US News offers some thoughts on preparing for retirement. But it's not the advice I want to focus on. Instead I want to comment on these facts from a Charles Schwab retirement income survey:
According to the study, 64 percent of respondents indicated they had less than one year of cash living expenses saved for retirement, and one-third of respondents said they had not even determined what their essential living expenses in retirement would be.
This study wouldn’t be so overly alarming except for the fact that the respondents were just five years away from retirement. Those five years still provide some time for creating a strategy to have the retirement you want, but starting earlier allows you to plan for those extras.
Uh, I have some news for those people -- they are NOT retiring in five years!
What is US News thinking? Can you really start with nothing (or almost nothing) and make enough changes in five years to retire? If so, I'd LOVE to see that plan.
I've been working on retirement for 20 years now, and I'm still not where I want to be.
I used to be surprised when I saw numbers like this. But after blogging for as long as I have, I am no longer shocked at the lack of financial knowledge, preparedness, and discipline of the average American. The only thing that does cause me some fret is thinking about what's going to happen when all these people get ready to retire, and they can't -- and yet they can't work (either physically or can't find a job.) Seems to me that's going to be a big mess for us all.
What does "the retirement you want" mean? Does it mean "the bare minimum to retire"?
If you satisfy the basics needs, then yes! perhaps you can retire in five years in a minimum wage life albeit seriously lacking protections. One scenario... paid off (extremely low valued) home and social security income to boot.
These are bleak times for 1st world America experiencing third world life for the very first time. Other countries make out so I guess that's why our leaders do not worry about the very poor. Brave new world.
Posted by: Luis | February 09, 2012 at 04:00 PM
For many of us, wages have just been so low our entire lives that no matter how much we TRY to save, we can only save such meager amounts that it only adds up to a year or two. I've been saving my entire life, ever since I was a kid. I'm 40 now, and I have enough saved up to retire for 2 years. Maybe 3. And this is saving every extra dime I have, since I was a kid. I've just never made very much. It's so scary.
Posted by: BD | February 09, 2012 at 04:15 PM
I think 5 years gives them enough time to get used to the idea of working longer than they planned, and also time to adjust to a lower standard of living.
Posted by: Jason | February 09, 2012 at 04:20 PM
I sometimes find myself baffled by hearing stories of people unprepared for retirement but yet have plans of retiring anyways. Where do they think they will get money from? Unfortunately these people will be in for a huge wake up call and lives will drastically have to change. Many people say they can't afford to save for retirement but most of the time it is because for thier earnings, thier expenses are too high. I always take the approach that you can't afford not to save for retirement because eventually, whether you choose to or someone chooses for you, you will be unable to work and either you prepared for it and will get by fine or you are unprepared and life will change drastically for the worse. Financial education should be a requirement in school. Maybe then there wouldn't be quite as many people completely unprepared for retirement.
Posted by: Daniel | February 09, 2012 at 04:23 PM
That's just sad. There's no way these people will enjoy the abundant retirement they could have had if they had foregone some spending when they were younger.
Just sad...
Posted by: DollarDisciple | February 09, 2012 at 04:24 PM
5 years is way too short to save up any kind of meaningful nest egg. If they are not ready for retirement at this point, there are only 2 choices. Cut expense to the bone or just keep working.
Posted by: retirebyforty | February 09, 2012 at 04:25 PM
I'm not really surprised given that around half of the population lives paycheck to paycheck.
Social Security will keep a lot of those folks from poverty. Currently Social Security keeps bout 35% of people over 65 out of poverty.
The survey only talks about cash savings. 20% of the working population has a defined pension. The % of people covered by pensions is probably higher among people in their 60's as they worked some when pensions were still a bit more common. So if you consider that pensions will help many folks its not quite as dire.
Posted by: jim | February 09, 2012 at 05:41 PM
All I can say is unless you have a pension you need to plan for retirement.
It is as bad as some of the kids my son graduated with in that there parents did not save any money for them to go to college. What were you thinking 18 years ago when the kid was born? Money will come out of thin air? You could not even save $100 or $500 or $1000 a year?
If you do not have a pension where do you think your retirement income will come from? Social insecurity?
People plan there own doom to fail.
Posted by: Matt | February 09, 2012 at 06:19 PM
Yes, many low-wage workers cannot save $100 or $500 or $1000 a year.
This is one reason I believe it is crucial for low earners to be able to own a home - a paid-off home by retirement age can make the difference between a modest retirement lifestyle and never being able to retire (because you never built any home equity and now you're payig half your income on rent).
Unfortunately, government tends to prohibit ownership options affordable to low-wage workers.
Posted by: Terry | February 09, 2012 at 07:09 PM
Yet another depressing article about how Americans don't save. Some people really don't earn enough, but that's not the majority. The problem in the US is we don't have a culture of saving and those who want to turn this around are far outnumbered by those who don't care or who insist it's impossible for people to save more.
Posted by: Mark | February 09, 2012 at 07:26 PM
@Jim...The figures I ready in Jean Chatzky's book were that more than 2/3 live payday to payday and/or are going further in debt. That was as of early 2008. I doubt those figures have changed by more than a few percentage points, at most. So, pathetic as this may sound, we'd actually be in much better shape if only 50% were living payday to payday/going further in debt.
Posted by: Mark | February 09, 2012 at 07:32 PM
@Terry...but by the same token, if you can't save much for retirement, you probably can't save much for a down payment on a house, either...not to mention the ongoing maintenance costs and taxes.
But I do agree, housing market regulations/restrictions do drive up costs, and it hurts low income folks the most. But poverty is also a function of poor choices and unhealthy habits, and that segment of the low income population isn't going to be helped much by lower home prices.
Posted by: Mark | February 09, 2012 at 07:44 PM
In a nutshell, this is why we will never be able to really fix Social Security.
Posted by: Bad_Brad | February 09, 2012 at 07:46 PM
Forget the people that live well beyond their means and have never been savers - there will always be many of those.
There are quite a few reasons why people today who are in their late 50's aren't as well off as people of that age in the early nineties.
We experienced the "Lost Decade" after the end of the dot.com bubble where for 10 years the stockmarket went nowhere. Also for a great many people during the lost decade raises weren't nearly as generous as they had been in the prior decade because jobs were vanishing overseas in huge numbers.
Then, starting around 2005 we had the bursting of the real estate bubble that caught many people by total surprise, especially those that had borrowed heavily against their home equity.
Then there is the bad economy that started with an explosion of the budget deficit and the national debt as the result of starting two unecessary wars, one of which only ended very recently.
After that, the deficit, national debt, and high unemployment continued to explode from massive government spending in an effort to rescue large corporations, and to help underwater homeowners, and the increased number of unemployed.
It's basically just a whole lot easier to swim with the current than against it.
Posted by: Old Limey | February 09, 2012 at 08:37 PM
@ Mark: How insulting of you. :/
Not everyone who is poor has "unhealthy habits". Perhaps some poor choices, but most people in life make poor choices at one point or another. The difference between people who already have money and those who don't, is that for a rich person, making a couple poor choices doesn't do anything to them, but for a person who is poor, one mistake or misfortune will bankrupt them for the rest of their lives.
In my case, I chose to go to college for a graphic design degree back in 1989. The personal computer wasn't very widespread yet, and graphic designers were earning decent wages. By the time I graduated in 1994 with a BFA in graphic design (a degree that was in between a regular BA and MA), the computer was just starting to get popular in homes. I managed to stay employed in various design jobs for about 10 years before the graphic design industry totally collapsed was over-saturated with "designers" (because soon, home computers were in every home, and every kid could do "graphic design"). Then the economy collapsed and the first people laid off, before anyone else, were the graphic designers.
Now I'm back in school for an accounting degree.
I don't do stupid things, like drugs, drinking, or having sex. I don't have babies. I don't stay into abusive relationships. I don't spend all my money eating out. I never go to the movies. I save whatever I can.
My only "stupid choice" was being talented at art, and trying to earn a living at it. Other things, such as poor health, were genetically foisted upon me, with no bad lifestyle choices of my own.
So next time, don't be so insulting to poor people, ok? Not all of them are out there drinking and doing drugs.
Posted by: BD | February 09, 2012 at 08:58 PM
I'm 52, and all I think about is preparing for retirement at ...70. I like my work and plan to keep at it for awhile, not just because I enjoy it but because I am putting away as much money as I can. Being old will be challenge enough. Doing it without money is what is scary.
Posted by: Where to Retire | February 09, 2012 at 09:06 PM
Our national savings rate as a country is embarrassing. Compare the U.S. to most other countries and we do not look good.
http://www.businessweek.com/magazine/content/10_25/b4183010451928.htm
BD - This observation is not meant to be a slam, but take a look at other countries that have more significant poverty issues, like China and India and they put us to shame.
Posted by: JimL | February 09, 2012 at 09:09 PM
JimL: Yes, but don't forget, in cultures like China and India it's acceptable for 3 generations to all be living under the same roof. Rent is what eats the most of the poor's income, so those poor can at least save some of their income by rooming in multi-generational households.
Here in America, parents don't want their children living with them. It's expected that you leave the nest at age 18 and go get a place of your own. That's what eats most of our income, even if we just rent a room out of someone's house. It's still expensive. Affordable housing is probably one of America's biggest problem for the poor. Most of my life, I've had to pay at least 50% of my income just to keep a ratty roof over my head in a bad neighborhood.
No, I don't think the government should pay for houses for the poor, as Terry suggested. That's not the way to go either. It will only raise taxes for everyone, and in turn, businesses will lay off more people, causing even more poverty.
I don't know what the solution is.
Posted by: BD | February 09, 2012 at 10:06 PM
Mark - I'm not thinking low earners should be buying conventional homes, unless perhaps they have two incomes. Those without kids should generally be able to pay the carrying costs of a small cottage, but there are few places where affordable cottages are allowed to be sold.
It's ironic that government promoted the sale of homes to people who couldn't afford them, yet prohibits the sale of affordable homes.
Posted by: Terry | February 10, 2012 at 02:35 AM
BD - Wherever did you get the idea I think that government should pay for houses for the poor? That's not at all what I think. It seems a simple and unassailable idea that Americans should be allowed to purchase homes they can afford, without government subsidy or interference.
Having done the math, I've calculated that I can afford a 400 sq ft home on a 2500 sq ft piece of land, but there are few populated paces where the sale of such a home is allowed.
Posted by: Terry | February 10, 2012 at 02:39 AM
BD - Per your example, people in other countries are willing to do what it takes to save money. They either live with others, find additional work, reduce living expenses (beyond housing), or a combination of the above. While there are people in this country that do the same, it is a lower percentage compared to what people do in other countries. None of these are easy, but it is something people have to do if they want to improve their financial condition.
Posted by: JimL | February 10, 2012 at 05:37 AM
BD -- It seems like you want to blame others for the situation you're in. Like you, I also graduated with a graphic design degree in 1994. I really don't know what "collapse" you're talking about. If anything the use of the computer as a design tool opened up the industry to more and more profitable jobs. This doesn't even mention the birth of design fields that didn't exist before like Web design. In my experience there has been plenty of work to go around if you're a talented and hard-working graphic designer.
Operating in the exact same industry I've managed to own a beautiful home and in my early 40s I'm well on my way to achieving my retirement goals.
I'm glad to hear you finally threw in the towel and started another career. Too bad you weren't able to make that decision 10 years ago.
Posted by: MonkeyMonk | February 10, 2012 at 07:15 AM
MonkeyMonk: I'm surprised you don't see the collapse. Every graphic designer friend I have is also out of work. I can name at least 10 of them who have been out of work for a long time (some of them years) and having to switch careers. Of all my designer friends, only TWO have managed to keep their jobs, and precariously at that. Both of them admit they were super-lucky (One of them managed to snag a government job doing design for the CDC...she's been there for 10 years, and is terrified of ever moving from where she lives, because she knows she won't be able to easily find other design work. She's sacrificed two boyfriends - refusing to move for them- for the sake of her job.)
So it isn't just me.
You could just be an outlier. Just because Lady GaGa got famous doesn't mean that every aspiring singer will get famous. Graphic Design is a lot like that. There are some that got really lucky, but for every lucky designer as yourself, there are thousands of desperate ones out of work.
(Case in Point: When I was working at TCR back in 2003, we put an ad up on the internet for a graphic designer. We had to take it down almost immediately, because within two hours, we got over 300 resumes. And this was during a year where jobs were more plentiful!)
Posted by: BD | February 10, 2012 at 08:27 AM
Terry: I'm a bit confused then, when you say the government "prohibits the sale of affordable homes."
How so? I'm not aware of them prohibiting anything like that. There are no laws saying that an entrepreneur can't build an affordable home. (I suppose some places have zoning laws, but I wasn't aware of a minimum size restriction for residential homes)
There are companies that do build tiny homes (400 sq feet and under!), but it's still expensive to buy land to put the tiny home on (which in and of themselves aren't exactly cheap either, if you want at least 400 sq ft). So many poor people wouldn't even be able to afford a tiny home either, if their jobs are in places where land is expensive (ie, SoCal, NY, Boston, etc)
So I was just wondering what you meant?
Posted by: BD | February 10, 2012 at 08:37 AM
@Luis America's experiencing third world life? How many Americans have malaria? cholera? parasites? How many American kids die from whooping cough? diphtheria? measles? When there's an earthquake or flood or drought in the US, how many Americans does it kill? How many Americans are at risk of starvation? How often is the road to the next town washed out? When was the last civil war in America?
Not being able to retire at 65 is the epitome of "first-world problems"... These people can work a few extra years, then live minimally off government benefits. It's unpleasant, and I intend never to wind up there, but it's scarcely a third-world outcome.
Posted by: 08graduate | February 10, 2012 at 09:17 AM
I think lack of knowledge and discipline is a huge factor involved in not being prepared for retirement. I talk to people at work all the time about how they are preparing for retirement, but I never see them follow up on it. I see them spend more time planning vacations, buying new cars, and buying bigger houses than investment and savings planning. It seems that most Americans lack the will to defer instant gratification and are only worried about their happiness in the present.
Posted by: Long | February 10, 2012 at 10:56 AM
I agree 5 years of retirement savings isn't going to cut it...
If you saved 100% of your salary for 5 years and got a great real return rate of 8% on it then you would only have enough to withdraw ~25% of your old salary.
I wrote an article about retirement savings that shows it is painful unless you start early.
The article show how much you need to contribute for how long to keep your net income in retirement.
The numbers for 25 years of savings is already pretty daunting, especially if the rate of return was low.
-Rick Francis
Posted by: Rick Francis | February 10, 2012 at 01:51 PM
To help clarify my position, the people I am talking about have cottages up north, snow mobiles ,quad runners, boats and jet skis. You get the picture, as long as the payment is affordable they live in debt.
Some of them don't even have health insurance but have that new toy.
They are the ones who will wake up one day and can't figure out how to retire or why there kids can't get a good job because they lack skills.
Posted by: Matt | February 10, 2012 at 02:16 PM
BD,
Maybe you've seen a lot of people losing jobs in your field in your city or industry. But graphic designers have not really lost a *huge* number of jobs nationally.
According to the BLS.gov national employment for graphic designers by year :
2010 = 192k
2008 = 209k
2006 = 190k
1999 = 120k
The 2010 number is down about 8% from the peak from '08. Thats not good of course, but its not a 'collapse' of the entire field. And its still up significantly form 11 years previous in '99. Theres no death spiral or collapse going on based on the numbers.
However competition for graphic design jobs has always been very keen and will continue to be so. So its hard to get the jobs out there given the competition and I'm sure there are new people graduating every day as well.
I expect what you've seen is very tough competition for the few jobs available rather than mass job cuts.
By comparison in 2008 there were 633k electricians working and by 2010 that number hit 514k. Thats a 19% drop and 120k people out of work. I'm sure you'll find similar double digit drops across construction occupations.
Posted by: jim | February 10, 2012 at 02:16 PM
I'm going to have to side w/ BD on the point of Graphic Design. The very few job postings I've seen in the past 2 years offer rates of around $12/hour. Maybe there are people employed, but its not at high salary. And I've looked - my husband is a graphic designer. Perhaps a lot of this is regional, but it is definitely an over-saturated field, which has driven the salary way down. Its rare to even see a graphic design job posted these days that doesn't require programing or database creation / management - both of which are completely separate degrees.
IF you can get a job in a large company, you have a shot of making decent money. But the competition is so tight right now, and the wages are incredibly low. The other option is to freelance, which still makes good money, but the way this country ties health insurance to employment makes working for yourself or starting a business impossible for many people.
@Jim - I think you also have to compare that number with the number of people who have that degree.
Posted by: Sarah | February 10, 2012 at 02:54 PM
If your career doesn't pay or becomes obsolete, you have to make a change. Many of us are now in careers that have very little to do with our college degree. It isn't easy, but you have to do what it takes.
Posted by: JimL | February 10, 2012 at 03:50 PM
@BD...You're overreacting. Nowhere in my post referring to poor folks did I use the words "ALL" or even "Most". Get control of your emotions and actually read what I said, please.
That said, I think the eveidence is pretty overwhelming that low income folks don't make financially smart choices in life, starting with the 40% out of wedlock brith rate which consigns many to lives of poverty or semi-poverty.
Posted by: Mark | February 10, 2012 at 04:46 PM
@JimL ; Sarah said it wonderfully. (Thank you, Sarah!). It seems like there have been massive cuts, because in any company, the first position to go always seems to be the artists. Then again, that could just be my personal observation, which may not be fact. But it is a fact that the graphic design field is over-saturated, and even more so than it was years ago. And what Sarah said is true: Wages have been driven down in many design jobs to the point where they are so low that one can barely pay rent from them. (In the more recent years, of the few design jobs I do see listed, more and more are under $10 an hour. Again, personal observation.) Yes, I know places like Salary.com set the average different, but I seriously wonder if a few outliers are totally swaying the data.
@Mark: You're right, I did get emotional and probably overreacted. I apologize. I do see examples of folks on the 'net sneering at poor people and saying that they're poor because of their own volition. That isn't always the case. But, you're right...sometimes it is.
Still, my point was just that there is entire set of poor people who've made a lot of *right* choices, and managed what little money they had well, and didn't fall into the cliche trap of drinking, drugs and children out of wedlock. Some people are poor simply because of health, or circumstances over which they had little or no control.
Posted by: BD | February 10, 2012 at 06:55 PM
BD - It is probably just your personal observation. You can search other careers and see heavier hits. Regardless, when people are in this situation, they need to look for a different career and make other personal adjustments.
In general, we all need to think about back-up plans. An employer can always come in tomorrow and say that your position has been eliminated.
Posted by: JimL | February 10, 2012 at 07:20 PM
@Matt - I am a little shocked by your comment that it is a parents obligation to save for a child's education. I have no problem not saving money towards that, and that is a concious decision.
Posted by: tato | February 10, 2012 at 07:50 PM
The actual study says that 64% of respondents plan to have less than a year of expenses IN CASH AT ANY ONE TIME during their retirement. They could have a million in investments.
Posted by: SJ | February 11, 2012 at 06:45 PM
@BD, thanks for the apology. Of course, there are people who are poor folks who made reasonable choices in life. But I have to admit I think they're in the minority. After you've seen people in the Peruvian Andes farming potatoes on steep mountain terraces at 10,000 feet, it's hard to be sympathetic about a lot of the things Americans complain about.
Posted by: Mark | February 12, 2012 at 04:53 AM
I suspect the five years out from retirement was the number US News put on them (possibly they are all about 60 years old) rather than a realistic goal of many of these folks. I know plenty of people working past 65. Maybe at 60 they would have said "about 5 years" for how much longer they expected to work. But now at 65, 66 and 67 it is still "about 5 years" away.
Posted by: Alex Morgan | February 12, 2012 at 03:47 PM