Realistic Retirement Planning

Earlier today I made my last payment towards the education of my children.  Had I paid via actual paper draft rather than electronic transfer, I would have waited to receive the cancelled check back and framed it.  All three of my kids have now graduated with honors from fine universities and have done so without any debt.  All of them have gotten good and fulfilling jobs.  None of them has moved back home. 


Providing college for them was a key goal for my wife and me and I am (obviously) proud that we have accomplished it and even prouder of the accomplishments of our children.  My wife and I have plenty of reasons to be proud.  We might even throw a party to celebrate.  But achieving this goal came at a cost.  Our retirement planning is not where we would like it to be, and we are not alone in that. 

The Retirement Confidence Survey (RCS) from the private, nonprofit Employee Benefit Research Institute has gathered opinion data from workers and retirees as to what they believe their financial status to be for over 20 years. The most recent survey results, published in March, once again show that worker confidence in having enough money to live comfortably throughout their retirement years is not very high.  Only 14 percent of people are “very confident” about their retirement prospects (compared with 27 percent as recently as 2007) while 23 percent say they are not at all confident about having a comfortable retirement.

People recognize the trouble they are in, and with good reason.

According to the EBRI Survey, 35 percent of all workers think they need to accumulate at least $500,000 by the time they retire to live comfortably in retirement. Eighteen percent feel they need between $250,000 and $499,999, while 34 percent think they need to save less than $250,000 for a comfortable retirement. At current rates, $500,000 purchases roughly $2750 per month in guaranteed income for a 65 year-old male. Accordingly, there is very good reason to believe that people greatly underestimate the amount of money they will need to retire comfortably.  This is yet another unintended consequence of the Fed’s zero-interest rate policy and the “war on savers” it has produced. 

But even with these misplaced expectations (again according to EBRI data), only two-thirds of workers report that they have saved for retirement, down from 75 percent in 2009 and only 58 percent (down from 65 percent in 2009) are currently saving for retirement. Fully 60 percent of workers report less than $25,000 in total savings and investments, and 34 percent had to dip into savings this past year to make ends meet. Even for those who are focused upon retirement planning, life sometimes “gets in the way.”

Much retirement planning advice focuses on saving more and saving earlier.  It’s terrific advice.  Not nearly enough of us save and not nearly enough of us save enough. But this advice isn’t always realistic and often comes couched in unjustified criticism.

The first major financial goal my wife and I set after we were married was to buy a house. We wanted our own home near good schools before we had children.  Interest rates were high, unlike now, so there were relatively safe, liquid and convenient ways to save that provided excellent returns.  But real estate values were climbing rapidly and mortgage rates were high.  After a couple of years of very diligent saving (and nothing to retirement savings above the level needed for the 401(k) employer match), we were able to save enough to make a down payment and buy our first house.

One might quibble with that choice, and fewer young couples would likely make a similar choice today given the current real estate market, but it was a reasonable choice under the circumstances. The house offered us a place to raise our children in a good environment near family and other support systems. It was the right decision for us.   

Obviously, young families are expensive, and ours was no exception. Retirement planning continued to mean little more than the company match until later, after college planning was more firmly grounded.  Providing for our children – including college – was simply a more urgent concern for us.  Many retirement planning advisors insist that college assistance should only come after maxing out the 401(k) each and every year, but we were not willing to go that route to the expense of our children’s prospective education.  Our priorities were (and are) different.  Again, one may disagree with that choice, but it was an entirely plausible one, especially since I do not ask anyone to feel sorry for me or to prop me up financially on account of it.

I do not fall into this camp, but many workers are also incredibly discouraged about the prospect of saving and investing generally, including for retirement.  According to the EBRI Survey, just 16 percent of workers are very confident that their investments will grow in value going forward. The secular bear market for stocks we have seen since the turn of the century and, much more recently, exceedingly low yields on bonds have resulted in some very disillusioned investors. That is a perfectly understandable reaction, especially given the findings of behavioral finance and the biases that so frequently beset us.

Many alleged experts in retirement planning – and I include myself in this group – are far too willing to offer advice without seeming to recognize the competing interests faced by those hoping to plan well.  Much of what is called advice is really hectoring about the need to save more and to save more sooner and does not seem to recognize that alternative choices are not necessarily or entirely wrong.

A more realistic approach to retirement planning will not be all that different substantively – in general, people should save more and start saving sooner.  But a better approach will meet the people who need good advice “where they live” without judgment or condescension, while remaining forthright about the challenges that await. 

Not everyone with a less than perfect retirement plan gets into that situation on account of foolish decisions.  My wife and I made some difficult choices.  We remain convinced that, for us and for our family, they were the right choices. We are now ready to give retirement planning a much higher priority.  It would have been better for our retirement plan had we done more and done it sooner, but thankfully we are in a position where we can still be cautiously optimistic about our retirement prospects.

Not everyone can give retirement planning the kind of focus and attention that they might otherwise like to.  Per EBRI, 42 percent of workers identify job uncertainty as their most pressing financial concern, 20 percent report that their debt levels are a major problem and an additional 42 percent describe debt as a minor problem.   Others have faced real economic, familial or health-related hardship. Some of us had what to us were more pressing priorities. We knew the risks we were taking and accepted them.  More realistic retirement planning will seek to offer the best and most creative approaches to the vexing problems we face without presuming that we have been irresponsible because our planning is not yet as advanced as we might like it to be.

NOTE:  You can win a Kindle commenting on this post. I am giving away a Kindle a week in May — four overall.


25 thoughts on “Realistic Retirement Planning

  1. Pingback: Realistic Retirement Planning | Above the Market – Best Retirement Information

  2. This is a great article – I think that lifestyle choices are a major contributing factor when it comes to being able to save and invest properly, and that investment advice should also be realistic about those factors.

  3. Joelyn B

    Bob, if the saying “Be careful how you treat your children because they get to choose your nursing home” has any truth to it, putting three kids through good colleges should have you and your wife retiring in grand style with no worries. I think you both made the right choice, even if you spend the next 10 years playing catch up for retirement.

  4. Great article! I saw this on my friend Mike’s facebook and decided to check it out.
    I’m at a much earlier stage in life. I just turned 27 and celebrated my 1 year anniversary with my wife. I was a physics teacher for a few years, then we took off for a year to travel and learn Spanish so that my could get some international medical experience. So while our savings are not too high, we have 0 debt though apart from a little leftover student loans.
    It’s going to be a couple of years though before we start saving again. I’ll be starting a phd in the fall and my wife is going into her 3rd year of med school.
    In planning out our future, frugality is key. We have lived in Latin America this last year, so for us, at this point, a typical american standard of living seems a luxury (we are looking forward to having a washing machine again though).
    We will have to live very frugally over the next two years while she finishes med school, so our plan is to not allow our standard of living to float up very much once she is earning an income. At that point we’ll start dumping as much as we can into retirement savings until we start having kids (we’re thinking at least 5 to 7 years down the road).
    Luckily for us, we have some very good models on how to save wisely for retirement and for college.
    We’ve been very blessed by my wife’s parents, who have always lived a modest lifestyle and have been able to pay for my wife’s college and the majority of med school through a fund they set up when she was born.
    Above all, we hope to live a modest, debt free life, with a bigger focus on being together as a family, rather than owning a lot of stuff.
    I appreciate the advice you give in this article, it’s good to hear some outside validation for some of the ideas we’ve already had. We also strongly agree that education is never a bad investment. We’ve been very blessed in what we’ve been able to accomplish and experience, and someday we hope to provide the same opportunities to our children.
    Congrats on your last payment!

    • Thanks for reading, Bobby.

      The best investment plan possible — better than specific holdings or asset allocations — is to live frugally and save aggressively. It sounds like you have started down the right road. Stay the course!

  5. Thats great advice. Advice I’m trying to take seriously at 23yrs old. Started investing at 18, and active in trading. Made many mistakes, but learned tons. I have grasped the power and necessity of compound interest in light of inflation. Yet, there have been 2 occasions which I have been absolutely screwed by market manipulation. I just don’t know who to trust. I have 50k + split between diversified investments in amerivest and personal trading account. I have gotten so caught up in the emotion of trading, that my strategies have fallen to the wayside. I have had much success, but in 2 particular occasions this year, I was victim to market manipulation, 1 of which I am guilty for participating (penny stock). However einhorn’s call to HLF has confused me greatly, and I am net -$800. Advisors reiterate price targets of $80+, yet they suggested the same for GMCR, and it just tanked 40%. I thought microcaps were mostly suceptible to fradulent market manipulation, not companies with 6billion market cap.The SEC is worthless.This point im sticking to long term value investments, AAPL which ive traded the ranges very well, HAL, BAC, and of course the majority is invested with amerivest, which is performing mediocre. I almost want to put in CD and forget about it. Yet 7% yield on an index would be nice, considering my time frame is 40+ years. I have no short term need of the money. People say, ‘oh you’ll be fine. you come from a wealth family, and are investing young.’ Ill be fine if i dont lose 10% like I have YTD this year. Too much trading for me. I need to stay long, but I’m addicted to learning technicals.Cant even figure out how earnings play into some stocks. They come out with blowout earnings, and tank the next day. Yet some quarter releases they breakout! Whoevers pulling the strings, needs to pull a few in my favor. Someday, I may be managing more money that I anticipate, and I’d like to learn from my mistakes at this age.

    Sorry no indentation!

    • I have a few brief comments I think you should consider, Scott.

      1. Trading is really hard — the vast majority of people who try it fail. Every trader needs to consider what s/he knows that everyone else (including the professionals) and, more specifically, the person on the other side of the trade, does not.
      2. While I obviously can’t speak to your specific situation, “market manipulation” is far more often an excuse than an explanation.
      3. Do you have a comprehensive plan?

      Thanks for reading.

  6. As a recent college graduate, this post is of particular interest to me because it signifies where I want to be. Like you, my parents were hardworking, diligent, and generous enough to pay for me to go to college. While many students use four years on their parents’ payroll as an excuse to party and live large for the four years of college, I did my best to see it for what it was: an investment in my future.

    So even though I’m only 22, paying for my kids to go to college is already a goal I have firmly considered. As soon I started my job after graduation – something else I do not take for granted, considering the unemployment rate today among recent college grads – I immediately started saving for my, and my kids, future.

    Even still, I have to admit that this seems like a daunting task. The cost of college is rising so sharply that I can’t fathom how much four years of school in 25-30 years when my children are in school. At times I find myself wondering if I’ll have to choose between having more children or putting one or two through college, and while finances are a necessary consideration before having kids, I don’t like the role that one expense, albeit a major one, will have on that decision.

    That’s where your insight comes in. Just like you and your wife made purposeful sacrifices to save for your children’s’ college tuition, I’ll have to do the same – those sacrifices just might be bigger. In fact, when I’m your age it’s hard to imagine retirement advisors having much of a career, as many people my age, myself included, don’t expect to ever be able to retire.

    The sacrifices that I foresee myself and my future wife having to make include whether we’ll ever own a home, and if we do it certainly won’t be anymore than we absolutely need. I don’t think I will ever own a car other than the very base models sold by Toyota or Honda. And family vacations might be road trips and motels, not flights to hotels.

    Although times are certainly changing, your insight provides ample motivation for me as I plan for my family’s future. Regardless of the sacrifices, the fact that my parents put me through college has put me ahead in ways that I know I can’t yet fully comprehend. I want to provide the same for my children, regardless of the sacrifices it takes.

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  9. Great post. One of the things that is often unmentioned is the inequality of DEBT, as opposed to inequality of income. As families’ income stopped growing despite more jobs and hours per household, they took on debt to keep up with the (perceived) lifestyles of those who were doing OK. So while top earners and the fiscally-prudent are earning returns (however meager) on their capital/savings, the less prudent are mired in debt and no longer able to keep their consumption up. Kudos to you for giving your children such a great headstart in terms of good schooling and parent-paid college tuition. The Fed’s current policy certainly seems like a war on savers, but at least the fiscally-prudent have a chance to navigate these troubling waters as the debt-laden capsize.

    Further, I worry about those who think they are going to get by with social security payments and maybe $500-1000/mo. in income from a small retirement fund. When a large portion of voting retirees are living in poverty, we may see politicians come after the savings of the prudent — perhaps with new taxes on already-taxed retirement savings. The best thing to do is to put your savings into as many *productive* buckets as possible (401ks, IRAs, Roth IRAs, rental housing, stocks in non-retirement, and overseas investments).

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  11. >According to the EBRI Survey, 35 percent of all workers think they need to accumulate at least $500,000 by the time they retire to live comfortably in retirement. Eighteen percent feel they need between $250,000 and $499,999, while 34 percent think they need to save less than $250,000 for a comfortable retirement. At current rates, $500,000 purchases roughly $2750 per month in guaranteed income for a 65 year-old male. Accordingly, there is very good reason to believe that people greatly underestimate the amount of money they will need to retire comfortably. This is yet another unintended consequence of the Fed’s zero-interest rate policy and the “war on savers” it has produced.<

    Non sequitur.Makes no sense that ZIRP would lead people to underestimate their retirement need. On the contrary, because people are getting so little on their savings, they would be more likely to estimate high for need.

    • I didn’t write that as clearly as I might have. People generally underestimate their retirement need. The extent of the underestimation is determined by interest rates. ZIRP makes a bad situation worse. That’s the unintended consequence.

      Thanks for reading.

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