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

[nunzia]

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

ME! I don't make 30K and my DH makes barely more..so....

 

[crjack]

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.

Also, and I know this was mentioned earlier, it's great to think we can all work until we choose not to but this current economy has shown us that is not always the case. Companies dont always want workers over a certain age. Especially if they can get a recent grad for a fraction of the cost.

We have three immediate family members who have lost jobs due to the recession and all three have MBA's....they just happened to work in financial services. All happen to be in the early 50's. They have done all of the right things...401k's, college funds, reasonable houses, and thank goodness they did because it has taken a long time for two of them to get new jobs (15+ months) and neither one is close to their old salary.

I think we also need to look at our highest earning years as our highest savings years and for DH and I we feel it's our 40's. I know we can't count on always being employed and certainly not at the same salary.

For us, we are trying to take advantage of these years but it's a juggle to save for everything.

 

[neatokimmo]

Funny, we were just talking about 401Ks at work today. One person is doing 2%, one is doing 4%. Our company matches up to 6%

I ran a calculator awhile back that said if I maxed out my contribution for one year at 36, it took like 5 years off my retirement age. Add in a Roth and IRA and it was even better. So I'm going through one year of pain (51% in contributions when you include IRA) to make sure I'm not eating cat food when I'm old.

 

[QVCshopper]

Funny, we were just talking about 401Ks at work today. One person is doing 2%, one is doing 4%. Our company matches up to 6%

I ran a calculator awhile back that said if I maxed out my contribution for one year at 36, it took like 5 years off my retirement age. Add in a Roth and IRA and it was even better. So I'm going through one year of pain (51% in contributions when you include IRA) to make sure I'm not eating cat food when I'm old.

See, that's just throwing money away. A 6% match is very good; those people could get a raise of 2% and 4% right away if they'd only take it. I also have 6% and fully get the match, plus I put in extra. Trying to catch up from the years I missed when my kids were young and I didn't work enough to contribute.

My DH maxes out his 401k and I put in 50% (I'm part-time and my pay is a bonus to us). We also max out our Roths. Probably can't do this forever, but while we are young, we keep plugging away. Will obviously have to switch gears as the kids approach college, but they are young yet.

That said, my DH and I are approaching our mid-30s and we have more saved in retirement than my parents. At least double. I worry about them, but they should have their SS. And my dad may get a small pension b/c he finally ended up in a government job once I went to college. Sadly, they are in their 60s and not in the best of health. That's another big consideration.

 

[MrsPete]

ME! I don't make 30K and my DH makes barely more..so....

You and your husband are both working full-time and are making less than $30,000? I don't think you're typical.

 

[MrsPete]

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 . . .

We can't make our retirement planning decisions based upon people on the extremes -- that is, people who die young or people who live forever. Instead, we have to aim for the middle, where most of us "live".

 

[dvcgirl]

See, that's just throwing money away. A 6% match is very good; those people could get a raise of 2% and 4% right away if they'd only take it. I also have 6% and fully get the match, plus I put in extra. Trying to catch up from the years I missed when my kids were young and I didn't work enough to contribute.

My DH maxes out his 401k and I put in 50% (I'm part-time and my pay is a bonus to us). We also max out our Roths. Probably can't do this forever, but while we are young, we keep plugging away. Will obviously have to switch gears as the kids approach college, but they are young yet.

That said, my DH and I are approaching our mid-30s and we have more saved in retirement than my parents. At least double. I worry about them, but they should have their SS. And my dad may get a small pension b/c he finally ended up in a government job once I went to college. Sadly, they are in their 60s and not in the best of health. That's another big consideration.

You're in the "super saver" category...good for you! We maxed out everything when we could, but we stopped being Roth eligible a long time ago. We do max out 401Ks, my DH's company's match is about 5 grand, and but I'm able to pile in a total of nearly 35K a year in my 401K thanks to the profit sharing portion (I have a self employed 401K). And then we max out our HSA each year. Still, a full 50% of our savings now is taxable.

I think I've heard Clark Howard say that only 1% of savers max out both the 401K and the Roth...and I would imagine they mean just one per household. So, if you're doing 1 and 1/2 401Ks and two Roths....well, that's very good. Doing that in your mid-30s....is extraordinary.

And please, don't think that if you don't save like this....that you can't enjoy a nice retirement. It's all about starting early...aiming for at least 10% and investing month in and month out.

 

[nunzia]

You and your husband are both working full-time and are making less than $30,000? I don't think you're typical.

I think we are above average..the average family household in the US is around 50K last I heard. Between the two of us we bring in about 60K gross. We both have college degrees and both work full time...

 

[dvcgirl]

Also, and I know this was mentioned earlier, it's great to think we can all work until we choose not to but this current economy has shown us that is not always the case. Companies dont always want workers over a certain age. Especially if they can get a recent grad for a fraction of the cost.

We have three immediate family members who have lost jobs due to the recession and all three have MBA's....they just happened to work in financial services. All happen to be in the early 50's. They have done all of the right things...401k's, college funds, reasonable houses, and thank goodness they did because it has taken a long time for two of them to get new jobs (15+ months) and neither one is close to their old salary.

I think we also need to look at our highest earning years as our highest savings years and for DH and I we feel it's our 40's. I know we can't count on always being employed and certainly not at the same salary.

For us, we are trying to take advantage of these years but it's a juggle to save for everything.

Most Americans see their income peak in their 50s. However, you're on to something here. There are most certainly some Americans who will never make the income that they made pre-Great Recession.

CNN/Money just reported on this. Yes, jobs are beginning to come back, albeit very slowly. BUT, the jobs that are coming back are in the low to mid income range. 76% of the jobs created in the first seven months of 2010 were in the 8.92-15 dollar an hour range. The national average is 22 bucks an hour.

The two areas hit hardest as far as loss of high income earners....construction and financial services. And lets face it, those industries are years and years from coming back. A lot of it will never come back.

In fact, housing is looking really scary right now...like we could be in for another big leg down.

And that consequence will hurt the first wave of Boomers hard, as they've already lost a ton of equity....and many were counting on that equity in retirement.

Here's the article on wages.

http://money.cnn.com/2011/01/31/news/economy/low_wage_job_growth/index.htm

 

[crisi]

CNN/Money just reported on this. Yes, jobs are beginning to come back, albeit very slowly. BUT, the jobs that are coming back are in the low to mid income range. 76% of the jobs created in the first seven months of 2010 were in the 8.92-15 dollar an hour range. The national average is 22 bucks an hour.

My husband's field is booming for highly paid, highly qualified individuals. He was being actively recruited currently by three firms recently, and he is hiring three or four people - if they can be found.

The catch - its a really small subset of people who are qualified to do the work. Its a specialized subset of IT.

 

[Ava]

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.

Good call. I guess I need to save a lot more! Hopefully I will get some type of raise each year, so that will help. (My company - assuming I stay here - has continued giving raises, albeit small ones, throughout the recession.) This is also only counting my income. My partner isn't working right now but once our kid(s) are older the plan is for her to go back to work.

 

[crjack]

Most Americans see their income peak in their 50s. However, you're on to something here. There are most certainly some Americans who will never make the income that they made pre-Great Recession.

CNN/Money just reported on this. Yes, jobs are beginning to come back, albeit very slowly. BUT, the jobs that are coming back are in the low to mid income range. 76% of the jobs created in the first seven months of 2010 were in the 8.92-15 dollar an hour range. The national average is 22 bucks an hour.

The two areas hit hardest as far as loss of high income earners....construction and financial services. And lets face it, those industries are years and years from coming back. A lot of it will never come back.

In fact, housing is looking really scary right now...like we could be in for another big leg down.

And that consequence will hurt the first wave of Boomers hard, as they've already lost a ton of equity....and many were counting on that equity in retirement.

Here's the article on wages.

http://money.cnn.com/2011/01/31/news/economy/low_wage_job_growth/index.htm

If we avoid lay-off's than our income will probably be it's highest in our 50's but for people in that age range now the comeback may likely miss them......and it's not that easy to change fields at that age either. Many people are also juggling college tuitions for children at the same time.

I know our family members probably felt like financial services was a relatively safe field with their education and work backgrounds but definitely not so. They will now be living on a lower income so most likely saving less for retirement and that is after hitting their savings accounts very hard.

Dh works in high tech and thankfully his job was not impacted. Sometimes the timing and importance of your field can make a huge difference.....both good and bad. It can also change quickly though.

 

[Colleen27]

I know our family members probably felt like financial services was a relatively safe field with their education and work backgrounds but definitely not so. They will now be living on a lower income so most likely saving less for retirement and that is after hitting their savings accounts very hard.

And for 20+ years now, since manufacturing started moving overseas, construction trades have been the "safe"/"recession proof"/"outsourcing proof" blue collar path. After the tech bubble burst and the big players moved so much of their tech support overseas, I knew degreed, certified IT professionals who were working in the construction field for better pay and more stability.

 

[lisaross]

Before having kids i worked in a big company for 12 years..I always contributed to my 401K - can't remember how much but i think between 5% and 10%. The company also matched i think 5% - I will also get a small pension from that company when i turn 62.

My husband has been with the same company for about 16 years always contributing also for many years 10% (his company matches 6%) the last few years we lowered it to the matcing of 6% and started putting $200 per month into a ROTH. My husband should be getting a pension -

I am hoping we will be ok! i think combined we have about 250,000 in our 401's.

we also have some mutual funds - which i'm thinking we might use for the kids college - as i don't have a separte "college" fund for them - our mortgage should be paid off by the time my older son starts college

 

[dvcgirl]

If we avoid lay-off's than our income will probably be it's highest in our 50's but for people in that age range now the comeback may likely miss them......and it's not that easy to change fields at that age either. Many people are also juggling college tuitions for children at the same time.

I know our family members probably felt like financial services was a relatively safe field with their education and work backgrounds but definitely not so. They will now be living on a lower income so most likely saving less for retirement and that is after hitting their savings accounts very hard.

Dh works in high tech and thankfully his job was not impacted. Sometimes the timing and importance of your field can make a huge difference.....both good and bad. It can also change quickly though.

Oh...timing is huge. I've been candid on this board about our good fortune over the years that I've been a member and poster here. And I'm very proud of our work ethic and that we are where we are financially.

But I've also been honest that our timing has been extraordinary. If we had come along just five years later, our portfolio would be markedly different, and not in a good way. Five years later, we would have missed the tech boom....when DH was on a upward trajectory in his company when they were handing out stock options like candy and the stock price was splitting all of the time...it split six times over that period.

Had that not happened....no big lump sum of money from stock options...

Had that not happened....we wouldn't have purchased home with cash in 2000...

Had that not happened....we would not have seen our home double in just four years when we sold it.

Had that not happened, we would not have been able to just use the profits from first house to buy house in Orlando in 2004....we invested the rest.

Had that not happened....on and on.

Seriously....if he was looking for a job around 2000....he would have had a tough time. Once he did find a job, he likely would have made less, and there would have been no stock options. So, we would have had to save up for home. We probably would have been ready to purchase around 2005 or 2006. Right when the real estate market peaked.

And so right now, instead of having a portfolio in the seven figures and a net worth well into seven figures....we very well could be doing our best, but sitting in a house with negative equity.

Granted, we'd likely still have a decent 401K, as we were both savers/investors from age 22, but I know that those five years were just huge for us. And our timing with the real estate market was just plain luck.

But, with this financial crisis and recession, I've said many times....a lot of people have done everything *right*, and still have gotten screwed.

 

[starry_solo]

I agree with you! I currently have a mortgage, retirement savings, college savings. Additionally we have three kids, we paid for private elementary and high school for three kids starting in 1992 and I have one still in high school, plus college out of pocket for one who graduated, one currently in college and one to come...Plus we have three cars with car insurance for four drivers...plus they do tend to eat, go to the dentist and doctor, need glasses/contacts/medicatons, lol. Plus clothing! All these expenses will decrease/disappear once they move out. And I forgot their cell phones with data plans lol!

I just don't think we will need 85% of our current income

I think it's because most people expect to retire in 20-30 years (of what they are talking about 85% of current income). Even if you don't have all those expenses (mortgage, etc), you will still have medical expenses (always on the rise), property taxes (again, on the rise) and other expenses that will cost more in 20-30 years than they do now.

As an example, my employer offers active employees and retired employees insurance. The active employees insurance (for Kaiser for a single person) is approx. $469/month. The retired employees' insurance (for Kaiser for a single person) is approx. $826/month (so, that's $357/month extra just for being retired!)

 

[adkkev]

For those of you with 401k accounts and employer matches, be thankful that you have that NOW. Because that will be the next thing for companies to dump in the next few years ... and many have done so already. Companies are out to make $$ for their investors, and cutting out 401k matches is a nice way to put more dollars on the bottom line for the investors. Just as companies ditched defined pension plans, matches will be ditched.

I had a defined pension plan, and I was fully vested, so that meant that I had that pension coming even though I no longer worked for that company. But the financial managers of that company raided the pension funds and it ended up going to the fed gov't pension guar. corp., or at least what little was left for vested folks. So that pension will be about a third of what it should have been under the defined plan. And this has happened to many other benefit plans across the country.

As one poster pointed out, some states have raided their pension funds for other purposes ... and now the state employees are being blamed for current shortfalls ... even though they really didn't have anything to do with those shortfalls. New York State's pension fund is doing very well simply because the politicians can't raid it ...

 

[msmayor]

For those of you with 401k accounts and employer matches, be thankful that you have that NOW. Because that will be the next thing for companies to dump in the next few years ... and many have done so already. Companies are out to make $$ for their investors, and cutting out 401k matches is a nice way to put more dollars on the bottom line for the investors. Just as companies ditched defined pension plans, matches will be ditched.

I had a defined pension plan, and I was fully vested, so that meant that I had that pension coming even though I no longer worked for that company. But the financial managers of that company raided the pension funds and it ended up going to the fed gov't pension guar. corp., or at least what little was left for vested folks. So that pension will be about a third of what it should have been under the defined plan. And this has happened to many other benefit plans across the country.

As one poster pointed out, some states have raided their pension funds for other purposes ... and now the state employees are being blamed for current shortfalls ... even though they really didn't have anything to do with those shortfalls. New York State's pension fund is doing very well simply because the politicians can't raid it ...

I doubt that. There are good tax breaks for companies that offer this perk and its a way for a company to keep control of their retirement benefit costs.

In addition, their investors won't be too happy if they suddenly become unable to retain talented employees because they no longer provide a 401(k) match.

 

[dvcgirl]

For those of you with 401k accounts and employer matches, be thankful that you have that NOW. Because that will be the next thing for companies to dump in the next few years ... and many have done so already. Companies are out to make $$ for their investors, and cutting out 401k matches is a nice way to put more dollars on the bottom line for the investors. Just as companies ditched defined pension plans, matches will be ditched.

I had a defined pension plan, and I was fully vested, so that meant that I had that pension coming even though I no longer worked for that company. But the financial managers of that company raided the pension funds and it ended up going to the fed gov't pension guar. corp., or at least what little was left for vested folks. So that pension will be about a third of what it should have been under the defined plan. And this has happened to many other benefit plans across the country.

As one poster pointed out, some states have raided their pension funds for other purposes ... and now the state employees are being blamed for current shortfalls ... even though they really didn't have anything to do with those shortfalls. New York State's pension fund is doing very well simply because the politicians can't raid it ...

Well, during tough times we've seen the 401K match cut. DH's company stopped the match about 1/2 way through 2009 and all of 2010. They had to...revenues dropped by 25%. They had a company wide call....and explained that if they didn't stop the match, that there would be layoffs. It was the responsible thing for his company to do. In doing so, they didn't lay any employees off and did not cut anyone's pay. It was just restarted this year.


We adjusted our savings to make up for that shortfall as it was a part of our overall savings goal for the year. I get that not everyone can just come up with an extra $416 a month. We cut our monthly vacation savings and discretionary income by a couple of hundred dollars each and we were all set.

As for New York's state pension fund, I'm not exactly sure what you mean by "doing very well". I've been reading for the last couple of years that the NY pension fund is in trouble. Here's an article from late last year.....saying that the 132 Billion dollar fund is underfunded by 71 Billion. I guess maybe you mean that it's not as bad as others? Here's the article from Bloomberg

http://www.bloomberg.com/news/2010-...on-underfunded-empire-center-report-says.html

And yet in other articles I've read that only four states could claim that their funds were "fully funded" in 2008, along with just three other states.

So, perhaps New York is in the "top four".....but if being in the top four means that they're only underfunded by 71 Billion...over half of the entire fund's value. Makes me wonder what a fund in good shape looks like.

As to the Pension Benefit Guarantee Corp....yes, that the Government's insurance plan where large company pensions go to die....or to stay on life support. The PBGC is incredibly underfunded as well. I'll post a link below to the PBGC, and on the right you can see a list of company names. Note all of the airlines in there. Talk about a raw deal....those pilots, well, most made hefty six figure salaries back in the day, and all were promised 100K and up pensions. Well, the most those funds pay out....is 54K a year.

http://www.pbgc.gov/wr/trusteed/plans.html

 

[crjack]

I only work p/t now but my company (very large) stopped the 401k match as well back in late 2009 and it is just now coming back. We have always looked at a match as "extra" money because DH has had jobs where it didn't exist or was halted as well. It's definitely something that can go away at anytime....hopefully only temporarily but again it's money lost over time and that can add up.

I help my dad manage his bills and he worked his entire career for the same company and contributed heavily to his pension. They were not a union but a well known company here in MA (Cambridge). When they went out of business, just as he was retiring, he lost his retiree insurance (health and life) and his pension was taken over by the PBGC. It's significantly less than it was supposed to be.

My dad is in his 70's now and always lived a very practical lifestyle raising us. He is definitely of the generation where debt was feared and used really only for buying a house....everything else was saved up for with cash.

Thank goodness for his lifestyle and saving habits because I saw first hand how quickly things can change. If he had needed all of his pension he would be in trouble....not to mention significantly higher insurance rates now in his monthly expenses.

My posts are all sounding doom and gloom but really I'm not. For us we try and look ahead and plan the best we can, get the best deal on things we purchase and find a reasonable balance for our lives. For us, that is the best life plan.