Does retirement remain a viable option in today's America?

Retirement going forward will not be as easy or straightforward as once was the case.

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My father retired almost 40 years ago. He says that is when he really began to work. :slight_smile:

I plan to retire a day before I die. I enjoy working … or at least making people think I’m working. As well, my wife will never retire, as she can’t sit still. She would drive both of us nuts.

yahoo article is about a guy promoting his book. Seems his thesis is : Americans don’t save enough for retirement.
Doesn’t seem like news to me…
THe article title “financial suicide” looks more like clickbait / hyperbole.

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It’s not that hard if you’re a saver and don’t blow all your money on having children or multiple divorces. Most people can’t or won’t make retirement savings a priority. For those people, they were lot better off when companies had pension plans as forced retirement savings. Life does get in the way though. I don’t know anyone who deliberately plans on working until they’re 80…

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I’d say it totally remains an option. The blueprint is virtually identical as before which is pay yourself first and save in an automated fashion.

In the era of company pensions, basically the company was taking enough off the top to allow you to retire with enough money. The only difference now is that you need to setup the same thing yourself. Sure, the company is not on the hook if the investment strategy fails but also you’re not left holding the bag if company underfunded their pension plan, goes belly up and the insurance only pays a fraction of what was promised to you.

The other thing that has changed now, is that many start with a bigger handicap (student loan debt) than before. But the average student loan balance at graduation is around $31k IIRC. In comparison to the sum you need to retire, it’s not that much. I think the bigger headwinds are of people’s own doing. Instant gratification, living beyond your means, keeping up with Joneses, etc.

But otherwise, I don’t think it’s that much harder to retire than it used to be.

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I found out when furloughed during the pandemic that this will likely be my choice as well. I couldn’t stand how un-relaxing my temporary forced retirement was compared to going to work everyday.

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I don’t think thats really what happened.

I think it was more like that pensions weren’t really that expensive decades ago. Then they got more and more expensive so companies moved to 401k.

I mean for one, life expectancy for men in the 60’s was only like 66-67 years.
Also it not like everyone got fat pensions. Average pensions weren’t really a lot.

OTOH the old pensions were better for most people than the people failing to save their own money today.

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I think that’s part of the reasons for the move. When they got started, the pensions did not have to pay for people in retirement for as long. As people started living longer, the promises could not suddenly be scaled back.

The other thing that was important for many businesses is cashflow. Because of funding requirements for these pensions, when companies were hit by a year or two of bad investment returns, which often coincided with a recession and poor performance for the businesses, they had to divert more cash towards pensions to keep them at least 80% funded.

Variable funding requirements isn’t very practical for most companies in terms of budgeting. So a transition from defined benefits (pension) to defined contributions (401k) was a huge relief for companies in terms of knowing exactly year in year out what their retirement benefits would cost them and manage cashflow and investment levels.

At this point, it’s hard to see pensions making a come back though. Maybe they’d be better for many workers but I think the industry is mostly done with them. As a company, you’d sooner bump the contributions to boost the attractiveness of your benefit offerings, than re-instate pensions with their well-documented downsides even if in your short-intermediate forecast, the cost to the company would be identical.

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The high inflation now is a real game changer. If it persists it can wipe out retirement savings. no financial instruments such as stocks and bonds are keeping up with it. Especially after taxes. it also discourages people before retirement to see their savings being eaten away by it.

The real question for retirement viability is how long inflation continues and whether it will get even higher.

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I’m not so sure it’s a game changer. Some people have just gotten used to the stock market only going up, partially due to artificial propping by the Fed.

But I was reading that average stock returns following a year of yield curve inversion since 1978 was 4.7% compared to 3.9% for inflation-adjusted treasuries.

Now clearly, returns are usually better outside of periods of yield curve inversion, recession, or high inflation, but there are hedges to keep your retirement savings going. And if you keep investing during these periods (you’re buying at a discount), and have time for your investment strategy to recover, you can still save enough for retirement if that’s a priority. It worked before, be it the tech bubble of 2000 or the great recession, I don’t know why it’d suddenly stop working.

Save more than you have to.

For retirees, size of cushion matters. :wink:

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The average age of retirement for Americans is 66, according to a Gallup poll, which is up from age 60 in the 1990s.

According to a Gallup poll study, when 18- to 29-year-olds were interviewed about retirement, younger people expressed optimism that they’ll be able to retire early, closer to their early 60s. However, once they hit 30, that optimism wanes, perhaps due to the realities of making a living catching up with them.

Fifty percent of people retired before they would have liked for reasons including layoffs, caregiving responsibilities, an unexpected change in their financial situation and health issues.

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I think this is a pretty notable fact that most people don’t realize.

Of course just that 50% figure doesn’t mean a whole lot cause it doesn’t say how early. I mean if people retire 1 month before hand then that counts but it doesn’t matter a ton. Is it 1 year average or 5 years ?..

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Revisiting the 4% Rule

Cannot say I ever gave much credence to the 4% rule. But then, I’m no retirement expert . . . . . merely a humble practitioner. :wink:

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Me neither. My interest earning for the year is the most I am able to spend the following year. Principle never gets touched. If that income wont cover expenses, I shouldnt have retired in the first place.

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We all need to use a different word than ‘rule’ when describing this kind of thing.

Stuff like 4% rule is really more like a ‘guideline’.

You see the word ‘rule’ and that implies much more certainty and basis.

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I’d sure like 5 or 6% a lot better. Too bad I don’t have a crystal ball.

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Ideally, the principal should grow to at least keep pace with inflation. So you can only withdraw “interest minus inflation” - this is usually not even positive, let alone 4% every year.

If your portfolio has some stocks or RE, you can get to 4% by spending normally in years of high returns and letting the increase in good years make up for the drop in bad years.

Oh and it should be 4% of current balance, not 4% of the starting balance.

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That’s the concept behind “4%”. But an inopportune bad year will leave you vulnerable. One downturn can take forever to recover from.

Inflation isn’t relevant, there’s no need to worry about the buying power of your principle, because you’ll never spend it regardless (your heirs may have different thoughts about it, but the focus is on you, not on leaving an inheritance). Limit your spending to the income being earned, and you will never touch that principle. Of course over time your expenses might go up, but your earnings will be equally variable. If you balanced your cash flow too close to begin with, then yes, at some point you may find yourself having to cut back.

As an illustration - yes, inflation is up 8%. But the interest I’m earning on liquid savings has gone from .6% to 1.6%, producing nearly 300% more earnings. So no, I don’t need to earn 8% before I can afford to spend anything, my cushion has only expanded [and done so significantly]. Conversely, if spending 4% annually, the 20% stock decline means your 4% will be 20% less cash as well. So you will need to cut current spending by 20% at a time when expenses are going up 8%.

It’s always better to spend what you earn each year, than it is to overspend and hope there’s enough really good years to offset the lesser years.

The 4% rule may work out ok for a lot of people, but it’s primary purpose is to let people feel like they can retire by offering a false sense of security.

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