Does your retirement look like a pile of peanuts?
Yes, the idea of retirement has changed. The era of the gold watch, guaranteed pension and 20 years on the golf course is little more than a sepia-toned fairy tale. In fact, many Americans approaching retirement age now expect they’ll have to work into their 70s, according to a recent report by David DeLong, a research fellow at the MIT AgeLab.
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It’s Time. You can change your habits. You can save. It’s not scary. Start now.
This content is provided courtesy of USAA.
Pensions have gone the way of the dodo bird, with just 3% of all private-sector workers covered by a traditional pension in 2008 — down from 28% in 1979 — according to the Employee Benefit Research Institute. At the same time, life expectancy is up and the stock market has been on a roller coaster, hurting many people who rely on 401(k) programs for increasingly long retirements.
Plus, you have to plan on $250,000 just to cover health care costs in retirement, says DeLong. And 60% of non-retired Americans ages 55 to 70 have less than that amount in retirement savings, according to his study.
But that doesn’t mean you should throw up your hands and assume you’ll never get those golden years. Putting aside a little bit every month when you’re young can mean a big payoff in your 60s, 70s and 80s, thanks to the power of compounding interest. You might be surprised by just how much $20 a month can grow if you give it enough time.
Even if you can’t spend your days puttering in the garden or on the links, you can still shape the life you want. Perhaps a second or third career doing the thing you always dreamed of but could never afford in your prime-earning years. You just have to have a plan.
If you’re young, put yourself on the right path; don’t dig yourself an early hole. “You run the risk of not having enough for retirement and of having to work a lot longer. Social Security may look a lot different for the younger worker,” says Heidi Schmidt, a USAA advisor. “So consider contributing to a 401(k) or other company-sponsored retirement plan. If you don’t it could mean giving up free money, because many firms will match at least a percentage of your contribution.”
Older workers who need to catch up should be realistic about what they have and what they need. “You don’t want your retirement plans resting on a shaky foundation,” says Scott Halliwell, a CERTIFIED FINANCIAL PLANNER™ with USAA. “You typically have two levers you can pull — cut expenses or increase income. If you don’t have enough put away, you’re going to have to cut back, so start now as a practice run for the real thing. Or try taking a second job that you could do part time in retirement.”
A number of retirees also invest in restaurants or start other small businesses, using retirement as a chance to earn money at something they’ve always enjoyed. Still, there are dangers with that. “The last thing you need in retirement is a money sinkhole,” Halliwell says. “Owning a successful business can seem like a lot of fun, but it can be more work than the typical retiree wants to take on — and many don’t succeed. You’ve really got to be careful.”
Indeed, in this tight labor marketplace and down economy, being successful at a second act requires serious planning. As his 20-year service date approached, Robert Stevenson, a Marine Corps major and USAA member who retired in 2005, knew he would need a high-paying job to supplement his military pension. His three kids’ upcoming college educations weren’t going to be cheap. “It’s like chess. You have to be thinking two moves ahead,” says Stevenson, 48.
In the end, the clearest fact of the new retirement is that everyone needs a plan. There is no retirement magic wand. If you don’t start saving early, you will have to work longer. The greatest asset you can have is ample preparation: Be sure to save when you’re young, stay out of debt, try not to get behind and remain up to date with education and skills. With that, it’s possible to turn working longer into a period of new opportunities and second acts.
“Have a plan or become part of someone else’s,” says Stevenson, quoting a Pentagon phrase. But be prepared to improvise and adjust. “No plan survives first contact,” he adds. [GI]
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Views and material expressed in this article are provided for informational purposes only and are subject to change. The discussions should not be considered a recommendation, tax, legal or estate-planning advice, or a primary basis for making financial decisions. Consult with your tax, legal or estate-planning professional regarding your own specific situation.
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