8/24/2012 5:48 PM ET|
6 reasons you'll never retire
It's not your dad's retirement world out there. You won't have a pension, and even if you've saved diligently, you're likely to come up short.
Once upon a time, people stopped working at age 65 and enjoyed years of golf and grandchildren funded by a reliable monthly income from corporate pension and health care benefits supplemented by government health care and Social Security. In 2012, that fairy tale has become a joke. Here are six reasons you'll never retire:
1. Corporate pension slashed
There are two types of corporate pension funds: defined benefit and defined contribution, such as 401ks. Defined benefit is the formerly common corporate practice of companies paying you a fixed amount every month after you retire; defined contribution means that a company contributes a specific amount to your retirement fund.
A 2010 survey by consulting firm Towers Watson found that between 1998 and 2010, the proportion of Fortune 100 companies offering defined-benefit plans fell from 67% to 17%, while defined-contribution plans rose from 10% to 58%.
Companies did this to cut their costs, and unless you have amazing luck investing, the defined-contribution plans will deliver less income after you retire.
2. Dropping income
Meanwhile, incomes that might go into savings to make up for that pension drop are way down on an inflation-adjusted basis. A September 2011 Census Bureau report revealed that a typical U.S. family became poorer between 2000 and 2010 -- the first decadelong income decline in at least a half-century. Specifically, median household income fell 2.3% to $49,445 in 2010 and has dropped 7% since 2000 after adjusting for inflation -- and income was the lowest since 1996.
3. Higher child care expenses due to rise in 2-income families
Despite the rise of two-income couples, families are only treading water. According to the Census Bureau, between 1950 and 2008, the proportion of one-earner families plummeted from 63.4% to 16.9%, while the share of American families with two earners soared from 20.4% to 42.4%.
While this arrangement offers financial benefits, it also adds to parental stress and boosts child care expenses for many families. For example, in 2011, fees in licensed centers ranged from as high as $14,050 a year for a 4-year-old child to $18,200 a year for an infant, according to the National Association of Child Care Resource & Referral Agencies (.pdf file). Those figures are based on an average of 35 hours of child care per week.
4. Collapsing investment returns
As the number of people with defined-contribution plans has increased, the opportunities to invest them at a meaningful rate of return -- at least 8% a year -- have evaporated. For example, stocks have earned slightly more than 2% a year in the past decade, while the average annual return of the Standard & Poor's 500 Index from 2002 to 2012 has been 1.8%.
And fixed-income investments are even less attractive -- a 10-year Treasury note, for example, was recently paying 1.8%. And to earn a mere 2.9%, you need to park your money for 30 years in a U.S. Treasury bond.
In short, lower corporate contributions and a shift in investment responsibility from the company to the employee have accompanied a range of investment options with annual returns that are at least 6% a year too low.
5. Insufficient savings
Although estimates vary, a rule of thumb is that you need 60% of your pre-retirement income to live comfortably after you retire. If you make $100,000 a year before retiring, you'll need $60,000 a year by that rule.
If you have $10 million saved up, and it yields the typical money market rate of about 0.5%, that means $50,000 a year in income. If you supplement that with Social Security -- the average monthly Social Security benefit for retired workers in December 2010 was $1,175.50 -- you could be fine. Naturally, the more your savings can yield, the less you need to save to reach that target.
But how many of you will really have that much saved up? Very few. According to the Employee Benefits Research Institute, 17% had more than $250,000 saved up in 2011. The report doesn't say what percentage had more than $1 million, but 60% of those surveyed reported having saved less than $50,000. In short, most Americans will not have enough money for retirement.
6. Inheritance too small
If you don't have enough money saved up on which to retire, you have three options: work until you die, inherit enough to retire on or retire with insufficient money to pay your bills.
For example, 78 million baby boomers -- born between 1945 and 1965 -- are expected to inherit $8.4 trillion (including $2.4 million that has already been received), according to Boston College's Center for Retirement.
And that's not all . . .
Even if you save up enough money, unexpected expenses could ruin your well-prepared plans:
- What if you get sick and need expensive medical treatment that's not completely covered by insurance?
- What if you have unpaid debts?
- What if there's a financial crisis that slashes the value of your retirement savings?
Sure, there's a chance that you'll enjoy an idyllic retirement. But for most people, retirement is dead.
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I'll give you 545 reason why Americans will have an EXTREMELY hard time retiring...and guess where the hell they are. In The US Capital.. And who pays for their retirement? We do! And who set all of this up. They did! Don't give me this crap about the wealthy doing it. Nobody made the Congress of the USA do this. Nobody made the Congress of the USA take a bribe to set things up this way. CONGRESS did it. Don't whine about all this. Prosecute them!
Do you ever hear either party talk about dropping the "Federal Retirement Package" that they gave themselves? Hell no you haven't. Do any of you out there have nay idea what these SOB's are robbing you of so as to take care of themselves? You heard anything appreciably close to the words "Term Limits" come out of any of their mouths? Hell no you haven't!
They are the PROBLEM. Take a class in PROBLEM SOLVING and maybe you'll get the answer.
What a dumb article. If you saved 10 million. Most of us don't even make a miilion in 20 years yet alone 10 million. What a stujpid doom and gloom article with no common sense thinking!!!
Why in the world would I need 10 million in retirement when I didn't even need 1 million all the years I worked!!! Whoever wrote this article is either very stupid or trying to scare people.
I talked with a 53 year old man yesterday, he works as a prison guard, he tells me he has one more year to retirement. So govt employees get the golden treatment off taxpayer funds, and we get only what we can afford? This problem needs to be fixed, and also....why hasn't anyone raised a vote as to repeal the govt (congress) retirement, insurance etc, to match the same as they impose on us??
"If you have $10 million saved up, and it yields the typical money market rate of about 0.5%, that means $50,000 a year in income. If you supplement that with Social Security -- the average monthly Social Security benefit for retired workers in December 2010 was $1,175.50 -- you could be fine."
What average person is going to save up $10,000,000 in their lifetime???
We might as well kill ourselves now.
One goofball assumption that jumped out at me here was the implication that you need $10 million throwing off $50,000 in annual income, coupled with Social Security, to achieve about $60,000 per year in retirement. Um...only if you wanted to leave a $10M nest egg of capital untouched when you die!
Well then - let's just throw our hands high in the air and give up because it isn't worth worrying about, shall we? What a 'down' article. Thanks for letting me know my efforts are in vain. Cripes, the lottery won't even help (if 10 million isn't enough) - REALLY???
I'll be happily continuing to contribute and plan. So, here are 6 reasons you are DEAD wrong, Peter Cohan:
1. I have put away an average 14.81% of my earnings since my late 20s
2. I also put away 10% of my earnings in an already taxed account
3. I also put away a little bit every check to an emergency fund
4. I have protected myself with full health and dental
5. I have also protected my family with good life insurance and me with good disability insurance
6. I will have paid off the mortgage long before I retire and carry no credit card debt from month to month
This plan will allow me to retire in my late 50s. I'm looking forward to it.
If it turns out that I am wrong, Peter Cohan, I'll let you shave my head in the town square - well what's left to shave. Maybe you can sell enough tickets to the spectacle to purchase the grocery cart in which all your worldly possessions can be pushed. I'm sure there are many many more that can say the same.
not recognizing the difference between wants and needs is the major problem with most spending
and not understanding the true meaning of the word limit ...
Are there challenges right now? Sure. But implying, for instance, that $10 million invested will only get the money-market return of .5%, with no other alternative listed, is blatant, irresponsible fear-mongering.
Many of us will have to adjust our expectations in retirement, sure. But the nonsense spewed in this article is outrageous and, for most, untrue.
The scum bag politicians are sucking and bleeding the coffers dry.....
What a junk article. "If you have $10 million saved up, and it yields the typical money market rate of about 0.5%, that means $50,000 a year in income. If you supplement that with Social Security -- the average monthly Social Security benefit for retired workers in December 2010 was $1,175.50 -- you could be fine.." Beyond the obvious ridiculous point of having $10 million saved, this statement is ludicrous. First, IF you had $10 million, you wouldn't have it parked in a bank account earning .5% interest--it would be invested in something with a much greater return. Second, the $50,000 income cited in the article is based on living off the interest, and never touching any part of the $10 million corpus. That's not a realistic way to approach retirement. If you withdrew only 3% of the $10 million account, you'd have $300,00 a year. So, if you were really looking for $50,000 a year, and you withdrew 3% of your savings a year, you'd need to save less than $1.7 million. Still a lot of money, but much more do-able than $10 million. Also, if you had the means to save that kind of money (either $1.7 million or $10 million) you would be getting more than the average Social Security payment--more like $2500 a month rather than the $1175 quoted in the article. This difference means you would need to get $34,000 a year from your savings, rather than $50,000, which reduces the needed nest egg to a little over $1.1 million. Even more do-able, if not easy.
7. You bought yourself or you kids everything you/they ever wanted whether you/they needed it or not.
8. You bought a house, car, or whatever that you couldn't really afford because you could (barely) make the monthly payments.
9. You or your child took out school loans for some obscure, unemployable discipline at a private university. So now, your debt-laden adult child, and possibly their spouse and your grandchildren, are living with you.
10. You thought you were indispensable at your job and incurred insurmountable debt right before you got laid off or the company went bankrupt.
Jail is the new retiremment plan. You'll live better than 99% of our senior citizens on government benifits anyway. And think about how much fun you'll have getting there.
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