Ah, retirement strategies. Either a dream or a worry, but either way, you need them.
Dreaming of retirement is part of the evolution of life. As a 20-something, you spend time envisioning the amazing career you'll have and the important work you'll do. As a 50-something, what you picture is a hammock, an ice-cold beer, and a good book. You picture retirement.
For years, The Husband has laughed about the retirees who snag the earliest oil change and dentist appointments simply because they are so used to getting up at the crack of dawn every day of their working lives. So in retirement, they keep the schedule. Not me. I. Am. Sleeping. In. My vision of retirement consists entirely of not having the alarm go off every morning. Never. Not for any reason.
At our age (I am 53 and my husband is 54), we are in a contradictory stage of life because we have two kids on the cusp of college but we are also nearing possible retirement. So it's important to ask the questions…
- A) Can we retire?
- B) At what age can we retire?
- C) Can we live comfortably in retirement?
Looking under the retirement hood
I recently took advantage of the T. Rowe Price retirement calculator tool on the company's website — at the suggestion of the company. This is a simple online tool, and it's free. (You do have to create an account; but there is no cost to do so, and so far I have not had any hard-sell follow-up.)
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Before we go any farther, a quick side note: The Husband gets much of the credit for however ready we might be for retirement — he pays attention to all that. He has handled all our mutual fund investing, etc. Basically, my role has been to enroll in whatever plan whatever employer I was working for was offering at the time — and I always did it right away and at the maximum allowed.
Hitting the maximum allowed for a 401(k) is especially important if your employer offers a match! No matter how old you are, enroll in your company's 401(k). It's what I call mindless investing in your future, because they do it for you. If the 30-year-old me had to worry about depositing money every month for my retirement, I'd be shopping for tent cities right now.
Back to the calculator. The tool has you input all your retirement account amounts, including 401(k)s, Roth IRAs, other IRAs, investments, pensions, and your estimated Social Security disbursement. I chose 67 as the age of retirement because, well, our two kids are on the cusp of college. Also, I am currently self-employed. (Wait! Do self-employed people even GET to retire? Who is going to buy me that watch?)
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In a few clicks, I got what seemed to be good news — the calculator thinks The Husband and I will need $11,000/month to live (this includes travel, gifts, charitable donations, and entertainment in addition to the bare necessities). It thinks I will have about $16,000 available. Even better, if I can do it all on $11,000/month, they are 99 percent confident I can live to the age of 95, housed and clothed and entertained. Woohoo!!! If, on the other hand, we go hog wild and spend the $16K/month, they feel 70 percent certain we will be comfortable to the age of 95. This is great news for me, because I have longevity on both sides of my family.
Most aren't saving for the hammock
The bad news is that The Husband and I are apparently in the minority. My friends at American University's Kogod School of Business sent me some information about the state of Americans' retirement, and it is not a pretty picture. Thirty-eight percent of Americans say they haven't saved anything for retirement. Also, 38 percent of Americans over age 65 rely on Social Security completely in their retirement! If we did that, we would have $48,000 for the whole year to live, about 35 percent of our total income now. Remember that tent city unit we might've been shopping for?
Fully 80 percent of Americans between the ages of 30 and 54 believe they won't have enough for retirement. This is in direct contradiction to the results of a 2015 Wells Fargo survey that showed the majority of Americans believe a financially secure retirement is the epitome of the American Dream (96 percent). It used to be buying a home. But if you are going to lose your home in your retirement, I guess all this makes sense.
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So what to do? There are some great tips here, but the bottom line is this: Get off your duff and start saving/investing now. It's important. That song “Forever Young”? It's a song. Some day you will be old; and when you are, you want to be safe and snug in some kind of decent housing, with medical care and good food. Maybe you won't be taking a cruise around the world, but you want to be secure. If you are in your 20s, get going and be aggressive. If you are in your 40s, get going and be aggressive. If you are in your 50s or older, get going and play it a little safer, but stop going to the movies and drinking lattes and save! Pennies always add up to dollars.
What about you? Are you saving for retirement? Do you feel secure, or do you need to do more? Leave your thoughts in the comments!
Not at the moment, I stopped IRA contributions a few years ago and dialed down my 401k withholding to the minimum just to get the company match. This is because I figure that my RMDs in two decades will exceed my current W2 income. Given the situation you describe (“most aren’t saving”) I expect income tax rates will rise over time, so I’m opting to pay the taxes now.
I am a little curious about your numbers. You mentioned that 48K is 35% of your total income and that you need 11K/month to live– these are almost the same (income 137K/yr vs expenses 132K/yr) so your savings rate would be only 3.6%. How did you get into a position to be able to spend almost 200K/yr on such a low savings rate?
Also I wonder about the numbers in the “how much do you need” graphic. Withdrawing 10K per month on a 2.1M nest egg would be spending nearly 6% per year which seems way above today’s 3% “safe withdrawal rate” for permanent retirees.
OMG – The average savings of 50 year-olds is terrifying.
Doing pretty well, retired 9 year ago, just before my 42nd birthday! We got there basically by both having well paying jobs, living on just 1 income and investing the other income. My personal investment style is 100% in dividend paying stocks with a low turnover. With that style, my long-term (24 years) year on year return is 8.1%. But I plan/budget with 5.5% and an inflation-rate of 3.5%.
Retirement has been on my agenda since I graduated college. I can imagine trying to live on SSI in my golden years.
“we would have $48,000 for the whole year to live…”
That isn’t a horrible number. Plenty of average people do that every year (without living in a tent city!) It just means not having a lot of luxuries and living frugally.
If you had to retire on $48,000 a year, but your home was paid off, it would not be all that hard of an existence. Home payments are the greatest amount of the budget each month. I guess the big thing is get your home paid off before you retire. Seems like it would make life a lot easier.
Yes – and our plan is the house will be paid off – so if it all falls apart we will be OK. But it’s nice to dream about spending the winters with our toes in the warm sand somewhere.
Wow! That is a lot of income for retirement—great! Amazing!
I have to tell you that after five years of retirement we (59 and 66) live very well off of much less then you stated (about half). We travel, spoil grandkids and have hobbies. We pay for everything in cash. Our house was paid off long ago.
And guess what? If you only took into account our IRAs – we don’t have a whole lot saved for our retirement either. I suspect that most retirees are like us. It looks like we live off of SS and a pension, because we don’t have to report most anything else to anyone.
Financial houses would like people to believe that their lives would be ruined if they retire early with a reasonable amount of savings. We are here to say that neither of us take meds anymore (no more stress) and we enjoy the out of doors while everyone else stresses about having enough.
Just my take on it!
I began saving for retirement at 23, with my 2nd employer after college. I started with 5% of my income + a 4% employer match + a 7.5% annual profit sharing distribution, which brings my annual savings rate to 16.5%. Over the years I have increased my contribution from 5% to 8-10%. Currently I am at 8% to my Roth 401(k) bring my total savings rate to 19.5%. I’m fortunate enough to have an employer with great retirement benefits. I also recently opened a Roth IRA via Vanguard. I won’t hit the $5,500 limit this year but that is my goal next year – to max out my Roth IRA. I’m only 32 and I’ve been saving diligently for 9 years now. I have just about 2x my current salary saved for retirement. My goal is to keep on this path and continue to increase my savings rate so I can retire at 60.
Bravo!!!
I’m doing okay! Working on it. I just turned 23 last month and from a monthly income basis I figured I’m about 1/25th of the way to being retired. I currently make about $100/month from dividends and would like to be at $2,500/month. Slowly, but surely! I hope to be able to retire by the time I turn 40, hopefully sooner! I’m constantly looking for new ways to supplement my income so that should help speed things up a little bit!
The fact that you are thinking about retirement at 23 is awesome! You are ahead of most of your peers, I guarantee that! Keep it up!
“If we did that, we would have $48,000 for the whole year to live, about 35 percent of our total income now. Remember that tent city unit we might’ve been shopping for?”
I about spit my coke laughing at this one. Apparently the author is strung so far from reality that she believes one cannot live on this amount of money for a year. This the farthest from destitute. I’ve been homeless and the attitude in the article is just repulsive (hoping the author was just being sarcastic). You can buy a tent for $30 and a decent hikers backpack for about $100. This is what I did, spending my homeless days roaming from campground to campground under the guise of a frequent traveler (avoiding the homelessness stigma is key to social acceptance and success of this strategy). I basically lived on fast food or items that other campers would generously leave at my campsite.
A little over 3 years later, I have a job making roughly the same amount of money that the author thumbs her nose at. But you want to know the amazing part? My savings rate with significantly more income now is actually LOWER than it was when I was homeless. (I wasn’t broke as a homeless person, as I was able to do odd jobs and help family.)
Why is that? It all boils down to expenses. Now I pay rent and have bills and things break down. And based on what I’m reading here along with freebird’s comment, it sounds like the author will need to cut some of her expenses to make retirement work unless they already about $4+ million socked away. Yes, that means you might have to skip caviar one night a week.
P.S. If the “averages” in the infographic are anywhere near accurate, based on my current savings I am in a very good position to retire comfortably and live an above-average lifestyle.
Thanks for your thoughts here Tom – and yes, humor was the goal. Apologies if it didn’t translate for you. $48K a year is not destitute, especially for a couple whose home will be paid off by the time we retire. Millions of families live on that, or less. In no way did I mean to demean that.
Great Article. I’m 38 and max out my 401k $18000 and roth ira $5500. I will be doing that. I should retire by 55 years old.
I have to admit retirement planning is a weak spot for me. I enroll in the basic target plans and have never been on top of verifying how much is in what. To date I have about $45k combined in my 401k, IRA, and ROTH. I contribute to the max match only currently. I have a tiny pension from my part time job, and will be fully vested in 3 more years. I am seriously considering teaching and will be taking the certification and subject test by early next year. In my state I am qualified to teach middle or high school English because of my degree, without any additional education, and teachers become fully vested in the pension plan after 8 years. I would still keep my part time job (which I love!) since they have full-time teachers on staff, who of course get most of their hours in the summer. Since I don’t earn a large income, and don’t plan on earning a large income ever, through employment, I’m trying to rack up all the “free” retirement contributions as possible. The only thing I feel bad for not doing, is contributing to my ROTH max. I feel it’s doable on my income, but I’m saving for at least 1 more property before I commit to maxing out the ROTH.
I own a rental property, but don’t count that as it’s my only property. I do plan on adding more properties and using the income into retirement, and don’t plan on selling until retirement, which will hopefully keep the taxes down. I’m not going to lie, I don’t want a lot of my income to go towards retirement. When you don’t make that much, the idea of sending so much to retirement is painful. I am planning on a variety of safety nets (part time employment, social security, pensions, dividends from contributed accounts, general savings, passive income from real estate, as well as cash from sales).
Part of my planning is having my house paid off as well. I plan on retiring in the first house I bought when I was earning $26k/year. I don’t plan on living there all my life, and don’t live there now, but I would like to retire there; about $40k left on the mortgage. I can’t predict how much I’ll need or if I’ll live to use what I’ve saved, so I’m not going to stress over it. I’m doing what I can and I’ll make it work.
Interesting article. I keep hearing the high percentages of people that have little or no retirement funds and what the “average” retirement fund holds.
I’m really curious where the average retirement savings number is coming from. Are they looking across all retirement accounts? With people changing jobs so often, if they don’t roll over their company 401K plans into their new company or IRA account, that’s going to lower the overall average. Just a thought…
20 years ago at age 35, I would have fallen into the average group, having $20K in one 401K and $30K in another. I would have actually been bringing the “average” value down due to the 2 smaller balances.
Today I’m up close to $800K having focused on retirement and trying to max out my 401K. Between my 401K and pension, I’m hoping to retire within the next 5 year.
To be honest I kind of choked when I saw the $11,000 a month number as a “need”. Almost all of my in-laws and siblings make under $35K a year with a number in the $20K range. Most have next to nothing saved for retirement. Most feel they will need to be working into their late sixties and figure they’ll just somehow manage on the $800 to $1200 a month of SS they’ll get, nowhere near the $48K mentioned in the article. They are going to be that 38% dependent on only SS and whatever odd jobs they can get to supplement that, assuming they can work at all.
Yet the fact is, many of them will manage fine. They’ll be in small homes or apartments, likely bunked up with other relatives, sharing a car or driving a beater or getting out once or twice a week when their kids or another relative takes them shopping or to Bingo or to the track. Their health will generally suck because of their lifestyle and habits, and sadly they will typically be dead before their mid 70’s. In part because they won’t go to a doctor until their condition is such that they have to, and often by then it’s too late. We forget that there are millions, if not tens of millions, of people like this in the country that work into the numbers presented in the article. They aren’t lazy, or living off welfare, they just worked and didn’t earn or save much or had money sucking issues yet still managed to enjoy their lives on many levels.
On the flip side, they don’t take fancy vacations now. They don’t own expensive cars now. They live in smaller homes and apartments now. So their lives will not substantially change in scope or activities when they “retire”.
Which in the end, is what many of us expect our retirements to be on the financial side, a continuation of our current lifestyle with more free time to pursue interests. Not an upgrade, not a significant downgrade, but a continuation in current lifestyle.
Sometimes I think we forget that in all the planning and worrying about “enough”. While I, like I’m sure many others, want to ensure we have more than “enough”, often even if things go somewhat south on us, like say you find you only generate $8K instead of $11K a month, or $5K versus a planned $7K a month, we’ll adapt and things will be fine.
Me too, but I don’t think it’s wise to retire early due to the cost of medical insurance (and I am not endorsing Obamacare either!).
I can’t help but feel the numbers the big investment companies throw out in these retirement calculators are ridiculous. In retirement – with our home paid off and kids (and college tuitions) out of the house – I really think the notion of needing 80 percent of our current income is downright laughable. We’ll be able to live like kings on less than half our current income. If we had to, we could get by on social security alone. That said, we’re figuring on being means tested out of social security and are saving accordingly. We have a little over a million saved now and are also expecting a 30k/year pension. We will likely retire in ten years when my husband is 64 and I’m 60.
Not to mention that for many people here anyway, a certain amount of their current income is going towards saving for retirement. You won’t be saving for retirement, in retirement.