Retirement Wakeup Call

retireBy Allie Eklund

What is retirement? Retirement is when you stop taking home a paycheck.

People often forget this. Most of us see advertisements of loving couples walking on the beach holding hands, or you probably know the retired couple driving down the PCH in a convertible, their eyes not on the road but on each other? These overused, stock images portray the quintessential retirement- happy marriage, healthy spouse, endless vacation, and financial well-being.

But for many individuals, these images may be a misrepresentation of what lies ahead. Many Americans may never have this type of retirement. Based on current statistics on average savings, retirement is not looking like one long vacation for future retirees, especially millennials. Quick check in, when I talk about future retirees, that’s all of us.

How Much Do I Need?

The National Institute of Retirement Security states that “the median retirement account balance is $3,000 for working age households and $12,000 for near retirement age households.”

If those numbers don’t make your stomach churn, consider this:

  • A 30-year-old with a $50k salary should have $15,000 saved for retirement.
  • A 40-year-old with a $75k salary should have about $112,000 saved for retirement.
  • A 50-year-old with a $100k salary should have $380,000 saved for retirement.

America’s retirement reality is that we may not have a traditional retirement. There’s a materializing trend of American’s working well into retirement years, and not just because there’s a lack of money in their checking accounts. (Shocking, but people actually like their jobs.) Wells Fargo recently did a report that showed

There’s a materializing trend of American’s working well into retirement years, and not just because there’s a lack of money in their checking accounts. (Shocking, but people actually like their jobs.) Wells Fargo recently did a report that showed

Wells Fargo recently did a report that showed “less than half of millennials are currently saving for retirement….and “the millennial generation is counting of savings that won’t exist.” I really hope our millennial generation turns this around so that if we so choose to work into our golden years, it’s because we’re still really stoked about our career(s), and not because we’re financially forced to work.

How Did We Get Here?

retire1What has changed so drastically? How did we find ourselves in this predicament?

There are many answers, but here are two: the decline of the pension and incline of the lifespan.

Pensions were once the norm for both private and public sector jobs. With a pension, the employer carries the responsibility to fund and allocate the plan. As an employee, you show up, put your time in, and when your qualifying years are met, you can walk away with a continuous paycheck for life.

To put things in perspective, baby boomers expect Social Security and pensions to fund more than half of their retirement income, whereas millennials are expecting Social Security and pensions to fund roughly 28% of their retirement. The issue: pensions are basically non-existent in the private sector, and it’s been argued that public employee pensions face choppy waters ahead unless major reforms are enacted.

Now, employers largely offer retirement plans that put the responsibility on you, the employee.  You may have a 401(k) Plan, 403(b) Plan, or 457 Plan. These are retirement plans that allow you to sock away money with tax-deferral, allowing you to save now, and get taxed later. Many employers offer a match or contribution, but employer matching is not required, nor is your participation. Different than pensions, these options put the duty on the employee (you) to fund and allocate the plan. That means you have to decide how much and how to invest.

pension

So What Do I Do?

As a financial professional, the most common mistakes I see among younger employees is twofold: we aren’t contributing enough, and we’re not properly assessing risk tolerance. This leaves us all with a perilous situation: If we aren’t putting enough money away, and our investments aren’t consistent with our needs and goals, that potentially leads to us outliving our retirement savings. Not only do we need to budget for more money in our retirement, but we also need to plan to live longer than past generations.

When social security was created in 1935, the average life expectancy was below the age of 70. As longevity continues to increase, we cannot expect to live on $12,000 for a possible 20+ years. Even with health complications, American’s are living well into our 90’s. I did a self-assessment with a life expectancy calculator– quite sobering actually. According to the Social Security Administration, I am expected to live to 86- but my personal bet is 100. (I hope that’s me as a centenarian, minus the cig.)

retire2It’s in all of our best interest to expect to live well into our 90’s and possibly 100. Why? Because if you do make it to 65, “about one out of every four 65- year olds today will live past 90.” I heard another crazy statistic the other day (which my friend who is a nurse didn’t deny nor confirm) that babies born right now have an estimated lifespan of about 120 years. Is this good news or bad news? I guess it depends on your perspective and on your retirement plan.

The Silver Lining

I promise there is good news in this slightly dismal read. The silver lining is that the choice is ours to change our future. The world is plagued with problems we don’t have solutions to. But this is not one of them. This is a fixable problem. The solution is funding your shortfall. Look at your current retirement plan and ask yourself “can I put more away and still make do?” Try a 401(k) Contribution Calculator– there are many calculators available on the web, but this one was particularly user-friendly. It allows you to compare your current contribution to your proposed contribution, and the estimated future values – keeping in mind that investment returns cannot be guaranteed.

Take Action

Take a risk assessment quiz to find out how you tolerate risk. This is a great starting place if you’re unsure of how to proceed when picking investments. If you take an assessment that reports you have a higher tolerance for risk, and you look at your portfolio of bonds, that’s an indication it’s time to review.

Most important of all – take action. Amelia Earhart said “the most effective way to do it is to do it.” If you have 20+ years to retirement, time is on your side. If there’s one thing you can do today that your future self with thank you for, it’s properly planning for your forever vacation, promise.

Guest blogger Allie Eklund is a 20-something Northern California native with a degree from CSUS in political science. She ultimately favored finance as her 9 to 5, but her after hours are dedicated to InspireMidtown, a local group she founded to encourage women to lead with confidence. Adjectives Allie can’t disassociate herself with are: Passionate, practical, and conversational. Find her in Midtown enjoying a cold beer and over a deep conversation with her partner in crime, Wesley.

 

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