Good Article: The Retirement Lies We Tell Ourselves.

[dvcgirl]

I thought some of the more geeky financial types like myself would enjoy this article. A good reality check as well....


http://www.globalaging.org/pension/us/2006/lies.htm

 

[kinntj]

Thanks for sharing! These are the type of articles I love to read. It keeps me on my toes and focused on what's important.

 

[mickeyfan2]

Thank you for a interesting and informative article.

 

[dvcgirl]

After reading it again, it is fairly negative sounding though isn't it? And this is coming from me....and I generally see little "grey area" when it comes to retirement savings.

Still, the few "lies" that we tell ourselves in there that I agree with them on....

"I'll continue working in retirement". A full 2/3 of Baby Boomers are telling themselves that one...and that's not likely to pan out. We all see the commercials, you know, the ones with Dennis Hopper...about how the Boomers are going to rewrite what "golden years" means. In reality only 12% of retirees are collecting a paycheck. Of course, the other side of the coin is that all of these boomers leaving the workplace is supposed to create a huge labor shortage, and so in theory there will be jobs for them. But what kind of jobs....that's really the question.

"I'll live on 70-80% of my current income in retirement". I just don't see this one panning out for most Americans, because most Americans aren't saving anything. And while some expenses will go down (housing if you've paid off your mortgage), others will go up considerably, like healthcare. Even folks who have prepared pretty well may end up spending what they thought would be their travel money on things like prescription meds.

"I'll retire on the house". An awful lot of Americans are thinking this way, and unless you are willing to sell and either rent, downsize considerably or move to a cheaper area the reality is that most people aren't going to unlock enough equity to make a significant difference.

 

[dizcrazy]

Good article!

"I'll live on 70-80% of my current income in retirement". My grandfather worked for a compnay for 50 years, and when he retired 20 years ago, his pension was $1000 a month. My grandmother said that twenty years ago, that was a very generous pension. Now, however, she needs to use her social security and investment to subsidize her income.

I also thought another good point was the "my spouse is taking care of everything" Everyone needs to have a good understanding of their household finances -- Husband or wife!!! Please know about your finances, and not just leave it up to your spouse because "he/she is better at dealing with that" or because you just dont want to be bothered.

 

[dvcgirl]

Good article!

"I'll live on 70-80% of my current income in retirement". My grandfather worked for a compnay for 50 years, and when he retired 20 years ago, his pension was $1000 a month. My grandmother said that twenty years ago, that was a very generous pension. Now, however, she needs to use her social security and investment to subsidize her income.

I also thought another good point was the "my spouse is taking care of everything" Everyone needs to have a good understanding of their household finances -- Husband or wife!!! Please know about your finances, and not just leave it up to your spouse because "he/she is better at dealing with that" or because you just dont want to be bothered.

Good points. The other one that fits in with your first point is the thinking that "I'll be able to live on 80% of my income because I won't have a mortgage when I retire." Your current mortgage payment isn't going to seem like all that much in 25 or 30 years.

My parents paid 13K for their first and only home in 1964. My in-laws paid 34K in 1970. Sure, it's nice to lose that payment, but 20-25 years from now it will only feel as though you've dropped a car payment, and not a mortgage payment.

 

[Chicago526]

Well, I haven't told myself those lies!

I have NO intention of working in retirement, neither does DH. We are in our 30's and we'd stop working tomorrow if we could! That said we have no plans of retireing early (unfortunatly). I just don't think we'd be able to save enough to do it.

I'm planning on living on close to 100% of our current income, DH has medical issues, and we won't be able to get long term care insurance for him so I'm planing on large medical expenses. If they don't happen, then hey! More trips to WDW!

I'm not counting on my house to help us in retirement. It's a place to live, not an ATM machine. And even paid off their are taxes and maintenance costs, it's not like housing will be free.

I'm not counting on DH's pension, we've already been told it will be bankrupt about 5 years before he's due to retire.

We plan on opening a Roth IRA to complement my 401k at work, hopefully soon (see above pension issue!).

We aren't counting on an inheritance. We will likely both get something, and it will likely help us out some, but I highly doubt it will contribute to the bulk of our retirment savings.

We (well, I anyway) are not comfortable with debt, we are trying to become debt free except for the house, and I plan on having the house paid off by the time we retire.

I think the one thing we do wrong is that I handle all the money, DH just isn't interested. But that's not something I can really change. I'll keep him informed the best I can though!

 

[disneysteve]

I actually saw this one when it appeared in the WSJ. We were on a mini-vacation and someone left a copy of that section of the paper in our room and the maid missed it. I thought that was quite a coincidence given my interest in the subject.

I certainly agree that many people are planning for things that aren't likely to work out the way they think. Working in retirement, only needing 70% of income, etc. A lot of people are going to be very disappointed when they reach 65 and discover that they simply can't afford to stop working. Either that, or they will retire out of necessity for physical reasons and find that they need to drastically scale back their lifestyles due to lack of funds.

 

[Chicago526]

Either that, or they will retire out of necessity for physical reasons and find that they need to drastically scale back their lifestyles due to lack of funds.

I think that's the other issue. Lifestyle. Many people think their standard of living will go UP in retirment, not stay the same or go down. My parent's did go up after retirement, but that's only because they lived waaaaay below their means for most of their lives to pay for it (and they got a bit lucky on real estate and investments, never forget about luck!).

DH and I aren't planing anything elaborate. We've traveled a lot while young, so while we will take trips, it will likely be only one or two times a year, pretty much what we do now. All we want is a small house in the country so we can enjoy peace and quiet and spend time together! : It shouldn't cost too much to accomplish that!

People need to either scale back their expectations, or save accordingly for them.

 

[LoriKay]

When they talk about saving 20% of your salary does that mean before or after taxes?

 

[mjantz]

I do plan on semi-working when I retire. I'll probably substitute teach at various child care facilities. It will provide some extra income without the 'strings' of a real job. I'll be perfectly happy to work 4-5 days/month.
I also plan on getting long-term care insurance once I turn 40. I may never need it but it will be peace of mind insurance.

 

[disneysteve]

When they talk about saving 20% of your salary does that mean before or after taxes?

Generally, they are referring to % of gross income.

 

[MrsPete]

Interesting article! I, too, like to read things like this to make sure I"m on track financially. I can honestly say that I don't tell myself these particular lies.

"I'm going to work in retirement."
I expect to retire from my "real job" at 57, and I'm not opposed to working for a while, BUT I have three conditions: 1) I want it to be a CHOICE, not a necessity, 2) I want it to be part-time and flexible, and 3) I want it to be something creative, fun, and entirely different from my current job. In other words, it has to be fun. And if it could give me some type of nice benefit (i.e., discounts, free Disney tickets, whatever), that'd be nice.

I do find one fault with the article's statement that only 27% of all retirees work right now: Today's retirees are better prepared than my generation (just-turned 40s) will likely be. They have paid-for houses and pensions -- people my age probably won't enjoy those niceties; thus, I think people my age will be more likely to work rather than cut back.

"My home is my safety net."
I'm planning to downsize from my large, paid-for house to a luxury townhouse once my kids are out of the house (that'll be a few years before retirement). DH and I don't enjoy yardwork, and if all the kids (and their kids) come home at the same time, it'll be less expensive to pay for them to have a nice hotel room than it'd be to maintain that living space year-round.

We expect that our house'll be a fairly even exchange for a smaller place. If we have to pay a little more, we're prepared, but I'm hoping it won't be LOTS of money. So I don't expect my house to "save me", but I do expect it to continue to house me, even after I sell it.

"I can live on 70% or 80% of my pre-retirement income."
If I'm lying to myself about anything, this is it. Right now, between college savings and retirement savings, I put aside a good portion of my salary. Once my kids are out of the house, I expect my expenses to go down. I have no doubt that I CAN live on 70-80% of my salary, but I want it to be a CHOICE, not a necessity. I expect to continue to live frugally day-to-day -- that's how I've always lived, and it's no sacrafice to me -- but I want to be able to splurge on several nice trips each year.

"I'm comfortable with debt."
Those words have never passed my lips!

"I'm going to get an inheritance."
Yeah, right.

"I'm going to get a pension -- and it's safe."
As a state employee, I have a pretty safe pension, which I expect will provide a major portion of my retirement income; however, if it were to go sour, while it would hurt, I wouldn't be destitute: DH and I would both have our 401Ks, a paid-for-house, and Social security. If my pension disappeared, we'd have to scale down our plans, but we wouldn't be forced to keep working against our wills.

"I won't need long-term care."
This is something I'm a bit worried about. Health-care in general is the wildcard in the retirement plans.

 

[runwad]

I do plan on semi-working when I retire. I'll probably substitute teach at various child care facilities. It will provide some extra income without the 'strings' of a real job. I'll be perfectly happy to work 4-5 days/month.
I also plan on getting long-term care insurance once I turn 40. I may never need it but it will be peace of mind insurance.

At 40 , hey I'm 40 and that seems too young I thought I could wait till 50 to start looking into long-term care insurance.

 

[mickeyfan2]

At 40 , hey I'm 40 and that seems too young I thought I could wait till 50 to start looking into long-term care insurance.

Actually I got my LTC insurance in my 30s. The younger you get the lower the payments are. What would you do if you came down with something in your 40s that prevented you from getting LTC insurance?

 

[EthansMom]

I know several people who tell themselves: "We'll start saving next year." And then they go on vacation, buy a new car, etc... The earlier you start saving, the better off you'll be.

I also know a couple with a small business who keep saying: "When the time comes, we'll sell the business." Honestly, while the business provides a decent income now, it will only be worth the value of the capital equipment (minus debts) at a later date.

We're a nation of folks who consider big-screen t.v.s, cell phones, computers, Ipods, brand name purses, game systems, luxury vacations, etc., etc... to be necessities rather than luxuries. I can't tell you the number of times people have said, "Why don't you just go buy..???" or "You don't have....???" Because I'm putting money away for retirement and my kids' college, that's why.

 

[runwad]

Well I guess I'm a little bit of a risk taker when it comes to that, you know the "it can't happen to me mentality". At 40 to be paying those premiums for all that time just seems like a lot of money. but I guess it's no different then me paying all those car insurance premiums for 34 years and having never filed a claim to use it, uh? I just thought at one time I read you should start looking into long term care in your 50's...plus now at this stage in our life with 3 little kids there just isn't enough money for the luxury of long term care insurance. Hopefully 10 years will make all the difference.

 

[mickeyfan2]

Well I guess I'm a little bit of a risk taker when it comes to that, you know the "it can't happen to me mentality". At 40 to be paying those premiums for all that time just seems like a lot of money. but I guess it's no different then me paying all those car insurance premiums for 34 years and having never filed a claim to use it, uh? I just thought at one time I read you should start looking into long term care in your 50's...plus now at this stage in our life with 3 little kids there just isn't enough money for the luxury of long term care insurance. Hopefully 10 years will make all the difference.

For LTC insurance the premiums are based on your age. The younger you are the lower the premium. Since my premium never goes up my cost in my retirement years will be far smaller. This is a risk we all take - should I buy now or wait.

 

[runwad]

So you're saying if I got a policy now my premium would NEVER go up in all the years that I have it? I mean how is that possible? Everything goes up, always, life insurance, car insurance, medical insurance...how can long term care insurance not go up? I mean if that's the case then yeah you're right I should get it now to lock into a premium. Please tell me more because this is not how I understood it to work.

 

[mickeyfan2]

So you're saying if I got a policy now my premium would NEVER go up in all the years that I have it? I mean how is that possible? Everything goes up, always, life insurance, car insurance, medical insurance...how can long term care insurance not go up? I mean if that's the case then yeah you're right I should get it now to lock into a premium. Please tell me more because this is not how I understood it to work.

LTC is a flat rate premium that you pay for the rest of your life. We also have the inflation ride, so our payment goes up by 5% each year. There are 2, 5 and unlimited year policies.

My policy start out at $250/day with unlimited years. I pay a little over $1K/year. Mine also make 100% payments for in home care as well as nursing home care.