Ask Stacy: I Don’t Have Enough to Retire. What Can I Do?

Maybe you can relate: This reader sees retirement looming but, because she hasn’t saved enough, she’s afraid her golden years will be anything but. What can she do?

Better Investing

Here’s an email I received a couple of years ago from a reader who’s about my age and was wondering what her retirement was going to look like. Or rather, if she’s even going to have one. I’m reprinting it because it’s a topic I think many can relate to.

Over the past couple of years, I’ve been working to get my financial life in order – but I’m worried it’s too late. I rent an apartment with my 13-year-old son, have no debts, have $4,000 in my emergency fund, and a work 401(k) with $35,000 in it. It doesn’t sound so bad, except that I’m 57 years old. According to my calculations, I’ll have to work until I’m 70 years old and live to 84. Do you have any suggestions or comments?
– Susan

The first comment I’ll make, Susan, is that you’re in a crowded boat. I’m more or less in the same one, and I’ll bet there are plenty of people reading this who are, too.

How did we get here?

When my father passed away a few years ago, he had been retired for close to 30 years. Despite the fact that he never made more than $50,000 in a single year, he was never short of cash in retirement. Between military and civilian benefits, he was bringing in nearly as much retired as he made working: $45,000 a year. And because he lived a very modest life in a place with a low cost of living (suburban Atlanta), he saved more of his retirement income than he spent.

From our Solutions Center: Maximize your Social Security benefits

His son, on the other hand — yours truly — faces a much different future. Having been self-employed for more than 30 years, the only pension I’ll be getting is (hopefully) from Social Security, and the only other income I’ll have is what I can generate from my investments and retirement accounts. Unlike my dad, no one but me is contributing to my retirement. I don’t have a company pension or anyone matching my retirement plan contributions.

I also have another problem: I don’t live in a low-cost area. The property taxes alone on my modest Fort Lauderdale home are 10 times what my father paid; enough to consume about half of my expected income from Social Security.

Of course, I made this bed myself. I chose where I live and what I do for a living. But millions more find themselves in a similar situation because of something they couldn’t control: the replacement of traditional company pensions, known as defined benefit plans, with the retirement plan more prevalent today, defined contribution plans.

Defined benefit pension plans are like Social Security. They guarantee a monthly check (benefit) for life. You can’t outlive the money, and the risk of having enough set aside is the company’s, not the employee’s. In my father’s day, these were common and funded by the employer. Today these plans are rapidly approaching extinction.

According to consulting firm Towers Watson, in 1998, roughly half of employers offered newly hired workers a defined benefit plan. By 2013, only 7 percent did. I have no doubt that number is even smaller today.

The replacement for defined benefit plans, the defined contribution plan, shifts the burden of retirement security to the employee. These plans — think 401(k)s — have no guarantees and are largely funded by you. Result? You contribute as much as you can, then hope the market doesn’t melt down on the eve of your retirement. You’re assuming the risk that your balance will be enough to keep you comfortable for the rest of your life. If it isn’t, it’s your problem, not your company’s.

Shifting the retirement risk from company to employee makes companies more profitable. The downside, however, is that it’s a virtual certainty that more and more Americans will find themselves in the same scary boat that Susan and I share.

What can we do?

While I do have more saved than Susan, depending on what happens, it still might not be enough. For example, if interest rates stay this low, generating an adequate income (at least safely) from my retirement savings will be tough. That leaves me with one or a combination of these choices:

  • Radically reduce my cost of living when I retire, perhaps by moving to a lower-cost home here in Florida or somewhere else.
  • Accumulate as much as possible now, then pray for considerably higher interest rates on low-risk accounts by the time I retire.
  • Keep working past traditional retirement age.
  • Supplement my retirement income by spending my principal, then hope I’m dead before it is.
  • Take a measured amount of risk with my retirement savings to create more.

These are my choices, and Susan’s as well. And what she and I will do is probably a combination of all of them.

All of us — Susan, you and me — need to put as much money aside as we possibly can. How?

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  • Kerry Krasney

    Both Susan and Stacy are the lucky ones (assuming here). If you have your health, you’ve got a chance of surviving in retirement, especially given you have savings and a decent ($40k to me is decent) paying job and can work longer. If you have one or more disabling, serious illnesses, you’re in for a whole new ball game. Especially if you’ve never had a high-paying job, but had jobs, two and three at a time until the day you retired.

  • drackip

    This probably won’t help Susan or Stacy , but it might help their children. One of the best little pamphlets I ever read was ” Common Sense ” by A.L.Williams. I listened to a spiel by a co-worker , and didn’t buy into their insurance or mutual funds ( I believe it was called the Pioneer Fund when it started and I think it is now Primerica ?) but I did read the pamphlet and the information on compound interest,Rule of 72 and finances is easily the best basic finance read out there. This was in 1983 , and I still have the booklet right next to my computer – I also made copies for both of my daughters . It’s only 60 pages long but it is jam packed with easily understood info. I just looked it up on Amazon and it looks like they just revised it and reissued a few years ago. A buck for the Kindle edition. You can always make more money and save more , but you can never get more time , so the earlier you start to save, the better – even if it’s only 10-15 bucks a week .

  • Georgia Wessling

    I didn’t start my 457 type fund until I was 50 years old. I put money in until I was almost 69 and retired. I hated to retire, didn’t plan to, but my husband had terminal cancer and needed my home. He had been a school bus driver and earned a small state teachers retirement. I worked for the state for 18 years and also had a small retirement. We both took the smallest pensions so that the surviving spouse would get the pension when either of us died. He went first and I still receive his pension. This plus my SSA keeps me nicely. I also own my own home (a 51 y/o dbl wide trailer) and its lot and my used automobile. I live in an area where my personal and property taxes are low. My 457 was way less than 100k and tremendously less than they say you need to survive. I actually hate retirement. I could possible get a job around here, but I am doing well on my income and would not take a job someone else needed. So – I volunteer a lot, mostly with Hospice. My 457 was a completely savings book type of account. I never invested in anything. When I retired I was earning 8-9% annually. It is now around, or just over, 2%. Almost all of this, I am ashamed to admit, was accidental. I never made an effort, except to save in my 457 and the state only added $25 a month to what I put in. Wherever you start saving, it is never too late. Some savings, no matter how small, is better than none.

  • disqus_3BrONUAJno

    If you want to retire, you should plan to do so, especially with bank bail-ins looming to steal everything you put in them. If you don’t have the forethought to plan, you will just have to suffer the effects of failing to plan.

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