I sign on to a pension plan, under X and Y terms today, then work for 20 years — am I guaranteed to get what I’ve earned so far? Kris’ “rules changed” but I don’t know what that means. Could her pension she’s accrued so far just simply disappear if her employer wanted it to (or public finances were bad enough)? Or does this “rules change” just affect what she’s earning from now on?”
In short, Kris is guaranteed to get what she has earned so far.
If you have accumulated a pension benefit and you are vested in the benefit then they can not simply take away your existing vested benefit. This is governed by federal law like ERIS. So generally a “rules change” would apply to the pension system moving forward.
Kris has worked 20 years so the benefits from those 20 years are in tact and they can’t simply delete it.
HOWEVER an employer could end a pension plan entirely. If they do that they have to keep paying anyone who is retired, but they can stop the plan for existing employees. The existing employees would often just get the amount of benefits they’ve accumulated to that point. Its not too unusual for private companies to end their old style pension plans and give existing employees a lump sum pay out into a 401k or similar. But its regulated by law so companies can’t just do whatever they want.
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This is a great post, with a great story behind the scenes. The only person who can take charge of your retirement savings is…YOU! “Back in the day” many people would rely on Social Security for their financial needs. For the people who will be retiring in the future you need to take control of your retirement savings and use SS and pensions as an extra “bonus.” Great post.
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“Pay attention to your investments. As Robert Brokamp will share tomorrow, it’s important to watch what you’re money is doing.”
I think it should be “It’s important to watch what your money is doing.”
J.D.’s note: Blarg, blarg, blarg, and blarg again. You’d think I don’t proof-read — but I do. It’s just that when I’m tired and stressed, I shouldn’t be writing or editing. Sigh.
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Nicole, I beg to differ. She has paid into social security with other jobs, but because of having a state pension, is not eligible for it. I would hardly say someone who worked their entire life receiving $500 a month being as well off as anyone with a similar work history as her.
That’s like you working 15 years at one job and then 15 years at a second job, then being told at retirement your social security benefits will be based on only 1 of the jobs you worked.
Secondly, most people are eligible for social security from spouses. The 50% that she would get from collecting spousal benefits is slightly higher than what she is getting now (my Dad gets about 1300 a month in benefits) but- they would reduce his benefits if she did so.
Sounds crazy but it’s true.
She has made many poor decisions on her part as well. She decided to take her retirement as a lump sum, and that (and then some) are spent. She was also counting on selling/downsizing her house to fund retirement. Instead of selling when she should have, she decided instead to take out a heloc and use that for living expenses. I only found out about this last part recently. You can’t save adults from bad financial decisions, especially when they won’t tell you about it until after it has happened.
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I don’t know of any horror stories worse than some of my 40 and 50 year old friends that haved saved exactly NOTHING yet. In the meantime, at age 28, my husband and I are putting away 30-40% in my 401(k), his pension plan, a Roth IRA, high dividend yield stocks, and cash.
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I keep reading horror stories about how CPP and OAS (I’m Canadian) will be bankrupted by the baby boomer generation. I’m not sure I agree with this logic, but I can’t ignore it.
I’ve made semi-retirement part of my career plan. Even though I’m in my early thirties, I’m gearing my career so that I can freelance or consult during times I want to cut down on my workload (like when I have kids or caregiving responsibilities).
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Thank you Jim and Debbie M! This clears things up. I’m not from the US so I get confused by all the separate rules, especially since there is so much talk of whether and how much reduction in Social Security there will be, etc.
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A really close friend of mine had a few thousand employer-only-contributed funds in retirement when she left a job months ago (her ONLY retirement funds, 35 years old). Figuring it was ‘free money’ she raided it to buy things she normally wouldn’t be able to afford for herself. I think the last of it bought her a tattoo. *sigh* I tried to convince her it was a bad idea, to no avail.
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I don’t really have any horror stories, thank goodness, but my dad’s experience was scary enough: he was a CFP and broker and yet had almost all his “retirement” savings in stocks – even after turning 65, which most CFPs will tell you is unwise. When the market crashed, so did his accounts.
Good thing my parents’ big-ass house is paid off; but their insurance, property taxes, and utilities amount to about $2000/mo.
Best retirement plan for me, I’ve decided, is a small, efficient, paid-off house and the best possible health I can manage going into my working-less and non-working years.
I contribute to a 401(k) and an HSA, and am aggressively paying down debt. Once the debt is paid I will be aggressively saving for that house. In the meantime I eat well, exercise, don’t smoke, and drive carefully.
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@34 KDB:
I haven’t finished reading all of the comments, but if your employer did that I’m pretty certain that’s illegal. See this page:
http://www.dol.gov/ebsa/faqs/faq_consumer_pension.html
Quoted:
When must employers deposit withheld employee contributions into a 401(k) plan or other pension plan?
Employers must transmit employee contributions to pension plans as soon as they can reasonably be segregated from the employer’s general assets, but not later than the 15th business day of the month immediately after the month in which the contributions either were withheld or received by the employer.
The page also has a number you can call about shady stuff like that.
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Thank you for your blog post. I completely agree. Too many people have no idea how to save for retirement, why its important, what to do with it while its “growing”. There most definitely needs to be much more education starting in the home, then throughout school and even in new-employee orientation about retirement and how to handle it. I remember a conversation I had with a co-worker in 2008 when the market had dropped out. She was going to pull her entire retirement savings out of her because she had lost so much. I tried to explain to her that when the market was low, it was like buying on sale and to not pull her money out. I have no idea what she decided to do, but I truly hope she kept her money where it was.
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@71 partgypsy… it’s fixing a non-linearity. If she only worked in SS eligible jobs she would be worse off. If she only worked in IL state pension jobs she would be worse off. You only need to work 10 years to get social security benefits.
It used to be that people could get 100% Social security benefits and 100% IL pension benefits. (Not exactly 100%– that’s a simplification, but the idea is that as you earn more you get reimbursed less for each additional dollar the more dollars you make.) They can’t do that anymore. Now they can only get 100% benefits from one or the other.
It used to be that if you worked 10 years in a SS job and 10 years in an IL pension job you would get something like 1.5 to 2 times the benefits of what you would have gotten had you just worked in a SS job or an IL pension job for 20 years. They fixed that non-linearity so you are only a little bit better off in that situation than if you had only worked for a SS job or for the IL system for 20 years.
Jeff Brown at UIUC is the expert on this specific topic.
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@50 (Debbie M): I don’t think it is safe to assume on one hand “income tax rates are going to shoot through the roof” and on the other hand “Roth IRAs will continue to offer tax-free withdrawal”
@ 51: yes, in the case of a company bankruptcy, you could be forced to the government-run pension plan (PBGC) which has limited benefits (see the post earlier re: United Airlines employees). And, regardless of what a few other posters stated, there is NO GUARANTEE that a government pension would be funded as promised. Current rules may state one thing but EVERY law can be changed. And I would expect, based on the current state of general sentiment towards government employees, that a change is very possible for most public employees.
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Nancy:
Why don’t you roll all of your pension money into IRAs? Most public pensions do not get interest after five years if you have worked for them less than ten years.
Family business- went under- pensions in family business stock- pensions went bust.
403B are only a good thing IF the companies they choose are reasonable about costs. I think IRAs should have the $16,000 limit so anyone can REALLY fund their retirements.
Last- military retirement. They said our health care would be free for life- NOT. They said that they would give us COLA- NOT. They said that it would last our lifetime—not counting on it! We hope it lasts at least ten more years.
The potential problem is (seeing two children in the military) that they are not thinking about WHY people stay in past their commitments- mostly five years. I see more people bailing on the “volunteer military” because they no longer trust that the pension will be there in the end. Love of country does not put food on the table.
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I think all of you who posted are way ahead of the game. Very few folks out there are even bothering to give it a thought. I would suggest reading a simple book called “The Wealthy Barber.” Anyone can understand it and you’ll never be the same. I started very late investing and have worked wonders for myself. You must begin even if it’s $5 a week. It all adds up. Every time you eat out or shop or whatever, try to think of it as a share of stock that will be worth 10 times that when you retire and you won’t be so prone to overspend. But like the one poster mentioned, you must have some fun too, but many, many fun things are free. Even if you only got an extra $100/month in income when you’re retired, that’s better than zero. I wish you all the resolve you can muster.
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honeybee said: “Thank you Jim and Debbie M! This clears things up. I’m not from the US so I get confused by all the separate rules,”
I don’t know how it works in other countries and what I said only applies in the US.
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JD,
Do you ever consider what hyperinflation or if the US loses its world reserve currency status and what that could do to our retirement investments in the stock market? I am a generation Xer and all my retirement is in a 401K and a RothIRA. I am currently wondering if I should cash everything out of the accounts, pay the penalty and tax and buy a farm. At least (I hope) no one could take land away from me. I am very concerned that that chances of my entire years of savings for retirement being wiped out within the next 10 years is pretty high. I put it at 50% due to our federal deficit. I see that as the single biggest threat to our economy right now and my retirement. I am interested to know your thoughts on this aspect of retirement planning.
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@Capnwayno –
Basically:
A 401(k) (Roth or otherwise) is run by your employer. You can invest only in what your employer has selected with the financial company (usually a small selection of mutual funds), but you can invest up to $16,500 per year. Oh, and there’re usually lots of fees.
An IRA (again, Roth or otherwise) is set up between you and a finance company. You can invest up to $5000/yr in one of these, and you can put it in whatever you want. You can shop around, so you usually get lower fees. Oh, and you can both an IRA and a 401(k), so you can put up to $21.500 per year in total tax-advantaged retirement.
My advice: if your employer offers a match, take the match, then start an IRA. Max out the IRA, and, once you’ve done that, work up to maxing out your 401(k).
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The basic facts of the retirement are:
1. You don’t really know how much you will need (you don’t know how long you will be alive for)
2. You can’t completely count on most retirement mechanisms (I would argue only cash or CDs in personal savings accounts are truly risk free
As such, I would offer the philosophy of staying cash flow positive as long as you are physically able. This means:
1. Invest in things that maximize the difference between your income and expenses, and not investments you can’t control. For income, this would include continuing education to keep skills or acquire new ones. For expenses, this means paying off all debt, and investing to reduce mandatory expenses as much as possible. For example, investing in a new efficient furnace could result in lowering your heating bills.
2. Don’t ever plan on “retiring” – think about it. Farmers 150 years ago worked the fields until they died. You can’t tell me you can’t keep going into an office 5 days a week. Many companies (mine included) are starting to realize the value older employees have and offering reduced hours. One guy I work with retired from the company and now works three days a week – this is a huge benefit to his cash flow.
By staying cash flow positive as long as possible, you will not need to rely on retirement systems that may not be there tomorrow.
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I don’t blame the government workers at all. They are doing their job for a benefit/wage package when they are hired. However, the government should be held accountable like any other company providing benefit packages. Retirement money should be set aside each year as part of the budget. Governments are in trouble because they did not plan – like you or I would – by setting aside money to cover future expenses.
Employees have just as much accountability. Their stupidity should not derail the good faith efforts put forth by the company that hired them.
Bottom line, each individual – whether a company, a government, or an employee – should be accountable to their own actions.
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A survey released by the Employee Benefit Research Institute found that 54 percent of American workers have saved less than $25,000 for retirement, with half of those people saying they had less than $1,000 saved for retirement.
Yet, nearly a third of those who say they have virtually nothing set aside say they are “very” or “somewhat” confident that they will have enough money for a comfortable retirement.
Okaaay…
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#89
Rob,
I don’t think people are as clueless as you assume. I’m from a working class family and most of my older relatives have very little in retirement savings and expect to have a comfortable retirement. It really just depends on your definition of “comfortable.”
For lower income workers Social Security replaces a much larger percentage of income than it does for middle or high earners. My aunts and uncles have lived in the same houses since their now grown children were born. They won’t have house payments in retirement. Their cars are paid for at retirement and they put very few miles on them each year. They live in areas with minimal (less than $500 a year) in property taxes. Fishing is a big hobby for the men and their bass boats are paid for. The women sew and scrapbook. Hunting is common and all the gear is paid for too. Everyone has big gardens and fruit trees. They don’t take many vacations and if they do go away for a long weekend they drive, not fly.
The people I am thinking of are comfortable. The only recurring bills they have are Medicare and supplemental insurance premiums, car/home insurance, utilities and food. They can easily meet these obligations with their current social security income. For me this kind of life doesn’t sound “comfortable” but that’s probably because I have expectations’ creep. They are quite happy with their lives. At the end of the day, they’ll probably have a happier retirement than lots of people who spent their working years at country clubs and in gated communities and now can’t sustain that lifestyle after retirement.
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I don’t have a horror story but I got laid off before I could contribute to my 401k. Thankfully I opened up a Roth IRA and plan to start funding it this year. Question, can you have multiple IRA accounts? And if so, do you recommend it?
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This article definately hits home for me. I’m a union employee and I’m very forunate to have both a defined benefit pension and a Taft-Hartley annuity plan that functions very similarly to a 401k. When the US equity and bond markets imploded in the fall of 2008 the pension fund slashed the rate of benefit accrual by over 60% and many members had their annuity funds invested heavily in equities, where they took an absolute beating.
Many members’ retirement dates were pushed back, scaled back or cancelled all together due to these circumstances. The moral of the story is that we must all be vigilant over our retirement funds. A different investment mix for the annuity fund and a simple IRA or Roth could have made all the difference for these folks; they’d be down in Boca right now playing shuffle board instead of trudging in to work through the snow this morning. Don’t fall asleep at the wheel!
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i think money management should be kept simple.Save 10% and live off the 90%.I have done this for the past 15 years and have managed to take 3 trips to Europe,3 trips to Africa including a 7 month trip to South Africa..J.D. you will enjoy South Africa..the Big Five are superb.See if you can visit Victoria Falls in Zambia too.My retirement accounts are far from impressive,but,who wants to have a million in the bank and miss out on enjoying life? be smart,do the basics and do what is in your heart.
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@Suzy (#60):
“I feel like, if we can get our “bare minimum” living expenses down to $1k/mo (or equivalent with inflation), then we’ll be just fine by the time we’re in our 60′s.”
Suzy, you’ll be lucky if your health insurance alone is $1,000/month for you and your husband once you reach your 60′s. Do not underestimate how expensive health insurance is.
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A round of applause for all of you who care about your futures! Now we just need to educate the other 300 million! How will the ones that don’t plan for retirement affect our future economy? Will tax rates and healthcare costs be outrageous in the next 20 to 30 years? I would like to see some information on this projection from an economist, or possibly a future post from JD.
A friend of mine is doing all she can for her future. Maxing out 401-K, Roth IRA, investment properties, etc.. Another friend is laid off and has a small 401-K which is shrinking because he is living on it. Will the people that sacrafice now for the future end up paying for the one’s that have not? Maybe the friend that is unemployed and living off his 401-k will be the one that comes out ahead in the long run…
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@Jessica-
I was just stating something I read (http://abcnews.go.com/Business/Retirement/avoid-retirement-poverty/story?id=10173788).
I admire down-to-earth people like the ones you are talking about, and feel I have a similar mentality in terms of living simply and sustainably. However, Kevin is right about insurance premiums, something many people don’t factor in to their overall retirement scheme. One big illness–even with insurance–can wipe a lot of people out. It’s disconcerting (to me at least) to think so much of our fate lies in being ‘lucky’ or not in terms of health.
@Gomez-
I’ve been thinking the same thing. The story of the ant and the grasshopper comes to mind…
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Few here are counting on Social Security if they plan to retire 30+ years from now…but honestly, after 2008, I’m not sure any retirement funds invested in the stock market will be there 30 years from now!
My plan is to invest in my company’s 403b (with very nice match, so it would be silly not to), pay off all debt, and invest in material goods that will make retirement affordable. Energy-efficiency measures are at the top of the list, because 30 years from now, heating fuel and electricity prices are going to be through the roof. Which reminds me, I’d better put a new roof on the list, too…
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@Kevin (#94)
You’re right, I have been discounting this. Sorry to be ignorant, but aren’t a lot of people covered by Medicare once they hit 65?
I guess I just assume that our current private health care system is completely unsustainable, so by 30 years from now we’ll have something different. Or the husband and I will move to Sweden.
He and I currently pay $300/mo for our insurance, which is supposedly a very good plan through his employer, but still doesn’t seem all that great (though maybe we’ve just been unlucky with billing snafu’s)… I can’t imagine he and I will stay in this system that much longer if things continue to get worse, we’ll just get a cheap “catastrophic” plan and pay for the rest out of pocket.
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@95 Gomez
You ask: “Will tax rates and healthcare costs be outrageous in the next 20 to 30 years?”
Tax rates are going to depend on a lot of choices we make now. No economist can predict what will happen in the absence of a crystal ball that depicts what policy makers do.
Health care costs will continue increasing at a rate faster than inflation. However, health care will also be improving at rapid rates. Some would say this is a fair trade-off. Some would not.
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As JD said, what this really shows is that you can’t depend on ANYBODY else to plan your retirement for you. I think its clear that the trend is for company sponsored benefits to shrink smaller and smaller. In 10 years, we may all be contract workers with zero benefits. Better to start planning for that scenario now so it doesn’t take you by surprise.
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