Many of us likely to outlive savings
07-13-2008, 06:28 AM
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Many of us likely to outlive savings
The current economic downturn is teaching many to live on less, so maybe those lessons will carry over. (Note: please no disparaging remarks about lawyers on this thread. The topic is outliving savings. Thanks!)
From Washington Post:
WASHINGTON — Nearly three out of five middle-class retirees will probably run out of money if they maintain their pre-retirement lifestyles, a new study from Ernst & Young has concluded.
The study, set to be released Monday, finds that Americans will have to drastically reduce their standard of living before retirement to live comfortably, or even avoid destitution, later in life.
Middle-income Americans entering retirement now will have to reduce their standard of living by an average of 24 percent to minimize their chances of outliving their financial assets, the study found. Workers seven years from retirement will have to cut their spending by even more — 37 percent.
"People are going to have to adapt in a number of ways that they weren't anticipating or hoping for," said Tom Neubig, national director of the Quantitative Economics and Statistics practice at Ernst & Young. "I think a lot of people are hoping to maintain roughly the same standard of living after retirement. Our study suggests they are going to have to make some changes."
About 77 million baby boomers are expected to retire over the next few years. The study warns of an impending national crisis if workers, and lawmakers, do not react now to the changing pension structures in corporate America.
Most companies have moved away from defined-benefit plans, in which they provided their retirees with a set benefit each month, to defined-contribution plans such as 401(k)s, in which the employee takes most of the responsibility for saving money.
But with the U.S. savings rate abysmally low and people underestimating their life spans, economists warn that people will have to work longer if they do not spend less.
And cutting back on spending is no small feat at a time when inflation and the cost of living are rising. Fluctuating investment returns on 401(k)-style plans in this wobbly stock market are not helping matters.
"Most people, if they look at their life expectancy and they think they will live to 90, they are nuts to retire at 60. They're going to be living in poverty at 80," said Peter Morici, an economist at the University of Maryland. "I think it's a wake-up call to baby boomers to get serious about getting their houses in order."
The study was commissioned by Americans for Secure Retirement, a coalition of more than 50 organizations representing women's, small-business, agricultural, Hispanic and African-American groups, among others. It looked at married and single near- and recent retirees at three pre-retirement income levels: $50,000, $75,000 and $100,000.
The study strongly affirmed that retirees with a guaranteed source of retirement income beyond Social Security would be much better prepared.
If a married couple is making $75,000 at retirement and relies solely on Social Security, they have a 90 percent chance of running out of money if they maintain their pre-retirement lifestyle. The addition of income aside from Social Security drops the couple's chance to 31 percent.
Congress has taken up the matter. One bill, for instance, would make it easier for workers to get a particular non-Social Security retirement vehicle: an annuity, which is an income-generating contract between the employee and an insurance company. The legislation would exclude from taxation 50 percent of the income received from a lifetime annuity, up to $20,000 per year.
"It's that paycheck every month for the rest of their lives that will allow people to have some standard of living," said Joe Reali, chairman of Americans for Secure Retirement, which has life-insurance companies as members.
But David Armstrong, managing director of Monument Wealth Management in Alexandria, Va., repeated the oft-cited advice that the best way for Americans to live well in retirement is to plan for it early.
Save money and make sure to start your 401(k) at an early age, he said. Figure out what your nonnegotiable expenses and assets are. If you don't have enough money to cover your necessities, he said, cut out any luxuries in your lifestyle.
"Eating out five nights a week, is that something that is important, or is that something you can forgo?" he said. "Retirement ends up being a negotiation."
WASHINGTON — Nearly three out of five middle-class retirees will probably run out of money if they maintain their pre-retirement lifestyles, a new study from Ernst & Young has concluded.
The study, set to be released Monday, finds that Americans will have to drastically reduce their standard of living before retirement to live comfortably, or even avoid destitution, later in life.
Middle-income Americans entering retirement now will have to reduce their standard of living by an average of 24 percent to minimize their chances of outliving their financial assets, the study found. Workers seven years from retirement will have to cut their spending by even more — 37 percent.
"People are going to have to adapt in a number of ways that they weren't anticipating or hoping for," said Tom Neubig, national director of the Quantitative Economics and Statistics practice at Ernst & Young. "I think a lot of people are hoping to maintain roughly the same standard of living after retirement. Our study suggests they are going to have to make some changes."
About 77 million baby boomers are expected to retire over the next few years. The study warns of an impending national crisis if workers, and lawmakers, do not react now to the changing pension structures in corporate America.
Most companies have moved away from defined-benefit plans, in which they provided their retirees with a set benefit each month, to defined-contribution plans such as 401(k)s, in which the employee takes most of the responsibility for saving money.
But with the U.S. savings rate abysmally low and people underestimating their life spans, economists warn that people will have to work longer if they do not spend less.
And cutting back on spending is no small feat at a time when inflation and the cost of living are rising. Fluctuating investment returns on 401(k)-style plans in this wobbly stock market are not helping matters.
"Most people, if they look at their life expectancy and they think they will live to 90, they are nuts to retire at 60. They're going to be living in poverty at 80," said Peter Morici, an economist at the University of Maryland. "I think it's a wake-up call to baby boomers to get serious about getting their houses in order."
The study was commissioned by Americans for Secure Retirement, a coalition of more than 50 organizations representing women's, small-business, agricultural, Hispanic and African-American groups, among others. It looked at married and single near- and recent retirees at three pre-retirement income levels: $50,000, $75,000 and $100,000.
The study strongly affirmed that retirees with a guaranteed source of retirement income beyond Social Security would be much better prepared.
If a married couple is making $75,000 at retirement and relies solely on Social Security, they have a 90 percent chance of running out of money if they maintain their pre-retirement lifestyle. The addition of income aside from Social Security drops the couple's chance to 31 percent.
Congress has taken up the matter. One bill, for instance, would make it easier for workers to get a particular non-Social Security retirement vehicle: an annuity, which is an income-generating contract between the employee and an insurance company. The legislation would exclude from taxation 50 percent of the income received from a lifetime annuity, up to $20,000 per year.
"It's that paycheck every month for the rest of their lives that will allow people to have some standard of living," said Joe Reali, chairman of Americans for Secure Retirement, which has life-insurance companies as members.
But David Armstrong, managing director of Monument Wealth Management in Alexandria, Va., repeated the oft-cited advice that the best way for Americans to live well in retirement is to plan for it early.
Save money and make sure to start your 401(k) at an early age, he said. Figure out what your nonnegotiable expenses and assets are. If you don't have enough money to cover your necessities, he said, cut out any luxuries in your lifestyle.
"Eating out five nights a week, is that something that is important, or is that something you can forgo?" he said. "Retirement ends up being a negotiation."
07-14-2008, 07:50 AM
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I was pretty shocked when someone showed me the numbers based on retiring at age 60 and maintaining your existing QOL...actually I hope to travel more, so I might need more, not less, money in retirement.
Taking into account a family history of living longer than average and advances in health awareness and medicine, I need to plan to at least age 90, and probably longer.
For a typical upper-middle class professional, you need a couple million by the time you get there. You could reduce this by working longer...in addition to the income, this keeps you busy so you're not out spending all your money too soon.
In some locations your house could count as a significant source of retirement savings. You could downsize and sell it, or do a reverse mortgage. Personally, I'm going to try to keep the house out of play, that way it's available as an emergency source of funds or inheritence for the kids.
Taking into account a family history of living longer than average and advances in health awareness and medicine, I need to plan to at least age 90, and probably longer.
For a typical upper-middle class professional, you need a couple million by the time you get there. You could reduce this by working longer...in addition to the income, this keeps you busy so you're not out spending all your money too soon.
In some locations your house could count as a significant source of retirement savings. You could downsize and sell it, or do a reverse mortgage. Personally, I'm going to try to keep the house out of play, that way it's available as an emergency source of funds or inheritence for the kids.
07-19-2008, 02:25 AM
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I think the Post article left out one key determinant of retirement success: How much you've got saved up for it. Wasn't there a rule of thumb that you needed five times your pre-tax income saved up to have a shot at retiring? (Not sure how long that was supposed to last though.)
07-20-2008, 06:53 PM
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Originally Posted by Phuz
Create multiple children, make 'em go to school.
07-23-2008, 09:23 AM
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Originally Posted by Phuz
Create multiple children, make 'em go to school.
As birthrates drop, and baby boomers age, there are more people living on the economy, but fewer people actually working, and therefore driving the economy.
This means there are fewer economic "things" available (food, products, servicves), but still many people who WANT these things.
So what has to give? The value of the dollar...
If a young working person bakes five loaves of bread on a given work day, assume he's going to keep one for himself. That leaves four loaves, but what if there are five retirees...
The retirees start a bidding war, and the commodity price goes up until one of the four cannot afford it. What about the young worker? He will still be able to afford HIS loaf, because he can always demand that his salary keep up with inflation...if he can't afford his loaf, he won't bother coming to work.
The point of this is that in a scenario where old people outnumber young people, the actual amount of money you have in retirement is not what matters...the important thing is how much you relative to OTHER retirees. Basically you don't want to be the poorest retiree...he's going to lose out. His fellow retirees and the younf worker will outbid him.
In this situation having $1M will not help you if everyone else has $3M....
If we all pop out loads of kiddies, then maybe there will a large enough production sector in the economy to provide for all the boomers....
07-23-2008, 09:38 AM
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Don't forget to factor in immigrants. I could debate all day long about this country's immigration policy, but that would be a violation of the TOS and I'd be banned, thereby depriving this group of my continued and brilliant genius. 
08-06-2008, 12:19 PM
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Just my thoughts:
I'm still a couple of decades away from retirement (unless they raise retirement age again
), but I began thinking and planning for it a few years ago. My thoughts on the subject:
First, try to live below your means and carry minimal or zero debt throughout your life. If your means are too low, try and find a way to increase them.
Second, if you purchased a house try and have it paid for well before retirement. Also, if your house is affordable and fits your NEEDS, I would advise keeping it. Regardless, you do not want a mortgage payment when your retirement income begins rolling in.
Third, for planning purposes, do NOT plan on a pension or social security. Pay the money for a good financial planner and have him help you plan for your retirement. On paper, plan on being able to retire 5 years early. That way, if you decide to continue working the decision as to when to retire is solely up to you.
Finally, who says you have to stop working once you are retired? Find something fun to do because you want to do it as opposed to because you have to do it.
I'm still a couple of decades away from retirement (unless they raise retirement age again
), but I began thinking and planning for it a few years ago. My thoughts on the subject:First, try to live below your means and carry minimal or zero debt throughout your life. If your means are too low, try and find a way to increase them.
Second, if you purchased a house try and have it paid for well before retirement. Also, if your house is affordable and fits your NEEDS, I would advise keeping it. Regardless, you do not want a mortgage payment when your retirement income begins rolling in.
Third, for planning purposes, do NOT plan on a pension or social security. Pay the money for a good financial planner and have him help you plan for your retirement. On paper, plan on being able to retire 5 years early. That way, if you decide to continue working the decision as to when to retire is solely up to you.
Finally, who says you have to stop working once you are retired? Find something fun to do because you want to do it as opposed to because you have to do it.
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