Boomers Find 401K Plans Come up Short....

[MrsPete]

I'm not going to lie- a huge huge factor in this is that my parents opened a roth IRA for me when I got my first job at 16 scooping ice cream for minimum wage. If I put 1/2 my income in it, I could keep using there car for free, otherwise, I would have to buy it. Even I could figure out that was a decent deal. They also would deposit the savings bonds that I had been given as a baby when they hit maturity.

so I have 12 years of Roth IRA investements, that even with the crappiness of the stock mark its grown a lot over time.

My grandmother did something simliar for us when our first child was born. She kept her for free while I worked, with the agreement that we'd deposit into a college account what we would've spent on day care. Her health didn't allow her to do this with the second child, but we did appreciate the jump-start that she provided for us/our child. My grandmother values very few things above education, so it made her very happy too.

My husband and I have talked about offering a similar deal to our daughters when they have children. If they have children at the same age we did and stay in the area, it'll work out.

 

[BuzznBelle'smom]

I'm not going to lie- a huge huge factor in this is that my parents opened a roth IRA for me when I got my first job at 16 scooping ice cream for minimum wage. If I put 1/2 my income in it, I could keep using there car for free, otherwise, I would have to buy it. Even I could figure out that was a decent deal. They also would deposit the savings bonds that I had been given as a baby when they hit maturity.

so I have 12 years of Roth IRA investements, that even with the crappiness of the stock mark its grown a lot over time.

We'll be doing this for DD15, starting this year. She has her first real job--ski instructor--and has made a whopping $250 or so this season. She'll probably work this summer, too. We can gift her the same amount and put it in a Roth IRA for her. It'll be a nice start. We've also been having her deposit half her paycheck in her savings account. That's intended more as short-term savings, though--don't blow the whole paycheck on bagels with your friends, save some for clothes.

 

[eliza61]

Wow, that's very sad. Well, a full 1/3 of people with access to 401Ks don't save a thing, so your Mom and Stepdad unfortunately have a lot of company.

I find the topic incredibly depressing. But I think it's helpful to post these kinds of articles, especially when they offer up real people and their financial situations. I hope that it motivates some people.

Now we have to really try and multiply this by 100 fold. What concerns me is the "trickle up" effect. Many people believe that SS will not be there but I don't think it can go away. We will have to fund it to the detriment to our economy. What is our alternative? More and more people are aging with no other source of income. I really can't blame the politicians on either side, who is going to say we need to cut the benefits?
Look at how the seniors react NOW? So even when it fully runs out of money, we have to fund it some how because we've got more and more people relying on it to live and more and more people relying on it for longer periods of time.

So the 1/3 that refuses or can't save for retirement really affects all our retirement.

 

[MrsPete]

We'll be doing this for DD15, starting this year. She has her first real job--ski instructor--and has made a whopping $250 or so this season. She'll probably work this summer, too. We can gift her the same amount and put it in a Roth IRA for her. It'll be a nice start. We've also been having her deposit half her paycheck in her savings account. That's intended more as short-term savings, though--don't blow the whole paycheck on bagels with your friends, save some for clothes.

Teaching her to balance her money -- to spend some and enjoy it today, but also to put away a realistic amount for future needs -- is a healthy thing to teach her from a young age.

Now we have to really try and multiply this by 100 fold. What concerns me is the "trickle up" effect. Many people believe that SS will not be there but I don't think it can go away. We will have to fund it to the detriment to our economy. What is our alternative? More and more people are aging with no other source of income. I really can't blame the politicians on either side, who is going to say we need to cut the benefits?
Look at how the seniors react NOW? So even when it fully runs out of money, we have to fund it some how because we've got more and more people relying on it to live and more and more people relying on it for longer periods of time.

So the 1/3 that refuses or can't save for retirement really affects all our retirement.

I can see that viewpoint. It can't go away for those who are already in retirement; plus they're going to live longer and spend more than those in previous generations -- those of us who are working now must fund that.

I can imagine a couple things happening with Social Security:
- They might start requiring more than 40 quarters to qualify for a benefit (really, it's hard NOT to qualify)
- They might decrease benefits for those of us who've prepared for retirement (ironically, those who've paid in the most)
- They might raise the age at which benefits begin (personally, I think this is the most likely scenerio)

And people who've failed to save for retirement affect the rest of us in another way: They keep working. When a 70-year old continues to work rather than retiring, a 21-year old just-out-of-school can't get a job. So although he's qualified to begin working as an engineer, the young worker is stuck at Burger King. He's not able to move forward with his professional life, he's in trouble if he has student loans, and he becomes disillusioned with life. It's bad all around.

Ironically, I can imagine some (misguided) people saying that government should get us out of this hole. Take MORE MONEY for Social Security so that we individuals don't have to save for retirement -- let Social Security be a real "this'll take care of you in your old age" program. THAT would fail miserably, but I can imagine people looking around and saying, "People aren't doing it on their own, so let's fix it at a government level."

 

[dvcgirl]

But the hard part is getting this message out. I think one of the problems is savings like dieting is viewed not as a good thing but as a "deprevation" or as a "punishment" and it's always put off "until" tomorrow. Retirement planning is still considered right next to getting the dogs teeth cleaned in it's importance.

Every 4th of july I go around to my coworkers who are not participating, in conjunction with my companies credit union. We call it "financial independance day" and basically we try and sell the spell of automatic deductions. pay yourself first and after a while you'll never know it's missing. And let me say, my coworkers are really great people, pretty average american, nice etc etc and it's always really hard to convince them.
I consider them intelligent people, just have no idea why they can't project 20 years down the road.

Well, I'll use my standard line..."what on earth do these people think is going to happen to them?".

Perhaps you can print out this article from the WSJ, maybe that will help?

I read some of the comments below the article on the WSJ website, and it's interesting. A lot of people brought up the point that I had....that with so many people working into their late 60s and 70s, well, that's going to hurt the job market for younger people. In fact, many think that employers will find them much more attractive as employees than young people. They don't have to worry about providing healthcare (they have medicare), and most of them only want to work part time. Plus, in most ways they're likely to be more productive.

And I'd like to say for the record.....that I get my dog's teeth cleaned every year....it's very important. Seriously I do....

 

[dvcgirl]

I'm not going to lie- a huge huge factor in this is that my parents opened a roth IRA for me when I got my first job at 16 scooping ice cream for minimum wage. If I put 1/2 my income in it, I could keep using there car for free, otherwise, I would have to buy it. Even I could figure out that was a decent deal. They also would deposit the savings bonds that I had been given as a baby when they hit maturity.

so I have 12 years of Roth IRA investements, that even with the crappiness of the stock mark its grown a lot over time.

Well, your parents gave you a great gift. It's funny you bring this up, because I was listening to Clark Howard talk about his kids and how he had started funds for them when they were little. His little boy, who is 4, has done a little modeling and has fully funded roths. That is beyond huge.

I'd like to do the same thing for my niece and nephews when they are old enough to work.

Just to show the group how amazing it is what your parents (and you) have done to this point. If you invest that 78,000 and never add another penny....not a cent. And you get 8% yoy returns..... You'll have 1.3 million dollars. That's the power of compound interest.

 

[dvcgirl]

I suspect a lot of us are young boomers - or post boomers. For a lot of us, we put off kids until our 30s, so we are in the midst of kid expenses and college as we look to retirement. We might get ten years between college and retirement.

That's a different situation than my recently retired parents. They had their kids young. My sisters and I have been out of the house for twenty years, so for twenty years my parents have had a nice income, and no kids to support. For most of that time they had no grandchildren to spoil either. Mine have been savers and fairly frugal....but I know some that haven't.

Neighbors of ours built their expensive dream home when their youngest finished school - with a 30 year mortgage. They were 50. The math on that one isn't working out. My in-laws were continuing to house shop - looking for something bigger - on their reduced income after my mother in law retired and took a long time before they figured out they weren't going to afford a larger mortgage. Kids leave and your lifestyle expands to fill all that newly disposable income. Then retirement cuts your income, but you are used to a nicer car than you ever drove when the kids were home, and dinners out, and nice vacations.

But we young people can also underestimate the expense of medication and supplemental insurance as we get older that can be a significant add to retirement expense. And I know my mother spends too much on her grandchildren now that she has them.

You've described my parents as well. They had three children in their early 20s, we went to school, all out of the house in our early 20s, and then my sisters didn't have children until their late 30s and early 40s.

The thing with my parents though....they never *upsized*. They were always frugal. I grew up in a 1,000 sq ft house with three bedrooms and one bath. With *three* daughters. We didn't have AC until I was in college. Really.

So, I think that was huge for them. And it instilled something in my sisters and I. We're all big savers and investors.

And my parents are still in that same house, in 2014 they will be there for 50 years.

 

[nunzia]

What I think is a hoot is that they think, what, $87K a year is median?? wha??? as of now our basic living expenses are about $1,600 a month, which brings our lowball number at under 20K (and that includes house payment, which yes, we plan to have paid off by retirement) we are not of the group that has pensions (and yes, I agree something will be happening with those, but how silly it was way back when to think that someone say, who starts a job at 25 and only has to put in 25 to retire and will then pull in retirement for about 30 years...taking out longer than they put in, would be sustainable?) We are very concerned SS will also be hugely afffected, so are trying to just do the best as we can putting money away and realizing we will probably work longer than earlier expected. And we sure do not have those wonderful pie in the sky numbers saved...our biggest concern in retirement is health care costs and inflation.

 

[dvcgirl]

What I think is a hoot is that they think, what, $87K a year is median?? wha??? as of now our basic living expenses are about $1,600 a month, which brings our lowball number at under 20K (and that includes house payment, which yes, we plan to have paid off by retirement) we are not of the group that has pensions (and yes, I agree something will be happening with those, but how silly it was way back when to think that someone say, who starts a job at 25 and only has to put in 25 to retire and will then pull in retirement for about 30 years...taking out longer than they put in, would be sustainable?) We are very concerned SS will also be hugely afffected, so are trying to just do the best as we can putting money away and realizing we will probably work longer than earlier expected. And we sure do not have those wonderful pie in the sky numbers saved...our biggest concern in retirement is health care costs and inflation.

Well, I think that they said that 87K is the median for 60-62 year olds "with a 401K type account at their jobs". So, they've saved a bit...implying that they have something to save. And, some of these boomers have been with the same company for 30 years (the end of this dying breed)....and so, just with time and raises, they've had time get their salaries up to that level.

Also, just to show people that *even* in this ugly scenario painted here....where you hit 65 years old with just 150K in your 401K. You hear all of the time that "you may need to work a few more years".

So, let's say, worse case....you're 65 and you're in this boat. You start receiving social security, and so that helps. You cut back and work part time. If you can just keep from touching that nest egg, add $5,000 a year and earn 8%. In five years, that 150K.....will be close to 250.

Of course, you'd like to hit this point in your 40s, and not your mid 60s. And letting it go until the very end, well, you are much more vulnerable to market conditions. For instance, you wouldn't want to be that 65 year old needing that extra 5 years of growth ...starting in say......late 2007. You get my drift. You'll be working until you die.

Still, even in that instance....it doesn't have to be the end of the world.

If you hit 150K in your 401K by age 45, add that 5,000 a year for the next 20 years....at 8%, you 850,000.

 

[HHSTigerFan]

we are not of the group that has pensions (and yes, I agree something will be happening with those, but how silly it was way back when to think that someone say, who starts a job at 25 and only has to put in 25 to retire and will then pull in retirement for about 30 years...taking out longer than they put in, would be sustainable?)

In the case of my wife and I, we have to put in 35 years for a full pension, though can be done in 34 if we have enough unused sick days, we would both be 57 at that point..

We see there are big problems ahead and changes need to be made, our hope is that the full benefit is still there and we will just need to work a few more years to get there..

 

[JamesMom]

Well, I think that they said that 87K is the median for 60-62 year olds "with a 401K type account at their jobs". So, they've saved a bit...implying that they have something to save. And, some of these boomers have been with the same company for 30 years (the end of this dying breed)....and so, just with time and raises, they've had time get their salaries up to that level.

Also, just to show people that *even* in this ugly scenario painted here....where you hit 65 years old with just 150K in your 401K. You hear all of the time that "you may need to work a few more years".

So, let's say, worse case....you're 65 and you're in this boat. You start receiving social security, and so that helps. You cut back and work part time. If you can just keep from touching that nest egg, add $5,000 a year and earn 8%. In five years, that 150K.....will be 597K.

Of course, you'd like to hit this point in your 40s, and not your mid 60s. And letting it go until the very end, well, you are much more vulnerable to market conditions. For instance, you wouldn't want to be that 65 year old needing that extra 5 years of growth ...starting in say......late 2007. You get my drift. You'll be working until you die.

Still, even in that instance....it doesn't have to be the end of the world.

If you hit 150K in your 401K by age 45, add that 5,000 a year for the next 20 years....at 8%, you have 3.8 million. You only get 7%....3.3 million. So, I rest my case.

About the last part - I question your math. Below is an excel of $150,000 start with 5,000 annual contribution at 8% interest. The ending figure at 20 years is just shy of $1,000,000.

Year Principal Contribution interest 8% new balance
1 $150,000.00 $5,000.00 $12,400.00 $167,400.00
2 $167,400.00 $5,000.00 $13,792.00 $186,192.00
3 $186,192.00 $5,000.00 $15,295.36 $206,487.36
4 $206,487.36 $5,000.00 $16,918.99 $228,406.35
5 $228,406.35 $5,000.00 $18,672.51 $252,078.86
6 $252,078.86 $5,000.00 $20,566.31 $277,645.17
7 $277,645.17 $5,000.00 $22,611.61 $305,256.78
8 $305,256.78 $5,000.00 $24,820.54 $335,077.32
9 $335,077.32 $5,000.00 $27,206.19 $367,283.51
10 $367,283.51 $5,000.00 $29,782.68 $402,066.19
11 $402,066.19 $5,000.00 $32,565.29 $439,631.48
12 $439,631.48 $5,000.00 $35,570.52 $480,202.00
13 $480,202.00 $5,000.00 $38,816.16 $524,018.16
14 $524,018.16 $5,000.00 $42,321.45 $571,339.61
15 $571,339.61 $5,000.00 $46,107.17 $622,446.78
16 $622,446.78 $5,000.00 $50,195.74 $677,642.52
17 $677,642.52 $5,000.00 $54,611.40 $737,253.93
18 $737,253.93 $5,000.00 $59,380.31 $801,634.24
19 $801,634.24 $5,000.00 $64,530.74 $871,164.98
20 $871,164.98 $5,000.00 $70,093.20 $946,258.18

A $50,000 annual contribution would get you $3 million, but very few people can sock away that much in any investment instrument

 

[dvcgirl]

About the last part - I question your math. Below is an excel of $150,000 start with 5,000 annual contribution at 8% interest. The ending figure at 20 years is just shy of $1,000,000.

Year Principal Contribution interest 8% new balance
1 $150,000.00 $5,000.00 $12,400.00 $167,400.00
2 $167,400.00 $5,000.00 $13,792.00 $186,192.00
3 $186,192.00 $5,000.00 $15,295.36 $206,487.36
4 $206,487.36 $5,000.00 $16,918.99 $228,406.35
5 $228,406.35 $5,000.00 $18,672.51 $252,078.86
6 $252,078.86 $5,000.00 $20,566.31 $277,645.17
7 $277,645.17 $5,000.00 $22,611.61 $305,256.78
8 $305,256.78 $5,000.00 $24,820.54 $335,077.32
9 $335,077.32 $5,000.00 $27,206.19 $367,283.51
10 $367,283.51 $5,000.00 $29,782.68 $402,066.19
11 $402,066.19 $5,000.00 $32,565.29 $439,631.48
12 $439,631.48 $5,000.00 $35,570.52 $480,202.00
13 $480,202.00 $5,000.00 $38,816.16 $524,018.16
14 $524,018.16 $5,000.00 $42,321.45 $571,339.61
15 $571,339.61 $5,000.00 $46,107.17 $622,446.78
16 $622,446.78 $5,000.00 $50,195.74 $677,642.52
17 $677,642.52 $5,000.00 $54,611.40 $737,253.93
18 $737,253.93 $5,000.00 $59,380.31 $801,634.24
19 $801,634.24 $5,000.00 $64,530.74 $871,164.98
20 $871,164.98 $5,000.00 $70,093.20 $946,258.18

Yeah, I realized it shortly after I sent it......but thanks for catching it and pointing out my error. I was in a rush

I was using a simple savings calc....instead of 5,000 a year, I had 5,000 a month.....

I knew it was too good to be true....lol!

It impacts the other calculation too....

The 65 year old ends up with roughly 250K at 70.....but still, it's better than 150K, and the key thing is that's 5 years that you didn't touch your nest egg.

So, it's better to be the 41 year old with 150K obviously. Even if you kick back...and save that 5K a *year*...at that point. You're still close to a million when you retire.


The lesson....is better late than never.

 

[jodifla]

Well, for the flip side:

My parents and their siblings lived largely on Social Security in their retirements, with some help from their kids. It can be done. I've watched it.

It's not a glamorous life by ANY stretch of the imagination, but it's not living on the streets, either.

They got small condos or mobile homes. With their medical covered and cars paid for, they were basically just buying food and utilities.

 

[JamesMom]

Yeah, I realized it shortly after I sent it......but thanks for catching it and pointing out my error. I was in a rush

I was using a simple savings calc....instead of 5,000 a year, I had 5,000 a month.....

I knew it was too good to be true....lol!

It impacts the other calculation too....

The 65 year old ends up with roughly 250K at 70.....but still, it's better than 150K, and the key thing is that's 5 years that you didn't touch your nest egg.

So, it's better to be the 41 year old with 150K obviously. Even if you kick back...and save that 5K a *year*...at that point. You're still close to a million when you retire.


The lesson....is better late than never.

LOLO, no problem. I liked your numbers way better than mine. Only if...

 

[dvcgirl]

LOLO, no problem. I liked your numbers way better than mine. Only if...

I know....it's not easy. I wish it was.

Still....the second scenario doesn't suck. 150K by 45.....900K plus by 65. You aren't eating lint and cat food in that world.

 

[punkin]

Well, for the flip side:

My parents and their siblings lived largely on Social Security in their retirements, with some help from their kids. It can be done. I've watched it.

It's not a glamorous life by ANY stretch of the imagination, but it's not living on the streets, either.

They got small condos or mobile homes. With their medical covered and cars paid for, they were basically just buying food and utilities.

My grandmother even managed to save some money living on just social security. She did not have a lot of needs when she got older, but I would rather have more options. I also am not exactly sure what SS is going to look like in the future either.

But I agree with you, as a worst case scenario, it's not so bad. Medical is what scares me.

 

[allison443]

The thing with my parents though....they never *upsized*. They were always frugal. I grew up in a 1,000 sq ft house with three bedrooms and one bath. With *three* daughters. We didn't have AC until I was in college. Really.

So, I think that was huge for them. And it instilled something in my sisters and I. We're all big savers and investors.

And my parents are still in that same house, in 2014 they will be there for 50 years.

OK, I live in NJ (like you) and we don't all live in McMansions. I have three girls, I live in a 3 bedroom 1 1/2 bath house. No central ac (we do have window units). You make it sound like it's unheard of to live in a house like that these days. I'm sure you are aware that there are many houses in NJ like that (since your parents live in one) with, you know, actual families living in them. And yes, some people only have one bathroom.

We are quite happy we never "upgraded" to a McMansion. However, you yourself, while lauding your parents for living there, seem to think it's unusual or remarkable to live in smaller house, one bathroom, no ac. Isn't that the attitude of "bigger and better" that got many people into trouble? (Not you, dvc girl, I know you save a lot, etc.)

 

[eliza61]

We are quite happy we never "upgraded" to a McMansion. However, you yourself, while lauding your parents for living there, seem to think it's unusual or remarkable to live in smaller house, one bathroom, no ac. Isn't that the attitude of "bigger and better" that got many people into trouble? (Not you, dvc girl, I know you save a lot, etc.) :confused3

It's not so much that we think "bigger is better", it's more of a problem that our "normal" has changed. For example, as many of us "older generation" remembers, we grew up in very small houses. the average home size in 1970 I think was some where between 700-1000 square feet depending on where you lived. Now that average has tripled. the average size I believe is around 2100 square feet. So a newly married couple is not viewing that as "Bigger or better".

Just like cell phones and cable. Many of us can remember surviving just fine without a cell phone and cell phone bill. but unfortunately my 20 year old son, seriously cannot imagine not having one. so in his reality even the poorest person has a cell phone.

Even I'm not immune. last year my ac broke. I really couldnt complain it was 18 years old. It cost me 6K to replace. luckily we have an emergency savings to cover the repair because if we didn't I fully admit that I would have charged that sucker. Now you're talking to a women who was born and raised in a non ac apartment in Upper Manhattan but I'm telling you now, I would have gone into debt instead of spending the summer in a hot house. So some how in my pea brain, trying to sleep in a 90 degree house fully overrides every bit of financial common sense.

 

[The Pluto People]

We wish we could put 8% of our income in an investment vehicle that would guarantee 85% of our income would be paid to us upon retirement. That's a main reason states like NJ are now insolvent.

 

[mannasn]

I think it's easy for people to want to ignore the savings and calculators/etc just because they can be so discouraging!

I'm 34 years old and only started saving for retirement 4 years ago after I graduated college. I don't want to know how far I'm in the whole already! lol