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Why your retirement won't be like your parents'

Many baby boomers don't have access to one of the sources of income their folks had. Here's what they can do about that.

By MSN Money Partner Sep 18, 2013 12:44PM

This post comes from Stacy Johnson at partner site Money Talks News.

When retirement rolled around for my parents, they had it licked.

My father, a World War II and Air Force Reserve veteran, got a small monthly military retirement check, along with a pension from his career with the federal government. My mother was a retired teacher with a state pension and Social Security.

Despite their modest salaries during their working years, thanks to a Depression-era frugality they also retired with several hundred thousand dollars in Treasury bills. Those savings only grew after retirement, because their retirement income was not only more than they spent, after years of cost-of-living increases it was more than they made when they were working.

What a difference a generation makes. Things will be vastly different for many baby boomers and generations to follow.

Social Security isn't the problem

Social Security was never intended to be the American worker’s sole retirement plan. Rather, it was designed to keep Americans affected by disability, death of a breadwinner, or old age from starving. Here’s how the father of Social Security, President Franklin Roosevelt, described it in a 1938 radio address:

The (Social Security) Act does not offer anyone, either individually or collectively, an easy life — nor was it ever intended so to do. None of the sums of money paid out to individuals in assistance or in insurance will spell anything approaching abundance. But they will furnish that minimum necessity to keep a foothold; and that is the kind of protection Americans want.

And Social Security still provides that. Social Security won’t be enough to keep me in my house: I pay more in property taxes and insurance on my Florida home in a month than my parents paid in a year. But would Social Security keep me alive? Yes.

If Social Security isn't the problem, what is?

Balancing on a two-legged stool

For decades, the term "three-legged stool" was used to describe the three necessary ingredients of stable retirement income. The first leg is Social Security, the second an employer-sponsored pension plan, and the third, personal savings.

For my parents and many of their peers, that's the way it was: three legs, stable retirement. Today, however, one of the legs -- the employer-sponsored pension plan -- has fallen off for many. From a 2010 Forbes article about private employer pension plans: "The Boston College Center for Retirement Research estimates that the number of employees covered by a defined benefit retirement plan (the ones we think of as traditional pension plans) declined from 62% in 1983 to 17% in 2007."

With a defined-benefit plan, employers shoulder the entire cost. In the past, employees remaining with companies throughout their careers might have expected to receive up to 75% of their pre-retirement income for life. A nice leg to have on your retirement stool, but one that's fading into history.

Many government workers still have generous pension plans. But for how long? Cracks are starting to surface as municipalities begin admitting they've made promises they can't keep. Detroit's pension plan is underfunded by $3.5 billion -- one of the factors that drove the city into bankruptcy. It's hardly unique. From a recent New York Times story:

In California, where more than 20,000 state and local retirees receive annual pensions of more than $100,000, the cities of San Bernardino, Stockton and Vallejo have filed for bankruptcy. Los Angeles's public employee pensions are inexorably pushing the city toward bankruptcy -- perhaps within four years. Chicago now pays $1 billion each year to its retired teachers alone. In New York City, pension costs have grown to $8 billion from $1.8 billion over the last 12 years.

Same with some unions. The Teamsters' Central States, Southeast & Southwest Pension Plan recently announced it's underfunded by about $17 billion. The problem? The plan has only 65,000 union members paying into it, but it’s supporting 212,000 retirees.

As for federal government plans, they could easily fall victim to cost-cutting. Earlier this year, House Majority Leader Eric Cantor issued a press release  in response to sequester-related spending cuts. From that release: "Rather than take Border Patrol agents off the job, the president should instead choose to reform the federal employee retirement system so it matches what people get in the private sector."

The handwriting is on the wall. And it's no surprise. You can't expect the millions of Americans losing their private defined benefit plans to fight to keep them alive for taxpayer-supported public employees.

So if Social Security isn't enough, and the pensions my parents took for granted are fading, what's left?

Substituting cottage cheese for steak

As traditional income-for-life pension plans disappear from the private sector and get dicier for the public sector and unions, they're being replaced by 401k, 403b and other types of defined-contribution plans. As you already know if you have one, with these plans the employer might offer a match, but they more closely resemble the "personal savings" leg of the stool: You put in your own money, manage it yourself, and if it's not enough to support you in retirement, that's your problem.

 Bundles of US one hundred dollar bills in bird © Don Farrall/Photodisc/Getty Images

Replacing a defined benefit, income-for-life plan with a do-it-yourself-and-hope-for-the-best plan is like replacing steak with cottage cheese. They both offer sustenance, but the cottage cheese is a poor substitute.

Accumulate $500,000 in a 401k plan and withdraw what it can safely earn -- with today's low rates, maybe 2% -- and you'll pick up an extra $10,000 per year. That's a far cry from a defined-benefit plan that paid 75% of a pre-retirement salary for life.

And a $500,000 401k is a stretch. According to AARP, the average 401k balance for plan participants older than 55 is now $255,000. Earn 2% on that, and you'll only be adding about $425 per month to your retirement income.

A new leg for your retirement stool

What are current and future retirees going to do? As they always have, the best they can.

First, it's critical to strengthen the two remaining legs of your retirement stool: Social Security and personal savings.

There are strategies you can use to maximize the bang from your Social Security buck. Start by going to, where you'll get a personalized statement showing what you can expect at various retirement ages. Then read a few articles, including "13 Ways to Get More Social Security." Finally, test various strategies by using free online calculators, like this one from AARP or this one from T. Rowe Price.

The Wall Street Journal recently tested and reviewed five Social Security calculators, some free and some that cost.

As for strengthening your savings, in addition to putting away as much as you can, start exploring options other than insured savings accounts.

Do alternative investments like real estate, stocks and peer-to-peer lending involve more risk and knowledge than a savings account? You bet. But stick with an insured bank account and your golden years may not be as golden.

When it comes to replacing the missing leg of the retirement stool -- an employer-funded pension plan -- all you can do is maximize your use of its "cottage cheese" replacement, a 401k or similar plan. But as with your personal savings, remember that taking no risk carries a risk of its own. And remember that the plan is your top priority. It's more important than a new car, vacation or paying for your kids' college (they have other options).

Finally, add a fourth leg to your retirement stool. Find something you love to do that pays and don't retire, at least completely. Develop an interest, hobby or side job that might give you both enjoyment and income. You're reading mine right now.

More on Money Talks News:
Sep 18, 2013 4:41PM

I know my retirement will be much more fluid than my fathers.   He received a nice pension, SS, a paid off home and he and mother enjoyed a very comfortable retirement.

He did not have a 401k, IRA or other investments to supplement his revenue stream.   We are lucky in that we have the traditional retirement income, but also a variety of revenue streams from which to draw upon.

The most important thing we have in debt.    That is the key to everything.

Sep 18, 2013 3:37PM
We have a society that cannot figure out how not to carry a balance on credit cards and we expect them to understand investing?  Wife and I have a retirement plan A:  We work hard, save and supplement our social security from a 7 figure nest egg and/or B: we both work until 65 and then die.
Sep 18, 2013 1:31PM


My story is the exact opposite.  My parents (my dad) made very little money and my mom was a typical stay at home mom raising 5 kids.  All they retired with was a few hundred dollars a month SS.  Basically, a retirement of sitting at home watching the paint peel.  It was all the motivation I needed to start saving for retirement as soon as was feasible. My wife and I will both have public employment pensions, 401k savings & SS.  Our retirement will indeed not be like our parents!

Sep 18, 2013 4:04PM
Treat your invested savings as an annuity from which you exhaust the principal over 30 years.  It seems silly to just live off the interest since you can't take the principal with you when you die.  You'll still have your social security if you live long enough to exhaust your savings and, if you have a pension, you'll still have that too.  If your investment earns just 2% annually, you can withdraw approx $1800 a month for 30 years before the principal is exhausted instead of just the $833 the author suggested on a $500K nest egg.   
Sep 18, 2013 5:29PM

My "City Funded" police pension is anything but.  I pay 11% of my take home pay into my retirement and the city is supposed to match it.  This is not a gift, it is part of my compensation for the job I do.  It has only been matched by the city half of the 22 years I have been on the job because they cant balance a simple budget.  The city will not pay a penny after I retire.  The only saving grace for me is the fact that the city has ZERO to do with my retirement.  They have no access to it or it would be in as bad a shape as the retirement that is for the city hall workers.  It is crumbling because it has been raided for projects much like social security has been over the years.

I also have a very robust 457K, personal savings and no debt.  I work with people that have the same benefits who will suffer greatly in retirement due to the fact that they cannot save, live in over priced high dollar homes, and carry huge debt on credit cards.  Personal choices lead to retirement issues whether in private or public jobs.

Sep 18, 2013 2:26PM

Pensions were a nuisance to businesses because they had to keep funding them long after the employee left.  So private pensions were left underfunded and the companies then were able to pass them off to the government (Pension Guarantee Corp).

Now that they were free of paying for pensions, and Unionized labor, they needed to put the final nail in the coffin by making sure the competition didn't have them either.  The goal is to get rid of all pensions in any form or manner.

If one cannot retire, then one has to work to survive.  More workers = more competition for jobs and the less businesses can pay for that labor.  Increase the supply of workers and increase the demand for jobs. 

And minimum wage will have to go too.

Sep 18, 2013 2:10PM

My retirement is going to be like the movie Mad Max because that is where the a-holes running this country is taking us.


Money will be useless so you best invest in some big boy / big girl panties.


We're all getting on board the crazy train and the final destination is not going to be pretty.


I was watching an interview of the author that wrote the new best seller "The Town" which is about the corruption in Washington and it was disheartening how this country has been sold out. Do these people not care?


The next person who calls another american lazy or "entitled" or any of the other divisive name ploy we have been taught by our masters to use should have their a$$es whipped.


No the retirement for all of us to come is going to be nothing like that of our parents and grandparents. They kept the wheels on the wagon but sadly they are coming off.

Sep 18, 2013 6:21PM
Here's how to fix the problem for public employees. They can earn a full pension after 20 or 25 years of service (whatever time limit they have now), but they can't collect a single dime of it until they turn 65. That is the normal retirement age. We should not be paying retirement benefits to people who want to retire after 20 years of service at age 45. Tell them they have earned a full retirement, and we thank them for their service. But they can't start collecting their retirement benefits until they hit retirement age. Same as the rest of us. Watch how much money is freed up for services that we need.
Sep 18, 2013 2:44PM
Defined benefit pensions have been responsible for the demise of the steel industry, railroad industry, auto industry, and many other domestic manufacturing concerns. The problem, just like the Teamsters; 212,000 retirees with only 65,000 current workers. The benefit was too generous. I am afraid we will spend the next generation grappling with governments inability to pay for the defined benefit pensions of government employees at all levels. Soon it will be obvious to all Americans that overly generous retirement benefits paid to government workers is the single biggest problem our great nation faces.
Sep 18, 2013 4:29PM

My retirement won't be anything like my old man's, because he died at 53. Me dear ol' mum is living in an assisted apartment thingie run by my evangelical wacko brother and nutcase wife.


I, should I live so long, plan to retire ealy and wander about the desert looking for UFOs.

Sep 18, 2013 4:29PM

Yes, myDrain, assuming that there is no inflation that corrodes your buying power, just like watching those who already have retired watch gas prices go from under a couple of bucks to almost 4, or those utility bills that never seem to stop increasing.

If you don't include inflation into your equation, you will be just like those minimum wage earners watching their lifestyle go from comfortable in the 60's and 70's to unlivable now without working more than one job.

Sep 18, 2013 4:21PM
Anyone 54 yrs old who can afford it at all needs to start a ROTH.  At 59 and a half, if you've had it for 5 years, you can withdraw tax-free funds from it to start a sideline or invest in something like rental real estate that will generate monthly income to supplement Soc Sec.  Though you can tap it also at 59 and a half, 401k is too inflexible to allow this, because of penalties and paying taxes while earning at hopefully your highest lifetime level. Hope that helps someone.
Sep 18, 2013 4:15PM
Credit, that's the Be All Do all crap that's literally destroying America. If you buy everything CASH, then you don't have any Credit. If you use Credit, you might overuse it and eventually get trapped in a vicious Credit Cycle, paying Loan Shark Rates. All these folks that crap on folks that do find themselves deeply in Debt better hope the same thing never happens to them. You know what they say, yea who has not Sinned, throw the first Stone.

Every Generation will have a different Retirement and or lack thereof than their parents. Nothing ever states that every Generation has to be the same and clearly they never are. We tend to Live in the moment and not reflect on the coming future.

The main Reason Retirement will be different is because of how Corporations are hoarding Record Cash and Profits for the very elite while telling everyone else to go to Hades. The FEDS have only magnified this problem by printing to Infinity. Eventually the Gravity of too much fake money printing will drag the Global Economy is a downward Spiral. Meanwhile, investors need to take profits when they can before they end up holding a empty Bag of worthless paper.

Sep 18, 2013 6:05PM
I too, watched as my parents ignored sound financial advice and ended up with all the wrong products or no products at all. I soon realized my situation would be no different unless I changed my strategy.
Dump the expensive and ineffective whole life insurance for term and invest the difference for starters. Find any way you can to save even a little bit for a long period of time and you will find your situation improves dramatically. Spending your money to keep up with the Jones may offer instant, short term gratification, but comes at a huge price to your long term retirement goals.  Take advantage of tax deferred programs and invest in things of equity.
Overpaying your taxes and being jubilant at getting a big refund is another killer. Set up your W-4's to cover what you owe and save the difference.  Don't fall for the excuse that some people just can't save money on their own so this is one way to do it. It takes discipline - most things worth doing require it. If you can't or won't, find someone else's shoulder to cry on.
Quite simply, it takes saving a little bit of money over a long period of time to amass a respectable savings. Don't approach it with the attitude that you can't afford to, instead approach it that you can't afford NOT to.
Sep 18, 2013 7:00PM
I don't need much to retire on because I don't need all the amenities/luxuries in life.  I only need my imagination, my husband and the wild blue.  The rest is just excess.
Sep 18, 2013 6:34PM

This article is pretty dishonest. Even at a 2 percent rate of return taking 4 percent of the principle will yield about 30000 a year for almost 20 years....since the new retirement age is approaching 70 for most of us,  that combined with social security should yield an income in excess of 50000 dollars a year. Since the median national income is 53000 a year, this is good retirement income.


Saving money is just one step. Paying off all your debts, including the mortgage prior to retirement reduces your need for income. In addition, retirees are exempted from certain taxes, such as social security, medicare and in many states such as Georgia, property taxes are reduced bt 80% and income is exempt from state income taxes.


So by planning, living below your means, saving, paying off debt and living in a state with favorable tax policies seniors can still live a good  life, even without a pension.

Sep 18, 2013 5:19PM

Articles like this don't help people get educated.  If you have 500K in a 401k, you will do a lot better than live off 2% interest returns the rest of your life.


Better advice would be to draw it out in tax advantaged increments and use a portion for living expenses and invest some in income producing investments.

Sep 18, 2013 5:15PM
I plan to retire in 2015 with a 25 year pension with a state retirement and will only receive about 50% of my income from this. That means I will have to depend on my social security retirement to supplement my income in order to survive. In addition, the city I work for is not paying any part of my health insurance premiums and that will cost me over $400 a month. So in order to be able to afford health care, I will have to find a part time job for that. Us baby boomers who were fortunate enough to work for civil service or government jobs with pensions will not have it as easy as our parents did. I feel sorry for my children and grandchildren who may not be able to afford retirement to cap their golden years with.
Sep 18, 2013 7:00PM
There are many things that continue to haunt and hurt current and future retirees, in addition to the obvious things noted about fewer pensions, 2 big recessions, more debt and less savings that need to be realized.
First, the basic costs of living have skyrocketed... a few examples are Food, Utilities of Gas and Electric, Transportation (gsaoline alone is up several hundred per cent), Child care, Education, TV providers (not long ago you just needed an antenna - no cable or satelite), Phone service has gone from the old land line and $20 or less per month to service contracts of $150 plus per month plus cost of a smart phone(s), Internet service of $50 per month, Rent and Housing costs are huge but the big elephant of course is Medical Care such as prescriptions,Health Ins and co-pays.  
Second, how can the average middle class family save much for retirement when most of the paycheck is needed for todays basic costs of living and worse sometimes some costs of living like food, eye glasses and others are by necessity put on a credit card. These are facts of living not moey blown on lavish vacations or fancy cars or designer furniture.
These costs of living are made worse because of flat, stagnant wages for the last two decades as described by many economists. 
We all get the Goal to save more for retirement but we are lucky to have two shakey legs to stand on. The average American needs some real champions in our Congress to help level the playing field. WE DO NOT WANT ANY FREEBIES...just a real chance to take care of our own and to earn the self respect of building a better future and financial peace of mind in a healthy retirement. 

Sep 18, 2013 6:31PM


And let's not forget those marvelous reverse mortgages to supplement your income! Can you say “Bend over and smile”? So now, not only will you be broke when you die, you won’t even have a house to leave for the kids.







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