I have been following your blog for almost a year now. I can relate to your wife’s situation as I am facing it too in my country.

Well, one thing life has taught me, is to have a “Plan B”, even a “Plan C”.

Almost nothing in this world can be guaranteed anymore, especially for the Gen-Yers. A comfortable retirement is beyond reach of many.

*kinda… once the government has it it’s no longer their money… but the idea is similar

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.

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.

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…

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…

“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.

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!

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.

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…

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.

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.

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).

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.

I don’t know how it works in other countries and what I said only applies in the US.

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.

@ 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.

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.

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.