Is your retirement already cooked?
- January 18, 2010
- 2 comments
- Posted in Retirement
When your paycheck stops, that’s it. You’re done. You’ll have to match your manner of living to the resources you have–this year and for the rest of your life. You’d think that would be obvious, but there are a lot of ostriches around. They don’t want to think about life without a regular paycheck until it’s too late.
I got an earful from two Merrill Lynch financial advisers while I was in Chicago last week. They have many well-to-do clients who are spending too much, saving too little and deaf to doing anything about it. The advisers run the numbers to show them that–at the low rate they’re saving–they’ll be broke half way through their retirement years. But the clients don’t see how they can possibly save more, what with the cars, the private schools, the vacations, the clothes, the entertaining, the big mortgage on a big house. When you build so much expense into your lifestyle, you’re trapped. You don’t know how to cut back and still feel good about yourself (or keep your family happy). So you go forward, hoping that something will turn up. It’s a downer to imagine anything else.
Many middle-class families are in the same fix. They didn’t save much in their company 401(k), or didn’t start a SEP-IRA if they were self-employed. The collapse of the housing market and stock market made everything worse.
It doesn’t have to be this way. At all income levels, some people plan ahead, save money, eliminate debt, and run the numbers to see how much money they’ll have to live on when they retire. And at all income levels, some people don’t.
If you arrive at 55 or 60 with only a small amount of money, relative to your expenses, you’re cooked. If you spend it early, to keep up with your debts or avoid moving to a cheaper place, you’re fried. You’ll look back and say to yourself, “What was I thinking?” but it’s too late. A certain percentage of people will have to slash their expenses radically. To be frank, they’re going to be poor. They might even go bankrupt (bankruptcies are rising sharply among people in their 70s and 80s).
The only way out of this box is to save for the future, starting in your 30s. Save at least 15 percent of your income and fit your lifestyle to the remaining 85 percent. If you’re starting in your 40s, save 20 percent. How well you’ll live when your paycheck stops depends far more on how much you save than on the return you get on your investments.
Well, this post is a downer. But I was spurred on by the tales of people who are currently living well but, at some point, will tumble down. The math is inexorable, and 60, you can’t fix it. But you can at 35 or even 45–so get going. Save more money now.
Tags: retirement savings
Thanks for the great advice over many years. I’m now 64 and planning to put a large investment into TIPS. Is that a good idea for 2010?
It’s good to own TIPS in any year as a hedge against possible future inflation. But if your “large” investment is a prediction that inflation will soar in 2010, I don’t think so.