Horrifying retirement outlook

I’m always sur­prised when I hear about peo­ple cash­ing in their 401(k)‘s when switch­ing jobs. Or oth­ers who sim­ply don’t save for retire­ment… even those who are far from retire­ment.

Surprise maybe isn’t the right word. It’s more like despair.

I wor­ry about peo­ple who won’t be able to retire. But, I’m not sure I have a good pic­ture of how lit­tle peo­ple have saved. It’s so hard to know when no one real­ly talks about this stuff.

A recent GAO report, Retirement Security, sheds light on the sit­u­a­tion, and it’s dire. Even the sub­head of the report is shock­ing:

Most house­holds approach­ing retire­ment have low sav­ings

That state­ment is fur­ther qual­i­fied in the abstract of the find­ings:

Among house­holds age 55 and old­er, about 29 per­cent have nei­ther retire­ment sav­ings nor a defined ben­e­fit plan, which typ­i­cal­ly pro­vides a month­ly pay­ment for life.

Looking fur­ther:

About 55% of house­holds age 55–64 have less than $25,000 in retire­ment sav­ings, includ­ing 41 per­cent who have zero

Mostly you hear that peo­ple will have to work longer or work in retire­ment. What you don’t hear is:

Half of retirees said they retired ear­li­er than planned due to health prob­lems, changes at their work­place, or oth­er fac­tors, sug­gest­ing that many work­ers may be over­es­ti­mat­ing their future retire­ment income and sav­ings

If work­ing longer is the answer, but health or work­place changes pre­vent that, what do you do?

For starters, if you’re young enough, you best plan ahead. I am under­stand­ing my retire­ment sav­ings from the per­spec­tive of the income they can pro­vide in retire­ment. This way I can plan more accu­rate­ly, both in how I spend mon­ey in retire­ment but also what I can expect as I get clos­er.

I’m a huge believ­er in mak­ing the most advan­tage of tax-free or tax-deferred invest­ing. Please don’t cash in your 401(k) when you switch jobs. I know it can be scary when you see it drop all the time, but rolling over your 401(k) into an IRA can be fun. It’s easy to do, and a great oppor­tu­ni­ty to devel­op a side income stream that will help you plan bet­ter for your (and your fam­i­ly’s) finan­cial future.

If you’re unsure of what to do, drop me a note.

The GAO report should scare you. It scares me, and I’m not some­one who’s unpre­pared. But, while fear is a good moti­va­tor for some, I think fun is a bet­ter moti­va­tor. Let me help you have fun invest­ing, and who knows? Maybe you can retire ear­li­er than you thought.