Taking Retirement Seriously

When I started my first job after leaving the army, part of my orientation was a description of the company’s pension plan. That didn’t seem important to me at the time. It was not realistic to be looking 40 years into the future after just two days on the job. Unfortunately, some people seem to have a similar reaction as they reach their 40s and 50s. They will reach retirement age and be forced to keep working, painting themselves as unfortunate victims of the economy (or something else). In other cases, they barely scrape by, and look for help from the government or AARP lobbying while complaining about being on a fixed income.

“According to the research, the average retirement savings for people in their 50s was $124,831 in 2018. It was $163,577 for the people ages 56 to 61.” That’s not nearly enough. In a different article, CNBC states, “Although $1 million is the oft-cited amount needed to retire comfortably, data shows it might not be enough” to maintain a comfortable lifestyle based on current life expectancy. The recommendation is to have saved at least 10 times your annual pay.

But one million dollars seems like an enormous sum in this environment where data from earlier this year shows that “just 40 percent of Americans could pay an unexpected $1,000 expense.” Can’t save a thousand; can’t even imagine saving a million! Most consider having a million dollars set aside as being rich.

The secrets (if they can be called that) lie in discipline and perspective and were summed up in three articles I read recently.

The first was about how to become rich and gave two pieces of advice that could apply to any saver. “Take a percentage of your income, say 5%, and have it automatically invested.” Then adjust your spending to correspond to what’s left. This can be adjusted upward as time passes. (Retirement websites advise setting aside 10% as a minimum.)

The second piece of advice is to be thoughtful about life’s major purchases. “A big reason people struggle to save 10% or so of their income is they buy houses and cars they can't afford.” Houses on average appreciate only at the rate of inflation. Some get lucky on the timing but in general, a house is shelter, not an investment. And cars depreciate over time. Look back 50 years. The fact is that average house size grew while family size was shrinking.

Those rules are a good start, but the problem remains of adjusting lifestyle after setting aside savings. Market Watch had a recent opinion piece with some suggestions. “These 16 money wasters are why so many Americans can’t save for retirement.” Here is part of the list as presented with the comments abbreviated and modified:

• Vacations. Never go into debt to pay for one, even adding to credit card debt. Relaxation does not require traveling.
• College. Consider affordability over prestige.
• Restaurants. Eating out is expensive, especially the daily luxury coffee.
• Opportunities lost. The standard examples are the employer match on a 401(k) plan or other tax-free opportunities such as Roth IRA or a flexible spending account.
• Transportation. As mentioned above, don’t buy too much car or an unnecessary truck.
• Credit cards. If you use them, pay them off monthly.
• Lottery. Don't throw money away on a long shot.
• Clothing.“The average adult spends $161 a month on clothing. We are obsessed with keeping up with the latest fashions” and fads.
• Shoes. See clothing.
• Extra Stuff. Many of my neighbors can’t park in their garage for all the stuff. Look at the explosion in the self-storage business.
• Holidays. Spending too much on gifts, decorations – Halloween costume for the dog?
• Toys. For children and adults.
• Haircuts. In most cases there are less expensive options (barber vs. salon).
• Cell Phones. Besides demanding the latest model, “Americans also spend approximately $88 a year on apps and unlimited data plans typically cost around $80 a month.”

That is not an exhaustive list, but it all adds up. It takes perspective to separate wants from needs, and discipline to stick with those decisions. It may not sound like any fun, but what fun is it to try to retire when you're broke?