There is no grand, overarching, systemic retirement crisis.

But that's actually bad news. Because instead of one grand crisis -- for which we might find one grand solution -- there are at least five separate crises, and each demands its own solution.

You know about the retirement crisis -- no matter what your situation. Even ostriches with their heads buried in the sand have seen the headlines saying that Social Security won't be around when they retire, that city or state pensions will be cut (if they don't go broke altogether), that rising inflation will eat up retirement incomes, that bond prices will fall, that stock market returns will be significantly lower than they have been in past decades or that financial market volatility will produce a decade of buying high and selling low that devastates portfolios.

You're almost certainly aware, too, of the causes: an aging world, massive overspending by governments (and individuals), inefficient capital allocations that have lowered future global returns, massive undersaving by governments (and individuals), a worldwide festival of deleveraging as everyone from the guy down the block to the government of Greece has to spend less in order to pay off debt, the odds of rising inflation . . . .

And you've read the solutions and perhaps passed them around the dinner table with friends. Maybe you've awakened in the middle of night, sweating from a nightmare in which you're trying to sell everything you own at a yard sale and nobody is buying.

  • Yes, the federal government can fix Social Security -- at least for a couple of decades -- by raising the income ceiling on Social Security taxes. But does that "fix" mean you can stop worrying?
  • Yes, you've said (jokingly) that your retirement plan is to work until you die. But do you really think that will be necessary or possible?
  • Yes, you're sure that your 401k is doing fine -- but you haven't been able to bring yourself to open your statements for almost a year now.

Image: Jim Jubak

Jim Jubak

The truth is that those common solutions don't necessarily apply to you. Our own individual and very specific financial situations determine how the retirement crisis affects us to such a degree that those differing financial circumstances effectively make this common retirement crisis different for each of us.

The retirement crisis means very different things to a 65-year old who has saved diligently but is seeing the income from a retirement portfolio fall; a 45-year-old who is wondering how to put enough money away for retirement when the definition of "enough" seems so fluid; and a 25-year-old who is, justifiably, so cynical about all the accepted wisdom that saving anything at all seems like it's for saps.

Ideally, I'd describe the individual retirement crisis that faces each of us. But because I don't know the financial situation of each of my readers -- and because I am constrained for space even on the Internet -- I'm instead going to break down the retirement crisis into five pieces. Call them The Five Stages of Retirement Grief. I'll try to describe each one, then suggest some approaches to individual solutions.

Crisis No. 1: Shrinkage

The problem: You're retired or on the verge of retirement and you've done everything right. You drew up a financial plan and saved diligently. But your plan has run into a shrinkage problem. The 5% or 7% or whatever return you assumed just doesn't look like it is going to be there in the future. Certainly, you weren't planning for three-month Treasury bills to be paying you 0.08% or 10-year Treasurys 1.61%. And you're worried by projections that say the real return on stocks going forward is going to be more like 5% (if we're lucky) than the 7.5% real return that has been the assumption of choice recently. (That assumption replaced the 10% assumption that was the common wisdom in the years before the 2000 bear market.) And the rate of return you'll actually get makes a huge difference. At 7.5%, a $2 million retirement portfolio throws off an annual $150,000 in income. At 5% the annual cash falls to $100,000. At 4%, it's $80,000.

Crisis No. 2: Whoops

The problem: You haven't been quite as diligent as you should have been and now you're on the verge of retirement. When you crank the numbers, they just don't add up. That $750,000 you were supposed to have looks more like $400,000, thanks to recent bear markets and higher-than-expected college expenses because Johnny didn't get that lacrosse scholarship but decided to go to Johns Hopkins anyway. (Of course, you could have said no.) You've been through your budget, and even when you take into account lower expenses since the kids will be out of the house (you really, really hope) and you and your life partner will be able to cut out all those work expenses, it looks as if you'll have a tough time making ends meet.

Crisis No. 3: Too much on your plate

The problem: You're a long way from retirement, you've done your homework, and you know not only that you should save and invest but even how much. But, while you're putting something away, it's not as much as it should be. There's the money that has to go into the kids' college funds -- because you know they'll be behind a very big eight ball if they don't go to college. (And then there's all the money that you are tempted to spend on tutors and lessons and the like so they can get into the best college possible.) The health insurance at your job isn't as good as it once was, and it costs more. The lower prices at Costco (COST) and Family Dollar (FDO) sure help with the family budget, but gas to drive there isn't cheap and the car is getting on in years. The car isn't the only thing that's aging, of course, and you worry about paying for the gym and health care. The family needs all its wage-earners to stay healthy enough to work for a good long time.

Crisis No. 4: Damn the financial markets

The problem: Your plan for a comfortable retirement might have worked, except that you ran into the bear markets of of 2000-2002 and 2007-2009 in stocks. And now you're worried that the stock market is going to deliver a replay in 2012. And you worry that the bond market looks set for a long period of falling prices and climbing yields as the world gets back to normal, assuming that it does. All this has played havoc with your financial plans. The stock options from your job weren't ever going to turn you into Google's (GOOG) Sergey Brin, but they sure would have made a solid contribution to retirement -- except that they expired worthless in 2001. That commodity exchange-traded fund was a great idea in 2007, but it was a disaster in 2008 (and the volatility in early 2009 was just too much to bear, so you sold). And now you just can't seem to find your footing in this market. Put money in what looks like a sector trending strongly upward, and the entire market heads down, taking your investments with it. Nothing that you thought that you knew about investing seems to work the way it's supposed to.

Crisis No. 5: It seems pointless to try

The problem: You're 25 or 30. You've got a job, although you don't know how long it will last, and it would sure be great if it came with health insurance. You're making enough now to put something away. Looking around, though, it's hard to see where or why. The stock market is one idea -- until you think about how scary stocks have been over the past decade, which is pretty much your whole adult life. Should you buy a house? That's how your parents' generation (or was that your grandparents'?) built wealth. But you know a lot of people who paid more for their houses two or three years ago than they're worth now. Put your money in a savings account or a certificate of deposit? What's the point? You know all the arguments for saving and investing instead of spending, but there's just no positive reinforcement for that these days with interest rates so low.

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