The house is getting used to the new puppy. I had to get up with her a few times a night for the first week, but since then, she has mostly been making it through the night without an accident. Good dog!
Penny loves our cats. Ragdoll cats are extremely docile and cannot defend themselves (this is why you would never have one as an outdoor cat). Considering Penny is faster, she basically lays on top of them and munches on their heads. They roll their eyes and look at me with supreme annoyance.
Penny and her brother, Desmond, are quickly becoming best friends. They are usually by each other's side, oftentimes wrestling. Desmond also teaches her how to walk on a leash and bark at strangers.
Over the past ten years, I noticed a consistent and strange pattern. People, who had money saved for retirement, were not spending it. They were dying with more money than ever. The national studies confirmed this. While counterintuitive, people I ran across lived like they were broke with plenty of money in the bank.
Heck, I wrote a book about it: Spend More, Worry Less. It bothered me to see all of this needless worry and unnecessary deprivation. Here are some of the facts as of five years ago:
Fact #1 Only 12 percent of Americans died living only on social security with no other assets; they didn’t own a home or a car or have any savings.
Fact #2 The top 60 percent of Americans needed to spend more money to put themselves in danger of running out of retirement.
Fact #4 Two extensive national studies showed that, over the first 18 years of retirement, about one-third of seniors increased their assets.
Fact #5 A person with less than $500,000 in savings, on average, spent just about a quarter of it during the first 20 years of retirement.
Fact #6 According to the Center for Retirement Research, 48 percent of retirees could maintain their standard of living.
What was happening? These Boomer retirees were raised by parents who grew up during the Great Depression. Their parents instilled a sense of fear of running out of money. They all grew up hearing, “Save as much as you can and don’t spend a penny. You never know what might happen.”
So these kids, now retirement age, were scared to death. I loved being the giver of good news. I encouraged them and showed them they had nothing to worry about and could enjoy more money than they realized. Those appointments were so much fun!
They are not nearly as fun anymore.
Over the past two years, I have seen a radical shift. No longer do I see that same fear. I no longer see people with extra savings living better than expected. Quite frankly, I see the opposite. Those retiring now were raised by parents who grew up in the 40s, which were much better economic times. The fear of financial ruin has been reduced.
Let’s look at some commonalities now.
- People have the unrealistic expectation of retiring at age 62 (the earliest you can take Social Security). Don’t do this. I wouldn't consider it unless you’ve saved a lot of money. The reality is that many, if not most of you, will live into your nineties. You can‘t stay financially solvent for thirty years once you stop working. Many of you should consider working until 65-70. Of course, there are a lot of variables, but I keep seeing the same age 62 assumptions.
- Many people plan to stop their demanding full-time work and find something part-time. The logic is this: “I can work less and live the same lifestyle because I will have Social Security coming in.” This is unrealistic. Ageism is very very real. If you are in your late fifties or older, getting a good job with a decent salary is challenging. Employers do not want to hire someone past 50; they must train them, only to see them retire a few years later. I hate to break it to you, but unless you have very specialized skills, you must work full-time at your current job until retirement. You probably won’t make more than $18 an hour if you find a part-time job. If you think that working part-time will allow you to retire early, you need to consider that you will not be working part-time in your 80s and 90s.
- People need to save more money in their retirement accounts. This sounds like common sense, but most people I meet don’t start saving until around age 50. Remember that you can safely spend 5% of your portfolio of stocks and bonds each year once you retire. That means if you have $500,000 in your 401k, that translates to $2000/mo in income. What is your take-home pay now? If your Social Security plus investment income is less than your current income, you don’t have enough money to retire. You have to keep working.
1. You start saving $100/mo at age 20.
That means you saved $54,000 of your own money between 20 and 65.
Ending value at 65: $948,000 (after investment returns)
2. You start saving $100/mo at age 30.
That means you saved $42,000 of your own money between 30 and 65.
Ending value at 65: $357,000 (after investment returns)
3. You start saving $100/mo at age 40.
That means you saved $30,000 of your own money between 40 and 65.
Ending value at 65: $130,000 (after investment returns)
4. You start saving $100/mo at age 50.
That means you saved $18,000 of your own money between 50 and 65.
Ending value at 65: $42,000 (after investment returns)
What should you do next?
1. Reorient your thinking to the fact that you may need to work a few more years than you had planned.
2. Save as much money into your 401k as you can. The contribution limit this year for people over fifty is $30,000. Remember that this is a huge tax break. For every $100 you contribute, you save around $25 in taxes.
3. Keep a close eye on your budget. Your budget is more important than how much you have saved. Try to resist buying new cars and other large purchases as you near retirement. I know it is tempting to upgrade your house as you get closer to retirement. You may have to deal with your old kitchen and bathroom.
4. Wait as long as possible to take your Social Security. Remember that it grows by 8% each year you wait. The benefit at age 70 is almost twice that of 62.
5. Ensure the money is invested in stocks and bonds, with at least half the money in stocks. This is non-negotiable. Without these tools, you very well could run out of money in retirement.
As I said, I never foresaw having to write this article. I will try to be more uplifting next week.
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