“I Haven’t Saved a Dime,” or “Will I Have a Heart Attack When I Retire?”

July 15th, 2008 • Related • Filed Under
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At Americans’ current savings practices, 4 out of 5 people will not have enough money to retire in their accustomed lifestyle.

A recent study by Hewitt Associates, an international human resources consulting firm, says that “rising medical costs, lengthening life spans, and the declining prevalence of pension and retiree medical benefits” are all contributing to a growing gap between projected retirement need vs current retirement plan savings rate.

I have always heard that if I saved enough to replace 80% of my pay at retirement, I’d be ok. But new studies indicate that, with inflation , 126% of my final pay at retirement will be needed to maintain the same lifestyle.

Big difference.

Hewitt surveyed 2 million employees at 72 large American firms. Their findings were striking.

“On average, employees are projected to replace just 85 percent of their income in retirement, compared to the 126 percent they need. In other words, assuming inflation of 3 percent and a retirement age of 65, an average 40 year old with 10 years of service and earning $83,000 at retirement in today’s dollars would have saved enough to provide just $70,500 per year in retirement in today’s dollars—a $34,000 annual shortfall. In fact, more than 1.2 million employees (67 percent) are expected to have less than 80 percent of their projected needs at retirement.”

Currently, 26% of current employees have not even enrolled in their 401k plans.

If you are one of these people, get enrolled today.

There are some simple rules you can follow to improve your situation at retirement.

  • Enroll in your company’s 401k Plan. Start young. Don’t wait. Learn a lesson from the “baby boomers” like me. Transition from social security to 401ks was just beginning when I was in my mid 20’s. Back then, the importance of prioritizing these savings was not yet realized. Now, many of us are in a panic trying to catch up.
  • Be sure to contribute at least enough money to obtain the entire company match, if there is one. Most companies at least match 50% on the dollar for the first 6% you invest.
  • Look at investment options for your plan, and make wise choices. See a financial planner if you are unsure. Many companies now offer target funds. These funds are set up to modify the risk levels of your investments automatically as you age. But target funds vary dramatically in how they are set up, so approach them with caution. Here’s a recent US News article describing pros and cons.
  • Don’t forget about medical expenses in your planning.
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  1. Comment by no imageSam (Who am I?) on 16 July 2008:

    Another thing if you want to be rich enough when you reach your retirement. Save money automatically! In a nut shell, you would have to inform your accounting department to deposit a certain percentage of your monthly paycheck to your savings account or 401k fund. Remember, you can’t spend what you can’t see.

    This way, you’re doing it automatically. Hope this helps!

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  2. Comment by no imageLisa (Who am I?) on 16 July 2008:

    @Sam- Great addition to the post. Thanks for your thoughts. - L

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  3. Comment by no imageDark Angel (Who am I?) on 16 July 2008:

    I agree with Sam, The money that my company takes before paying me goes towards my pension scheme. if you asked me to be depositing it after it hits my bank account, i probably would not!

    Dark Angels last blog post..I admit I’m Cheap

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  4. Comment by no imageTrevor (Who am I?) on 16 July 2008:

    Great post!

    There’s no question about it… people these days just aren’t too concerned about their retirement.

    Who cares- we’ll start saving in the next couple of years, right? Sorry… they’ll pay for it when retirement TIME rolls around.

    But, you know, it’s understandable. Saving for retirement takes a lot of discipline.

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  5. Comment by no imagemarie (Who am I?) on 23 July 2008:

    As baby boomers in our 40s/50s, we are struggling to balance our investments and 401Ks. Even though we are worried about it now, overall I think we are in pretty good shape with investments, employment experience, home ownership, etc. What scares me is the upcoming generation. It could be just my own perspective, but it seems like there a lots of young adults (age 18-25) who have not found a career track, or seem to care about finding one. Many in this age range do not seem to have the resources, level of responsibility, or desire to live on their own. I wonder if there are any studies on how that age range is doing financially. While their parents are frantically balancing work and home life, they seem to be the “chillax, mom” generation.

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  6. Comment by no imageLisa (Who am I?) on 23 July 2008:

    @Dark Angel - I agree, if I don’t see it, I’ll save it.
    @Trevor - yes,leaving it up to us to save it on our own is the way to go. If we were that disciplined, everyone in this country would also be skinny!
    @marie - I see what you’re saying, but at that age I seem to recall being a bit lost myself. It wasn’t until my mid-20’s that I really started to get my act together.
    Thanks to all of you for your great comments- makes blogging a lot more fun! Lisa@ Greener Pastures

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  7. Comment by Trackbacks on 14 October 2008:

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