Often we are afraid to plan for retirement, because doing so forces us to come face-to-face with our future, and we may not be comfortable with what we see. It fosters thoughts of dying, aging, losing vitality, and having to live on a lot less money—perhaps of not having enough. So the easy way to deal with this dilemma is to put it off. We just don’t think about it or deal with it. It’s the same reason we put off making wills; it forces us to confront the fact that we really are going to die.
Baby boomers, especially, tend to harbor a “live for the day” attitude. “I’m right here, right now, and that’s what matters. The future will bring what it brings. Things will work out somehow. Life is here to enjoy.”
The Employee Benefit Research Institute reported in their 2006 Retirement Confidence Survey that only 70% of workers are saving for retirement. More that half of workers who do save for retirement report total savings and investments of less than $50,000. Seventy-five percent of workers who have not put money aside for retirement have less than $10,000 in total assets.
The personal saving rate, which measures personal saving as a percentage of disposable personal income, was -1.4% in the first quarter of 2006. The rate has been declining since the 1980s.
If people would only do something about their retirement now instead of later, it would make a tremendous difference. Assuming a 9% return, a person who is twenty-two and saves $2,000 per year for nine years (for a total of $18,000) will see this amount rise to $580,000 by the time she is sixty-five. If this same person waits until she is thirty-one to begin, she will have to save $2,000 a year for thirty-five years (for a total of $70,000) to even accumulate $470,000 by age sixty-five. In other words, that person would have to save $52,000 more in order to end up with $110,000 less.
I love it when my clients in their twenties and thirties start funding their retirement. The amount they need to save on a monthly basis is so much smaller than my clients who put it off until they are in their fifties.
Many “Generation Xers” have no problem with saving for retirement. They say, “I see what’s happening to my parents. That is not going to happen to me. I am going to start planning and saving for my future now.”
Ron and Jonna work in the publishing industry. They are both in their thirties and are just getting started on their careers. As a couple, they are making about $60,000. They asked me to show them what it would take to retire at age fifty, and also at age sixty-five. They want to know now what they need to be putting away. They don’t even think about buying new cars or the latest upgrade because they’re focused on their long-term goal of retiring at age fifty. It shapes their entire lifestyle.
They don’t feel deprived of anything. They are very satisfied with the lifestyle they lead, and they gain a great deal of peace of mind by having a retirement savings program in place that will accumulate into a substantial amount by the time they retire, potentially at fifty.