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Whatever Happened to Retirement?

Consumers fear they don't have enough money to quit working

By Fred Yager
ConsumerAffairs.com

July 7, 2008

Figuring out what your number is has become a question that financial services companies are spending millions of marketing dollars on, hoping they can convince you to use their services to start financial planning so you can get to that magical number that will make retirement feasible.

What, you aren’t planning for retirement? Don’t despair. You’re not alone.

According to a book on the subject, aptly titled The Number, by former Esquire Magazine editor Lee Eisenberg, most of us are ignoring the advice being offered by financial planners because we just don’t want to deal with planning for retirement.

Could it also be because most of us don’t think we’re ever going to have “the number” some experts claim we need to retire?

In his book, Eisenberg brings up an important point: Before you can even contemplate such a number, you need to determine what you intend to do during your older years. He says you have to decide that first before you can figure out how you’re going to pay for it.

Why quit?

Eisenberg says that more and more people are planning on working their entire lives, if not in their current careers, then in another one, work that more closely resembles what they really want to do with their lives.

Eisenberg is onto something. It can’t just be about the money or the “number.” In his book, he points out that there are “many paths to satisfaction in retirement, and some of them are a lot more affordable than others.”

Let’s say you want to write the great American novel. That’s not going to cost you too much. On the other hand, if traveling the globe in a first-class cabin is your dream, good luck. That’s going to be pricey.

Those television commercials can be downright discouraging. The seven-figure numbers people are carrying around can be pretty daunting, especially when you’ve only got a hundred grand or so in your 401(k).

If you go by the numbers in the commercials, most of us would need around $2 million to retire. How many are able to save that much? The answer is, not many.

Nationwide, four out of five workers aren't saving enough to maintain their lifestyle after retirement, according to a recent study by Hewitt Associates, an Illinois human resources consulting firm.

So what can you do?

First of all, maybe you won’t have to retire. Start shifting your focus away from stressing out an imaginary number and start thinking about how you’re going to keep generating income. That’s right. Focus on how to get money coming in even in your older years and balance that against the money going out.

Does that mean you’re going to have to work until you die? Possibly, but not necessarily.

What are you doing with your money now? Are you saving anything for retirement? Do you have an IRA? Chances are if you work for a company you have a 401(k) savings program. Do you have to use that money for retirement? No. But it does encourage you to save until you reach 59 1/2 years of age.

So put as much as you can into a tax-deferred 401(k) program that invests in a low-cost index fund.

Timing counts

What about Social Security? After all the money you put into that, you just can’t wait to start getting some back, right? But maybe you should wait. The longer you do, the more you’ll get for each Social Security check that you receive.

Every year you wait, the Social Security formula increases payments by about eight percent, plus some adjustments for inflation. So you could get between a nine and eleven percent increase for every year you wait past the date that you could technically begin to collect Social Security.

Of course, the Social Security question can't really be answered unless you know exactly how long you're going to live. But so far, that's one of the few questions you can't Google, fortunately.

No two people are in the same situation when it comes to thinking about retirement. It’s up to you to determine whether you’re ahead or behind in your retirement savings.

Some are ahead

It may be hard to believe that some people are actually ahead of the curve here, but if they are, they may want to shift their strategy a little. For example, if you are ahead of your savings goals and you still have a mortgage, it might be wise to start paying it down or even paying it off, even now when property values are dropping.

This will reduce the amount of debt you’re carrying and, when you finally pay off your mortgage, enable you to live in your condo or home without having that monthly mortgage payment; you will just have to cover your monthly carrying charges, if any, as well as any utility bills and property taxes.

But if you’re like so many of us and you're behind, you may want to postpone that retirement for a few years. By then, maybe the stock market will have rebounded and your money will start growing again. Or take a part-time job to make up for the shortfall between what your Social Security, 401(k) or IRA distributions are providing. But primarily, keep an eye on your expenses.

According to the three largest administrators of 401(k) plans, record numbers of Americans are dipping into their retirement savings to make mortgage payments, pay medical bills and deal with rising food and fuel costs. They blame it on the current economy which includes higher and still climbing gasoline prices, falling home values, a bear market, and a weak dollar.

Spend on

Then there’s Laurence Kotlikoff, a Boston University economics professor who takes a very different view in his book Spend ‘til the End, co-authored with syndicated financial columnist Scott Burns, just published by Simon & Schuster.

Kotlikoff scoffs at all this hype over “the number” claiming rather than worrying about saving for retirement, you should pay attention to what’s going on now. Are you struggling just to pay the mortgage, food and fuel?

Kotlikoff says it’s more important to be able to afford the things you care about, such as having children and being able to support them, or working in a field you love even if it doesn’t pay that well.

In that regard, he’s not that far from Eisenberg’s philosophy that once you put some meaning into your life, the “number” won’t seem all that important.

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