Great Opinion piece on the coming Retirement Crisis.....

[dvcgirl]

http://www.nytimes.com/2012/07/22/opinion/sunday/our-ridiculous-approach-to-retirement.html


Some of you may have read the above piece. This woman really sums it up. At least as far as the coming crisis is concerned. The numbers are more than alarming. "75% of Americans nearing retirement in 2010 had less than $30,000 in their retirement accounts."

What I really love is how she talks about the idea that we can just "work until we're 70 and we'll have enough". That's often spoken by 50 year olds I think. The jobs are just not going to be in the numbers that we're going to need for those 70 year olds. Right now we have a big problem with 50 and 60 year olds finding jobs.

And then she gets into the 401K/IRA savings plan that we've had in place for over 30 years being a failure. And she thinks we need to call it a failure now and get something else in place.

These two paragraphs sum it up:

"So it’s not surprising that denial dominates my dinner conversations, but it is irresponsible for Congress to deny that regardless of how much you throw 401(k) advertising, pension cuts, financial education and tax breaks at Americans, the retirement system simply defies human behavior. Basing a system on people’s voluntarily saving for 40 years and evaluating the relevant information for sound investment choices is like asking the family pet to dance on two legs.

Not yet convinced that failure is baked into the voluntary, self-directed, commercially run retirement plans system? Consider what would have to happen for it to work for you. First, figure out when you and your spouse will be laid off or be too sick to work. Second, figure out when you will die. Third, understand that you need to save 7 percent of every dollar you earn. (Didn’t start doing that when you were 25 and you are 55 now? Just save 30 percent of every dollar.) Fourth, earn at least 3 percent above inflation on your investments, every year. (Easy. Just find the best funds for the lowest price and have them optimally allocated.) Fifth, do not withdraw any funds when you lose your job, have a health problem, get divorced, buy a house or send a kid to college. Sixth, time your retirement account withdrawals so the last cent is spent the day you die."

I've been reading on this topic for years and am familiar with the numbers and yet when I see someone sum it all up like this it's frightening. I think the second paragraph is a little over the top, but she has a good point.

Really, what it comes down to is that we have a voluntary retirement system that does require self-discipline and a great deal of it for lower income earners. And Americans aren't good at self-disclipine.

This crisis is going to hit this country very hard. There's no doubt about that.

 

[punkin]

...so does she have any suggestions? I read the article and, while she does make some points, her conclusion is that we should be able to come up with a solution, but she gives no clue to what that solution might look like.

 

[acename]

I love reading your posts! Thanks so much for this one. While it is scary, it at least makes me feel good that for us, we're a bit ahead of the game. We haven't saved a boatload of money, but we did start saving about 10% of our income in a 401k in our early 20s.

It really is sad. I know my parents are in their late 50s, and they have only slightly more in retirement than we do. They own their own business, so they'll have employment (assuming the business does well), but they'll never be able to retire.

 

[Ginny Favers]

Good to know we're in the 25%. But wow.

I can't help looking at the previous generation and thinking that they had it made.

My dad never made more than $40k (he was an insurance underwriter) and was forced into retirement when he was 53. That's 18 years ago. He's been collecting a pension ever since, and they've been living comfortably off of that (and social security, when it kicked in). They haven't even touched their retirement savings.

We, on the other hand, doubt we'll ever be able to retire.

 

[ICF]

IMO, it's not up to the governmet to make sure I make it thru retirement. If you want to be able to quit working someday you need to figure out a way to save some $$'s along the way.

There are already government programs out there like Social Security and the like that provide you "some" money. I just hope in 25 years it's still there so I get my piece after paying in all these years. The tax increases needed to pay for a fully funded retirement system for every american will cause a revolt.

While it's sad that 75% of almost retirees had less than $30K saved, a government ran retirement system will never work.

 

[MrsPete]

I've been reading on this topic for years and am familiar with the numbers and yet when I see someone sum it all up like this it's frightening. I think the second paragraph is a little over the top, but she has a good point.

I think she loaded the deck a bit in that second paragraph. Saving for retirement isn't rocket science, and most of us have access to 401K plans through work. Information is available everywhere. We're not quite as "in the dark" as she implies. My husband's a tech guy and I'm a teacher, and we're able to navigate the world of investments and retirement planning without undue stress -- we're ahead of the game for our age bracket.

However, she is right when she says that planning 40 years ahead of time isn't something that most people will do. I don't think it's a lack of cognitive inability; rather, it's a lack of perspective and a lack of priority -- when you're 25, retirement seems so far away. You think you have time to do that next year, or the next year, or the next year. Then suddenly you're 50 and have little saved.

Also, we live in a consumer culture. We are hounded on every side to spend, whereas saving is something that isn't rewarded today. So many of my friends complain that they "don't make enough to save", yet they live in nicer houses than I do, eat out more, buy more clothes, etc. Most of my friends (and their kids) have a SmartPhone, take expensive vacations, etc. I know one couple who's flat-out said, "Nope, we're not saving for retirement or our daugther's education. We'd rather cruise 3-4 times a year. We'll just deal with whatever comes later." It's tough to include tomorrow's needs in today's budget, and I think most people just aren't doing it.

...so does she have any suggestions? I read the article and, while she does make some points, her conclusion is that we should be able to come up with a solution, but she gives no clue to what that solution might look like.

I was also waiting for her solution at the end!

 

[nunzia]

Good to know we're in the 25%. But wow.

I can't help looking at the previous generation and thinking that they had it made.

My dad never made more than $40k (he was an insurance underwriter) and was forced into retirement when he was 53. That's 18 years ago. He's been collecting a pension ever since, and they've been living comfortably off of that (and social security, when it kicked in). They haven't even touched their retirement savings.

We, on the other hand, doubt we'll ever be able to retire.

My Dad also was able to retire early, from Ma Bell, with a pension..but that is a huge problem that is just now hitting the surface..these pensions are unsustainable..especially in the public sector..they were promised to placate people by other people who would not be around when the piper came due and now the whole thing is crumbling..really though, who would think someone could contribute for 20-25 years into something and then be able to draw from it for 30+? And who in their truly right mind would continue, as many entities due, think that they could get 7 or 8% return on the contibutions? It is slowly becoming time for Americans to realize that we have to take care of ourselves and plan for it.

 

[MrsPete]

I can't help looking at the previous generation and thinking that they had it made.

Every generation has its own demons. My parents' generation is the last in which LOTS of people have pensions, but they also were caught up in the inflation of the 70s and paid 17-18% interest on their mortgages. Of course, their houses are now worth 4-5 times what they paid.

My generation really can't complain that much: We bought our first houses cheaply at 10% interest and had some really good years in the stock market -- if we started early. We might get in on Social Security. Those of us who started saving early are doing well.

I worry more about our children. So many of their generation have no work ethic and are leaving school without trade skills and without any real ambition for college -- my kids are going to end up supporting them. Our kids will earn much more money than we ever did, but they'll have no pension plans and they're sure to be screwed over by Social Security. They really are going to have it rough.

While it's sad that 75% of almost retirees had less than $30K saved, a government ran retirement system will never work.

Yeah, I don't know the answer:

1. The government already has our Social Security money, and aren't they doing a bang-up job with that. I can't see taking further steps towards Socialism and letting them have even more.

2. What worked in the past (private companies funding pensions) isn't likely to make a return. Pensions are only a good option when "the deal" is that a worker sticks with the same company for his entire career. Today people tend to move more frequently, change careers completely. And there's the danger of the company going out of business, which means that the employee loses everything. This concept is a relic. I personally have a pension, but if I could go back in time and put that money into private funds, I would do it.

3. Yet clearly, people aren't making good choices in funding their own private retirement funds. The options are out there, but people just don't seem to grasp the importance.


One thing I think will become more common /will be a saving grace for the retirement problem: Multi-generational housing.

This was common when I was a young child. We lived with my grandparents, as did some elderly relatives -- my grandparents were the "middle generation" in that scenerio. I didn't go to daycare because adults were home all day. I can see that it was good for a number of reasons, though it must've been problematic for the adults as well. We're already moving this direction again: So many 20 somethings move back home with their parents after college.

 

[MrsPete]

It really is sad. I know my parents are in their late 50s, and they have only slightly more in retirement than we do. They own their own business, so they'll have employment (assuming the business does well), but they'll never be able to retire.

The problem with that is that they may not physically be able to work 'til the day they die. How effective can they be if they're forced to use a walker, if their physical stamina just won't allow them to do a whole day's work, if they begin to lose the ability to keep track of the business' finances? What then?

That's retorical, of course. I know you don't have an answer. No one does. It's the same as the people in the article who said they'd work 'til they're 70.

 

[acename]

The problem with that is that they may not physically be able to work 'til the day they die. How effective can they be if they're forced to use a walker, if their physical stamina just won't allow them to do a whole day's work, if they begin to lose the ability to keep track of the business' finances? What then?

That's retorical, of course. I know you don't have an answer. No one does. It's the same as the people in the article who said they'd work 'til they're 70.

You're absolutely right. Their ability to work isn't a given. I just meant they can't get laid off or anything. They do have rental properties and some other income from a farm (they don't farm, but lease out the land) so hopefully that will be enough if they can't go to work every day.

 

[wide awake]

She did have a solution, "My plan calls for a way out that would create guaranteed retirement accounts on top of Social Security. These accounts would be required, professionally managed, come with a guaranteed rate of return and pay out annuities."

I think she was right in that most people are clueless when it comes to retirement planning. When you consider how people buy cars, use credit foolishly, etc... And lots of people believe anything someone tells them...especially if it is something they want to hear. If some guy says they can earn 15% a year they're happy to go along w/ it, and brag about how smart they were to find this wonderful guy. Hope his name wasn't Madoff.

Not that I'm a retirement saving whiz myself, but fortunately for me DH already has a nice pension and my own will be high...and our houses will be paid for by the time I'm 63 and ready to retire. Important points...I KNEW I didn't know much about investing, AND I loathe risk...so I picked a field that provided a pension. I also don't like to deny myself, so realized that the odds weren't good that I'd be saving a lot of my income. Self knowledge is a wonderful thing, and owning up to your faults.

 

[zeferjen]

When I first started working, my company sent all of the new recruits to a 'planning for retirement' seminar. I was scared straight right away when they gave me the $1M plus number I would need to have saved and started contributing to 401k right away. I wonder if more and more companies started to do this, the problem would get better?

I guess I fall in the middle, however, on the savings front. We save for retirement and the kids' 529 accounts at what I think is an adequate percentage. However, I do like to spend money on vacations and other recreational activities for the family. I don't spend a ton of money on other material goods, but I want to provide the kids with happy memories (which I know you can do without money - it's just how I prioritize things).

 

[Arielle22]

She did have a solution, "My plan calls for a way out that would create guaranteed retirement accounts on top of Social Security. These accounts would be required, professionally managed, come with a guaranteed rate of return and pay out annuities."

That isn't a plan it is a wish list. There is no such thing as guaranteed returns which is what got a lot of pension plans in trouble.

 

[MrsPete]

She did have a solution, "My plan calls for a way out that would create guaranteed retirement accounts on top of Social Security. These accounts would be required, professionally managed, come with a guaranteed rate of return and pay out annuities."

Thing is, that's either voluntary, which means it's not a change from what we have now.
Or it's mandatory, which smacks of Socialism. The government is already in charge of enough of my money.

I don't know what her plan is, but I suspect it's some sort of federal pension plan. I don't see how that'd be all that different from Social Security. And when she says "guaranteed rate of return", that sounds a lot like "the guy" she disses in the article.

Not that I'm a retirement saving whiz myself, but fortunately for me DH already has a nice pension and my own will be high...and our houses will be paid for by the time I'm 63 and ready to retire. Important points...I KNEW I didn't know much about investing, AND I loathe risk...so I picked a field that provided a pension. I also don't like to deny myself, so realized that the odds weren't good that I'd be saving a lot of my income. Self knowledge is a wonderful thing, and owning up to your faults.

Makes sense to me. I am also in a job with low pay but a pension. As you said, self knowledge is a wonderful thing. I know that the women in my family live a long, long time; I knew it'd be good for me to have a retirement fund that couldn't run out.

However, this isn't stress-free. For example, my pension is tied to my continued employment in this state. My husband has turned down good job offers because we decided that it wasn't good for us (in the long run) to stop contributing /building years towards my pension. And while my own state is in pretty good shape, other states' pensions are seriously in trouble, which does make me worry a bit. Finally, there is always the danger that I'll die two years into retirement, in which case I'd have collected only a short amount of time and -- unlike a 401K -- my children couldn't inherit the remainder of what I'd saved for retirement.

 

[punkin]

She did have a solution, "My plan calls for a way out that would create guaranteed retirement accounts on top of Social Security. These accounts would be required, professionally managed, come with a guaranteed rate of return and pay out annuities."

...and real estate always appreciates...and the tooth fairy will provide for us all in retirement as long as we manage to keep all our teeth.

This is not a realistic solution. If I could figure out how to do that sustainably, I think I would deserve a Nobel prize in Economics!!!

 

[Ginny Favers]

I worry more about our children. So many of their generation have no work ethic and are leaving school without trade skills and without any real ambition for college -- my kids are going to end up supporting them. Our kids will earn much more money than we ever did, but they'll have no pension plans and they're sure to be screwed over by Social Security. They really are going to have it rough.

That would be MY generation Neither of us have pensions and social security is likely to be gone by the time we're of retirement age. So I get a little jealous when I see my dad enjoying a retirement that he's been in for nearly 2 decades, knowing I'll probably be clocking in until I die.

A big problem I've found with saving in a 401k is that a lot of people don't stay with the same job for 40 years like they did in the day--my husband and I have had probably 10 new jobs between us during our careers. And because many companies make you wait a year before you can contribute, we haven't been saving consistently.

 

[zeferjen]

A big problem I've found with saving in a 401k is that a lot of people don't stay with the same job for 40 years like they did in the day--my husband and I have had probably 10 new jobs between us during our careers. And because many companies make you wait a year before you can contribute, we haven't been saving consistently.

You can roll your old 401k plan into a Roth IRA and get similar benefits.

 

[chalee94]

Really, what it comes down to is that we have a voluntary retirement system that does require self-discipline and a great deal of it for lower income earners. And Americans aren't good at self-disclipine.

that can have consequences.

but then, the version of "a bug's life" that i grew up with during stagflation in the 70s had an ant and a grasshopper...

 

[Ginny Favers]

You can roll your old 401k plan into a Roth IRA and get similar benefits.

But no company match.

 

[luvmy3]

But no company match.

No company match, but that doesn't mean you can't save. I'm a SAHM and have an IRA.