The Media Wants You to Panic About Retirement

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“All right, let’s not panic. I’ll make the money by selling one of my livers. I can get by with one.”
–Homer Simpson

A recent wave of media articles have trumpeted the notion that nobody is ever going to be able to retire, or, alternatively, if people do retire, they’re still going to have to work as WalMart greeters or burger flippers to be able to make ends meet. First World problems run rampant! The sky is falling! Older workers will never retire, which means that younger workers will never get jobs!

The horrors!

It’s also a bunch of crap.

It is a bunch of crap, though, that well and truly seems to have penetrated the collective psyche of the United States, and a recent survey by Maritz Associates shows that over 50% of people who are either near retirement or have recently retired believe that retirement is an outdated concept. 22% of workers surveyed in the Employee Benefit Research Institute’s 2013 Retirement Confidence Survey said that they’d have to postpone retirement.

If you believe what the media reports and what is “commonly accepted knowledge,” you’d come to the conclusion that our Golden Age has passed. Once upon a time, we worked up until we died. There was no concept of retirement. In fact, the origins of the word didn’t even appear until the 1590s, and had just as much to do with privacy and seclusion as working. When the Social Security Administration was formed and the Old Age Survivor and Disability Insurance established, the age at which you could draw Social Security was set at the age that the average person was set to expire.

Thus, the retirement notion of just kicking it with your friends on the porch, sitting in rockers and watching traffic go by is a relatively new one, but one that, for some people, seems to already be fading into the sunset.

Screaming headlines sell eyeballs, which sells advertising, so the effort convincing a couple of generations that there is no retirement is bound to gain some attention, but is that really the case?

First, let’s look at some of the data which may point to why these people feel concerned about their retirement.

The people who aren’t confident about their retirement don’t have a plan

The Maritz report showed that 48% of near retirees (those who were planning on retiring within 5 years) started saving and investing early, leading them to hold 57% of the total assets in retirement funds. 41% of near retirees started planning within 10 years of retirement. Unsurprisingly, 44% of near retirees were concerned about having enough assets to last throughout their retirement. Late planning + no savings = no confidence. It’s not a difficult equation to work out.

41% of near retirees have strong Monkey Brains. Monkey Brain doesn’t want to think about the future. While he loves the notion of never having to go back to work again, he deals in terms of shortcuts and quick fixes because that future you is a stranger to him. He doesn’t care what you’ll be feeling in 20 years, because his timeframe is about 20 minutes. Thus, working on a financial plan, actually saving something for retirement and not spending it now, is counter to everything he wants.

As a result, we blithely ignore the future until it’s really close. 10 years out seems to be the point at which the pressure of knowing that we can’t work forever starts to sink in on us and we override our Monkey Brains. Unless you’re a high income family, 10 years is rarely going to be enough time to make plans. It will take a lot of knuckling down to build up a sufficient base of assets to be able to retire. That usually means dialing down the lifestyle and throwing as much money as possible into retirement savings and investments.

Rather than do the hard work, many people simply say “I believe retirement is an outdated concept.” They satisfice their behavior and push off the day of reckoning. People can call it what they want, outdated, old-fashioned, whatever, but for a vast majority of us, there will come a time when we can’t go to work anymore, no matter how much we want or need to, and at that point, we’re going to live off of our accumulated assets and Social Security. 47% of retirees in the EBRI survey reported that they had retired sooner than they expected to, and 55% of them retired because of health problems or a disability; this means almost 26% of retirees expected to work longer but couldn’t, and they probably weren’t prepared to retire when they did since they weren’t expecting to retire early.

Failing to plan for that point could bring heaps of misery on the unprepared, and for them, retirement will continue to be a myth, a vision, and something only “rich people” can afford.

Workers and retirees are saddled with debt, leading to a lack of confidence

The EBRI study points out a glaring, gaping hole in the personal finances of both workers and retirees. 60% of workers say that debt is either a minor or a major problem and 39% of retirees say that debt is a problem. Unsurprisingly, 80% of workers who report having a major debt problem are not confident about their ability to have enough money to live comfortably in retirement.

If you have a significant amount of debt relative to your income or to your net worth, then you are going to have a lot of trouble getting to a comfortable retirement if you don’t address the situation immediately. Credit cards are Monkey Brain’s favorite currency because he can have it all right now. He can leave the future you to mop up the mess while he gets to stack the bananas high in the cage.

You’ll get to be confident in your retirement when you’re buying assets that grow in value and you take actions which increase your income. You won’t get to be confident in your retirement by accumulating a house full of stuff which will one day make for a great episode of American Pickers. Crap decomposes (and stinks). Assets grow.

Smart people get into debt all of the time. Smart people know they should spend less than they make and save more for retirement and get a plan and stick to it, but they don’t.

What’s happening?

We hear these narratives that we’re never going to get to have a retirement that we want, and we start rationalizing. We tell ourselves that if we’re not going to have an enjoyable retirement, we may as well live the hedonic life and enjoy what we can now, since we’re going to be chained to a desk until we reach the age of 137.

It’s easy to take such an approach to willful blindness and just accept the narrative. The media tells us something, so it must be true. Believe everything you read on the Internet. Thus, we fall into lockstep behind everyone else who parrots the beliefs that living a good life is only reserved for the rich and the people who have some sort of “in” into the system and that it’s not for the rest of us.

But what do the numbers say?

I’m not about to tell you that getting to the point of financial security in retirement is going to be a walk in the park. It’s going to require work. It’s going to require intentional choices now to allow you to be comfortable later. But, it’s not impossible. Nor is it improbable.

Let’s look at a few basic cases to show you what needs to be done. For all cases, we’ll assume a 6.69% average annual inflation-adjusted return (see “6 Areas Where I Disagree With Dave Ramsey’s Investment and Retirement Withdrawal Advice” for why I use this return instead of something higher). We’ll also assume a 3.5% safe withdrawal rate in retirement. Finally, we’ll assume that spending increases each year by the rate of inflation both before and during retirement – meaning you will have the same standard of living in retirement as you do before retirement. They can retire when they can withdraw 3.5% of their assets and have enough money to cover their expenses. All examples start with zero net worth.

First, let’s look at a 40 year old couple. They bring home $75,000 per year.

To retire at age 65, they’d need to save a little over 29% of their annual take-home pay. How do different savings rates affect the retirement age?

Savings Rate at Age 40 by Hull Financial Planning

Of course, reducing and managing expenses is one way to achieve the goal. Another way is to increase income. Let’s say that this family has a fixed annual inflation-adjusted expense of $60,000. At the current inflation-adjusted income of $75,000 per year, the family would have enough to retire at age 72. To retire at age 65, they’d need to increase income by 12.7%, or $9,511.96.

How does increasing income affect retirement age?

Income Increase at Age 40 by Hull Financial Planning

Remember earlier when I said that waiting would make getting to retirement comfortably extremely difficult? Let’s look at this same family but assume they’re 50 instead of 40. They would have to save 49.6% of their income to retire at age 65, assuming, remember, that they maintain the same inflation-adjusted expenses in retirement. It’s not impossible to get to that number. There are many examples of people who save 50% of their income. They’re just not common.

Savings Rate at Age 50 by Hull Financial Planning

What about relying on a pay hike? They’d need to increase average annual income by 58.8% to retire at age 65 on an inflation-adjusted $60,000 per year budget.

Income Increase at Age 50 by Hull Financial Planning

To further drive home the point of the value of planning early, let’s make this family 30 years old. First, we’ll assume they make $75,000 and save a percentage of their income. They’ll need to save 16.2% of their income to retire at age 65.

Savings Rate at Age 30 by Hull Financial Planning

If their expenses were fixed at an inflation-adjusted $60,000 per year, they could retire at age 62. However, they’re young and can probably expect advancement and pay increases. How much will increasing the average annual income affect their expected retirement age?

Income Increase at Age 30 by Hull Financial Planning

For every 10 years earlier someone starts saving for retirement, they can cut in half the amount they have to save, or, if they hold savings rates constant, cut 10 years off of their retirement age.

Additionally, Social Security would add a significant level of cushion and income support for these people; however, not including that benefit shows that retirement is possible for many people as long as they’re willing to work to get there.

If you’re not doing anything about your retirement, then you can expect to get nothing in return. You’ll need to plan to work as long as you can and hope that Social Security is enough to tide you over once you can’t work.

However, don’t let the stories of having to delay retirement and that retirement is impossible convince you to do nothing. Those stories are wrong. You can’t control the markets, but you can control other things. Take action and make choices over what you can control and actually plan for life rather than letting life happen to you.

If you want to see a similar analysis, check out PK’s calculator at Don’t Quit Your Day Job.

Do you want to be more secure about your retirement? Retirement is one of the multitude of topics I cover in my Winning With Money course. From budgeting to how much it will cost to raise a child to how much you should save to retire when you want, this course is self-paced and contains 20 lessons, 8 worksheets, and exercises designed to teach you what you need to do to secure your financial future and to help you apply what you’ve learned to your specific situation. Take a look and take action to ensure your family’s financial future.

Do you think you’ll be able to retire in the way that you want? What’s causing you worries? Tell us about it in the comments below!

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Around a year ago, I wrote about reframing purchases in terms of having to work longer. If you haven’t read it, go check it out.

This article appeared in the Carnival of Wealth. Go read it. Well, go read it and the good articles they suggest. Then come back!

About Jason Hull

Jason Hull is a Fort Worth financial advisor. Before becoming a Fort Worth financial planner, Jason co-founded, built, and sold a software development company. He is a CFP candidate, has a MBA from the University of Virginia, and a BS from the United States Military Academy at West Point. He is the owner of Fort Worth financial advisor Hull Financial Planning.

Comments

  1. Well, the media has an interest in that financial companies are such huge advertisers! Still, I think people are underestimating how easy it will be to retire. We should see a lot of sad stories appear in the next ten years or so because no one wants to plan ahead. It’s especially hard in an era with low returns, because you don’t get the reward of compound interest.

    • Hi Annie–Thanks for commenting! Yes, you don’t get the reward of compound interest, but stories also about of people who reached financial independence in relatively short periods of time (we got there within 10 years of me graduating from grad school).

      However, if I may infer a little from what you’ve commented on, there’s a correct middle ground in telling the retirement story: you can achieve retirement, but you’re going to have to work hard to get there.

      I agree with your projection of sad stories in the next few years. Monkey Brain simply does not want to acknowledge a future outside of the next 20 minutes, so people put off the day of reckoning when they must spend less than they earn until it’s too late. At that point, they’ll take an external locus of control and blame the system/the man/poor interest rates/Jupiter and Pluto not aligning rather than admitting they didn’t take the necessary steps (early enough) to increase their chances of having a comfortable financial position with which they could retire.

  2. It’s a tragedy that all the hype seems to have convinced people (especially young people) that investing for retirement is a bad idea. You actually hear people say that 401k plans are a bad idea for young people these days. But this is exactly when those people have the best shot at successfully funding retirement.

    I do think I’ll be able to retire in more or less the way I want. I don’t necessarily think I’ll call it quits completely at 65, but I’d like to have that as an option (in case I just want to or if my health doesn’t hold up). Of course I don’t know what’s really going to happen, but I’d like to start easing off around age 60ish – sooner wouldn’t hurt – and keep doing a little work just to earn a few bucks and keep my brain from going mushy.

    • Pat–

      I wish everyone from age 20 to 40 could take that first paragraph and frame it. Yeah. 401k fees are exorbitant and crappy. But, if you have an employer match of any kind, it’s the best thing going. It’s free money. Where else can you get that?

      The difference between you and the average, panic-stricken reader of the financial media? You’ve thought through your plan. You live with intentionality.

      I also agree with planning to be done by age 60 just in case things go awry. More people have to retire early because of health or disability than expect to.

      Thanks for commenting. May your brain never turn to mush!

  3. Nice post and in part I agree with you, especially on the number crunching that you did. While I am often the first to be critical of the financial news media, the fact is there is a retirement savings crisis and I’m OK with them writing about this loudly and often. While there is a danger of folks throwing up their hands, I also think this can act as a motivating factor. Thankfully most of my new clients and prospects show up in pretty good shape for retirement, I haven’t yet had to tell anyone to work another 5-10 years.

    • Hey, Roger! You know I love your work (and your wry sense of humor), but I’m going to respectfully disagree with you here. Retirement is a First World problem. Even in an environment of very low compound interest, like Annie brought up in the comments, we aren’t in a crisis. Social Security won’t go bust, at least in our lifetimes, and we have, relatively speaking, very little true poverty (and I don’t just mean the Federal Poverty Levels). Maybe it’s because I’ve had to see what happens to people who live through a decade of civil war, but my perspective is different from the media’s when it comes to what defines a crisis.

      With that said, I do agree with what you’re pointing out regarding using the headlines as a motivating factor. If it takes CNN/Fox News/MSNBC/WSJ/CNBC/whatever to wake someone up and get them to start taking the appropriate planning steps, then hallelujah!

      I just don’t want people to get bought into this narrative that people can’t retire or that they’re going to have to retire at age 99, 3 seconds before they run out of heartbeats. It’s simply not the case.

      Paula Pant has an excellent article out this morning about how to achieve non-traditional forms of retirement and had this great nugget:

      Building sustainable income takes time — at least a decade — and your youth is precious.

      (P.S. And to those of you who are thinking: “But I’m already old!” — No, you’re not. Each stage of life is unique. And you’ll never be younger than you are today.)

      • I think where we disagree is in applying the word crisis. To me this is not about discouraging planning, saving, and investing for retirement but rather about the harsh realities for some. I agree that in part it is a first world problem because our lifestyles are in part what has caused this for some. In other other cases this is exacerbated by job loss, poor investing advice and other issues and circumstances. The crises part is that a lot of folks are under prepared financially and as advisors we need to do our part to help. To the extent that the media helps bring this out, more power to them.

  4. You are right on with this one Jason. “Late planning + no savings = no confidence.” That was my favorite sentence. I work in the media and get tired of all this media hype centered around retirement! It takes a lot of diligent and faithful work to actually be able to kick up your feet at some point. And if you start late, even more.

    • Hey, Joel – Thanks for commenting! You just smushed the head on the nail with this one:

      It takes a lot of diligent and faithful work to actually be bale to kick up your feet at some point.

      I’ve met a lot of people with an external locus of control who seem to think that they’re entitled to a cushy retirement just because they’ve existed on the planet. It’s saddening. Hard work isn’t a guarantee of success, but I can think of very few examples (Paris Hilton, Paris Hilton, and Paris Hilton) where hard work wasn’t a precursor.

    • By the way, if you see this guy running around the halls today, tell him hi. I’m a big fan!

      Clark Howard bobblehead by Hull Financial Planning