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

[Colleen27]

Well, I was talking about $30,000 in 1981....and that was quite a bit of money then. I was a bit off, as I just plugged the numbers into an inflation calculator. 30,000 in 1981 is the same as 72,000 now.

I plugged the numbers into an inflation calculator and in 1981, my Boomer couple made closer to 36,000. But again, that's 87,000 in 2011.


And for the record, I do agree with your comments on housing and health care....they have way outpaced inflation. Education as well.

I sometimes forget it wasn't all that long ago that 30K was a pretty good living. Most of my friends came out of school to jobs earning 30 or 40K, but that was 2001-2 and many of them took on five figure student loan debt to command those salaries so it just doesn't feel like much. I'm not sure how retirement savings is going to play out for my generation - of my friends many aren't making any more now than they were straight out of school, a few are making less, and most are barely getting by (I'd be in that boat as well if not for a stroke of amazing luck and some very good timing).

What happens with the Boomers is just the tip of the iceberg and there's a lot of denial over the shift from pensions to 401ks being something other than what it is - a large, across the board decline in compensation that will very likely force a change in the American concept of retirement.

 

[dvcgirl]

I sometimes forget it wasn't all that long ago that 30K was a pretty good living. Most of my friends came out of school to jobs earning 30 or 40K, but that was 2001-2 and many of them took on five figure student loan debt to command those salaries so it just doesn't feel like much. I'm not sure how retirement savings is going to play out for my generation - of my friends many aren't making any more now than they were straight out of school, a few are making less, and most are barely getting by (I'd be in that boat as well if not for a stroke of amazing luck and some very good timing).

What happens with the Boomers is just the tip of the iceberg and there's a lot of denial over the shift from pensions to 401ks being something other than what it is - a large, across the board decline in compensation that will very likely force a change in the American concept of retirement.

Yeah, it's a common thing we all forget. Inflation affects our money supply. If you plug numbers into a retirement calculator....and it asks you if you'd like to see those numbers in "future dollars".....trust me, it's eye opening. A little inflation is a good thing....as it keeps us from just sticking money in the mattress...forces us to invest our money to help our nations' economy grow. Otherwise, if 30K in 1981 was worth 30K in 2011...well, I'd just pile all of my savings in a 0% savings account and call it a day.

So, that's why I chose 30K...it reflected (pretty closely) what our Boomers were making back in 81.

And there's no doubt about your second point....that the Boomers are just the tip of the iceberg. And Americans are already going back to their old ways. I heard a segment on the Today Show...about "Frugal Fatigue". Americans have been frugal for all of two years and they're sick of it....lol. We're too much in this country. The use of revolving credit declined for 26 straight months, but in January it was up again.

Now, most economists will say that this is a good sign....because Americans are spending again. The savings rate in this country was negative in 2006, right before the bottom fell out of the economy. All that this number represents is that as a nation, we were spending more than we earned. A year ago, the savings rate peaked out at 6.4%. Many said it would go over 10% as Americans saved more, spent less and relied on credit less and cash more often. But...since it hit 6.4% a year ago...it's been dropping every quarter since. It's hovering right around 5% now.

To me, it's a sign that we're going back to our old ways. And look where that's gotten us.

 

[Nicolepa]

The problem is people aren't saving anything. If money is tight, start with 1%, then each year when you get a raise, raise your % by another 1%. If you are making 50K a year that is only $500 a year. $100 a month consistently for 40 years will get you $300K+. And that is not taking any matching into account. The key is to start early. If you don't start early it will hurt a lot more.

My husband is in his early 40's. He's always maxed his 401K. When he started his current job 18 years ago he made 28K (today is significantly more). Let's just say according to that article we could stop saving, put everything under our matress and have a very nice retirement.

The key is to be the tortoise in the race, not the hare.

 

[snowywhite89]

The problem is people aren't saving anything. If money is tight, start with 1%, then each year when you get a raise, raise your % by another 1%. If you are making 50K a year that is only $500 a year. $100 a month consistently for 40 years will get you $300K+. And that is not taking any matching into account. The key is to start early. If you don't start early it will hurt a lot more.

My husband is in his early 40's. He's always maxed his 401K. When he started his current job 18 years ago he made 28K (today is significantly more). Let's just say according to that article we could stop saving, put everything under our matress and have a very nice retirement.

The key is to be the tortoise in the race, not the hare.

When I started working a 401k was not available to either if us. We save for a house downpaymnet and paid off the student loans. At 33 we were first offered 401ks. We both started plowing we were allowed into them.

We had to play catch up and we have. The ones younger thanks have it better since they can start a 401k with their first job. Many chain restaurants even offer them.

 

[mhsjax]

Gotta say - I LOVE this idea!!! Love, Love LOVE it! And if you don't mind, I'm stealing it for any future grandchildren. Assuming I'm in a position to do so. Of course, my own kids are only 7 and 8 right now, so I'll have a long time to consider it.

I like these threads....It doesn't depress me. It motivates me. I just told dh today that we are going to put a bit more into our company stock this year AND I am upping my % of 401K in July (when we get our raises) from 15% to 18%. I only work P/T so it's not a huge increase dollars-wise, but I think we can squeak out some more - and I want to do it. We just raised the amt into the 529's about 6 months ago. So it's time to 'up' our retirement funds with this year's increases.

Of course, dh and I fall into the 'well above the average' category - likely BECAUSE threads like this motivate me and I am able to see past today. Our one area of 'grey' is that dh is 12 years older than I am - so if we both want to retire when HE reaches a reasonable age to do so (62 -67), it means I will still be in my low 50's - so it means needing more to begin with.

Thanks for motivating me!

I have this argument all the time with my friends and I feel the same way my mom did. I raised my kids, I will not babysit or be a daycare for my grandkids. Not for free or for hire. We did it ourselves and sacrificed, my kids will also. Yes I will babysit for nights out, but daycare, NOT HAPPENING. To those of you that will, good for you but I won't.

 

[dvcgirl]

When I started working a 401k was not available to either if us. We save for a house downpaymnet and paid off the student loans. At 33 we were first offered 401ks. We both started plowing we were allowed into them.

We had to play catch up and we have. The ones younger thanks have it better since they can start a 401k with their first job. Many chain restaurants even offer them.

Right, many twenty-somethings do have those 401Ks with that first job, even if it's not their "permanent" job.

I would have loved to have gotten to interview a few of those people with 150K in their 401Ks after a lifetime of work. I'm betting that many started late, saved little and likely.....they borrowed at least once from their 401K, or when they switched jobs....they didn't roll the 401K into an IRA or their new 401K.

I've read that up to *half* of all people who switch jobs....cash out the 401K and spend it. Or they borrow from it for a downpayment on a house, or to pay for a wedding....or, or, or.

So let's look at that. Let's say we have a 30 year old, and by that age, they've saved a bit, and with the employer match and growth in the market they end up with 20,000 in their 401K.

The 30 year old gets a new job. Instead of rolling the 401K over, she ends up using that 20K (what's left of it after penalty and taxes) to pay off some CC debt, re-do that guest bath and since she had a month off before her next job started...takes a trip. Spends it all...figures, it was only 20K anyway.

By 65, adding nothing to that 20K, earning 8%....it would have been $325,000.

 

[Disneefun]

I think we're going to see another generation of problems come up when those who are using Roth IRA's heavily come of retirement age, too. Roths are a neat concept, but dangerous as heck. It's way too easy to take money out of them since, as long as you don't touch the earnings, you don't have to pay any penalties. Almost everyone I know who has a Roth has taken money out. At least with 401k's and regular IRA's, you have to think about the penalties before you do it.

Yes, it's easy to get to, but if you keep pulling money out for everything, it will never grow. I can hear the argument now at 65. "But I put tons of money into this thing every year. Why don't I have millions of dollars now that I'm ready to retire?" Um, because you wouldn't leave it alone.

For the undisciplined saver, Roths are going to be a disaster. Banks and investment companies are selling this ability to get to your money any time and they're selling it hard. People are getting Roths and then taking the money for vacations, new kitchens, etc. It's going to be a big problem.

 

[Colleen27]

I've read that up to *half* of all people who switch jobs....cash out the 401K and spend it. Or they borrow from it for a downpayment on a house, or to pay for a wedding....or, or, or.

So let's look at that. Let's say we have a 30 year old, and by that age, they've saved a bit, and with the employer match and growth in the market they end up with 20,000 in their 401K.

The 30 year old gets a new job. Instead of rolling the 401K over, she ends up using that 20K (what's left of it after penalty and taxes) to pay off some CC debt, re-do that guest bath and since she had a month off before her next job started...takes a trip. Spends it all...figures, it was only 20K anyway.

And right now, a lot of people are tapping their 401ks to make ends meet during extended periods of unemployment. So they stave off foreclosure right now, but they're back to square one when it comes to saving for retirement and are often left to try to rebuild those savings on a lower income than they had before.

 

[nunzia]

How many employers offered 401k's in 1981? To the average worker? They weren't even introduced until 1978 and were not really widely adopted until years later.

Everywhere I worked at that time had pensions. You had to work a definite number of years to become vested. It could be anywhere from 5 to 10 years before you became vested. You could also put $2000 before-tax dollars per year into an IRA. On your own. With no matching funds from your employer. The ability to reduce your taxable income was the incentive. The concept of saving for retirement was still a rather new one to most people.

Right..I'm at the upper end of this group I think..I graduated high school in 1974..employer sponsored retirement was pretty much pensions or nothing..I had nothing..when I was in the Air Force I had that possibility of retiring young dangling in front of me, but when I had my first child and saw a single mother friend shipped remote and tough if you have no one to take care of your child I got out. I miss the idea that I could have a lifelong check coming in by now, but I wouldn't trade the life I've had for that. So now, yes, 401Ks but someone retiring now would not have had that option their whole working life. The thing about pensions is they are GUARANTEED (or WERE, maybe not so much now) and 401Ks are still wildly unstable since they are tied to the market. My DH has one with a small match and we put in far more than the match..but you always have in the back of your mind that money is there now, but maybe not then, depending on what is happening in the world and the markets. I have 2 401Ks at two different jobs and at my main one I put in the bare minimum for match because the choice (1 choice..Primerica) is sucky.. we do some Roth on the side but fees take a nice chunk, and some individual stocks, which I've been dumping, and saving as aggresively as we can without giving up trips since I really feel that balance is important..Maybe having a dad die at 61 with so many things he 'thought' he'd get to do, and seeing a friend have a massive stroke at 55 and change all those 'later' plans has made me a little more carefree in that regard.
I don't think we can ever save 'enough' in 'safe enough' accounts to really feel confident about retirement. My DH job is rather physical (Vet Tech) so who knows how long he can sustain that..I changed jobs 6 years ago to a pretty low paying but flexible secure position because I knew I'd probably have to work much longer than DH. This position is the type that I could work at forever without wearing me out...so, we all just do the best we can with what we have, right?

 

[Pigeon]

Another factor that's hitting people is rampant age discrimination. I know so many people in their late 50s and early 60s who have lost their professional jobs. While age discrimination is illegal, it is also very, very difficult to prove. So people who are at the top of their earning potential lose their jobs during the years when they are most able to save for retirement (grown kids, mortgages paid off, etc.). And nobody will hire them for any serious employment at that age.

 

[dvcgirl]

The thing about pensions is they are GUARANTEED (or WERE, maybe not so much now) and 401Ks are still wildly unstable since they are tied to the market. My DH has one with a small match and we put in far more than the match..but you always have in the back of your mind that money is there now, but maybe not then, depending on what is happening in the world and the markets.

I don't think we can ever save 'enough' in 'safe enough' accounts to really feel confident about retirement. My DH job is rather physical (Vet Tech) so who knows how long he can sustain that..I changed jobs 6 years ago to a pretty low paying but flexible secure position because I knew I'd probably have to work much longer than DH. This position is the type that I could work at forever without wearing me out...so, we all just do the best we can with what we have, right?

Well, I will say this...I don't think that 401Ks are "wildly" unstable. Yes, for the past 10 years, the markets have been very volatile with big swings in either direction, but over the history of the markets, this is very unusual.

Fidelity just published a study yesterday about 401Ks....and they said this...for people who stayed in the markets and were actively investing from 2000 through 2010...

"For participants continuously active in saving for the past 10 years, average balances rose to $183,100 at the end of last year from $59,100 at the end of 2000, Fidelity said."

Yes, they were actively saving during that time, but that's a nice little return....during the second most volatile period in the stock market's history.

And no, you will never save enough in "safe accounts" to retire well. The Fed attempts to keep just enough inflation in the system to force us to move longer term investments into the markets. You're losing money....

 

[eliza61]

And right now, a lot of people are tapping their 401ks to make ends meet during extended periods of unemployment. So they stave off foreclosure right now, but they're back to square one when it comes to saving for retirement and are often left to try to rebuild those savings on a lower income than they had before.

But that's not a choice really Colleen. How horrible to either be homeless or have a retirement plan. I've got 3 kids can I really criticize some one because I'd probably be using whatever funds available to keep the wolf from the door.

and let's look at some typical middle of the road folks. they may be squirreling 6% away and living on a modest budget. Along comes this crisis in the middle east. a barrel of oil is projected to reach 150 bucks meaning very soon and I mean as in a few months, gas is projected to be anywhere between 4 & 5 bucks a gallon. Now if it were only gas they may be able to absorb the cost but food is going to go up. heating/cooling will go up and clothing is projected to increase becasue most textiles are made out of the country and need to be shipped in.

So that 6% they were squirrling away is gone, they now need it to simply live now. So when the choice is between food now or what you may need 20 years from now. Immediate needs will always take precendent

 

[nunzia]

Well, I will say this...I don't think that 401Ks are "wildly" unstable. Yes, for the past 10 years, the markets have been very volatile with big swings in either direction, but over the history of the markets, this is very unusual.

Fidelity just published a study yesterday about 401Ks....and they said this...for people who stayed in the markets and were actively investing from 2000 through 2010...

"For participants continuously active in saving for the past 10 years, average balances rose to $183,100 at the end of last year from $59,100 at the end of 2000, Fidelity said."

Yes, they were actively saving during that time, but that's a nice little return....during the second most volatile period in the stock market's history.

And no, you will never save enough in "safe accounts" to retire well. The Fed attempts to keep just enough inflation in the system to force us to move longer term investments into the markets. You're losing money....

True...and I've been in 401Ks longer than that and actively investing..Stock Market history really doesn't go back that far..in the big scheme of things..and I'm not worried about past performance as much as future volatility..I really think we are in for a fall..no, maybe that isn't correct , maybe it is, but still..it's diffiult to find the right balance to grow at a decent rate with the fear of the crash happening just when you need to pull out. We are about 10 years out from retirement so this kind of market touchiness stares us right in the face.

That article doesn't say how much they actively invested...if they started out at 59K in 2000 and invested 5 K a year, then ok they did good..if they invested
10K then maybe not so much..I'd like to see more details of how they came up with this..I'd think it would matter what type of investments your 401K was in too..averages are just great if you're above average, but if you in that chunk below...

 

[Colleen27]

But that's not a choice really Colleen. How horrible to either be homeless or have a retirement plan. I've got 3 kids can I really criticize some one because I'd probably be using whatever funds available to keep the wolf from the door.

and let's look at some typical middle of the road folks. they may be squirreling 6% away and living on a modest budget. Along comes this crisis in the middle east. a barrel of oil is projected to reach 150 bucks meaning very soon and I mean as in a few months, gas is projected to be anywhere between 4 & 5 bucks a gallon. Now if it were only gas they may be able to absorb the cost but food is going to go up. heating/cooling will go up and clothing is projected to increase becasue most textiles are made out of the country and need to be shipped in.

So that 6% they were squirrling away is gone, they now need it to simply live now. So when the choice is between food now or what you may need 20 years from now. Immediate needs will always take precendent

I didn't mean to sound critical at all - a lot of our friends and neighbors are in that boat, and we consider ourselves very fortunate not to be there ourselves. We never forget that it was as much luck as hard work that got us to a point where we're not relying on an outside paycheck.

A lot of DH's friends/former coworkers are among the long-term unemployed right now - it isn't a good time to be in the construction industry in the Detroit area - and I understand how hard it is to make the decision to swallow the penalties and drain the retirement and college accounts just to continue scraping by, hoping that the house sells or you find work soon enough that it doesn't turn out to be all for nothing.

And sadly, we've seen friends lose on that risk - DS's best friend moved away a few years ago, after Mom & Dad were both laid off, burned through all their savings including 401ks and their son's college fund, and still ended up falling far enough behind before they found jobs that they lost their home. And what's worse, that was just before the mortgage modification programs started; if the whole ordeal had started 6 months later they probably could have held onto the house.

 

[Anthony1971]

while we are savers I have nothing against who spend it now...
I know people who saved a lot to retire early only to have some sort of problem health or job loss and spent it all and will now work to the end..
I know others that were savers were around for 911 in NY (as we were) and now spend it all....
spending or saving is a gamble and a choice...
how you invest your money is also a gamble many can not retire now because of the market crash.
My advice is to save as much as you can for retiremnet without effecting your life now... some are ok driving an old car some want a BWM now in the same some will drive an old car when they retire and some will have a BWM....truth is the only known is that if you can afford (please make sure you can afford still adding to your 401K) a BMW now and your life will not be complete without one then buy it now...

 

[lpandorf]

Great thread! Makes me think more about retirement. I've been contributing to 401k since I started work about 20 years ago. Never a ton, but always enough to get the match. I will have a pension from my company and hope to get social security. While, I won't make as much with those three things as I do with my current income, I do think I can live on less when retired. My house will be paid for and my mortgage is my biggest expense. I'm spending $400/month on gas commuting to work which will go away. I'll need clothes, but not the nicer work clothes I buy now. Kids will be out of the house; $3000/year for competition cheer team gone, $60/month piano lessons gone, rec soccer, Scouting fees, school fees, kid's clothing and all other related expenses will be gone. Food bill will go down as there will only be two of us to feed. As some have said, biggest unknown is medical. I'm sure that will go up. And never know what kind of things we may need to hire out (such as lawnmowing the steep hill in our backyard) that we can handle now, but may not be as easy in our old age. Hopefully, not enough to offset all these other costs that will go away.

 

[MrsPete]

Also, how many people can really find room to save on 30K? That's welfare territory if they have kids, at least in terms of medical assistance and EIC if not food stamps or other living expenses assistance.

I don't disagree, but how many couples beyond entry-level make 30K?

Gotta say - I LOVE this idea!!! Love, Love LOVE it! And if you don't mind, I'm stealing it for any future grandchildren. Assuming I'm in a position to do so. Of course, my own kids are only 7 and 8 right now, so I'll have a long time to consider it.

Steal away! I've picked up many a good idea from this site.

My mom (and the other grandmother) offered to split day care between the two of them for some of the younger grandchildren /my nieces and nephews. They offered to do it for the children's first two years. She couldn't offer it to me because she was still working, which was just bad luck on my part.

The key is to be the tortoise in the race, not the hare.

Exactly. Everyone can't be the hare, which -- in this situation -- would mean earning $$$$$ and being able to save quickly. But the vast majority of us can put aside SOMETHING.

And right now, a lot of people are tapping their 401ks to make ends meet during extended periods of unemployment.

Add to that, too many people are using home equity too. All too many people are willing to do anything, to slap any bandaid on the situation, to sell any portion of tomorrow's earnings -- to avoid making lifestyle changes today.

 

[Ava]

This thread is really interesting, & prompted me to do some calculations of my own.

I'm 30 so, assuming I retire at 65, I have 35 more working years. I currently have about $15,000 in my 401K, and contribute a total of 10% including the employer match. Even if my salary doesn't go up & therefore I contribute the same amount each year for the next 35 years, based on an 8% return I'll have a little over $1 million by the time I reach age 65. I think I can live with that.

 

[crisi]

This thread is really interesting, & prompted me to do some calculations of my own.

I'm 30 so, assuming I retire at 65, I have 35 more working years. I currently have about $15,000 in my 401K, and contribute a total of 10% including the employer match. Even if my salary doesn't go up & therefore I contribute the same amount each year for the next 35 years, based on an 8% return I'll have a little over $1 million by the time I reach age 65. I think I can live with that.

The scary thing is what $1M will be worth in 35 years. i.e. it won't be worth $1M today. Make sure to figure that into your calculations.

 

[dvcgirl]

while we are savers I have nothing against who spend it now...
I know people who saved a lot to retire early only to have some sort of problem health or job loss and spent it all and will now work to the end..
I know others that were savers were around for 911 in NY (as we were) and now spend it all....
spending or saving is a gamble and a choice...
how you invest your money is also a gamble many can not retire now because of the market crash.
My advice is to save as much as you can for retiremnet without effecting your life now... some are ok driving an old car some want a BWM now in the same some will drive an old car when they retire and some will have a BWM....truth is the only known is that if you can afford (please make sure you can afford still adding to your 401K) a BMW now and your life will not be complete without one then buy it now...

I understand your point. We all have times in our life when we reflect on our spending/saving and whether we have the right balance. On February 7th, a close family friend committed suicide. She had it all....two beautiful children, lots and lots of money and yet she battled depression for many years. After something like that happens, it shakes you up. You start to wonder what life is all about.

But then a little time passes, and you start to remember that most of us are going to live a really long time. I agree...."save as much as you can without it affecting your life".....as long as you're saving at least 10% .

Really and truly, you've got to be saving and investing at least 10%. If you can't do that now (not you...all people in general).....try and work towards that and beyond.

And don't get me wrong....DH and I went through our "McMansion Phase"....we even had a BMW during that time. Like I said earlier...we came into a big sum of money (DH stock options), and it was a new gig to us. We did what we thought you did when you had money like that.

Trust me when I tell you....big houses and fancy cars don't make you happy. Sure, it's always fun in the beginning...but like every purchase like that...it sort of wears off after awhile and then it's just a house and a car. No big deal.