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If you want to hear scary stories related to retirement, you don’t have to look very hard.
For example, a trade association for the financial services industry called LIMRA recently surveyed a couple thousand Americans on retirement matters. What they found is that about 49 percent of the respondents aren’t saving for retirement at all.
Yes, you read that right — HALF of the people are literally putting nothing away for their golden years!
Why not? Well, the majority suggested that they just couldn’t afford to contribute to an IRA account.
Now I realize that the current economic climate IS certainly making it much harder on a lot of Americans … but the idea that half of us have it so bad we can’t put anything into our retirement accounts just doesn’t ring true based on my own interactions and observations.
Instead, what I think a lot of our country’s retirement have-nots are really saying is that, when it comes down to limited amounts of income, they’d much rather have new outfits, expensive cars, or the hottest gadgets instead of having money put away for the future.
This isn’t all that surprising. After all, countless studies have demonstrated that many people struggle when it comes to delayed gratification. And they have also proven that those people who CAN plan for the future typically end up better off throughout life.
Take the infamous “Stanford marshmallow experiment.”
Back in the late 1960s and early 1970s researchers took a group of kids (ages 4-6) and offered them each a single marshmallow to eat. However, they also gave them another option — wait 15 minutes without eating the marshmallow and they could have a second one.
All told, 653 children participated. Some kids ate the marshmallows as soon as the researchers left the room. And even out of the group who tried to wait a little longer, only one third made it long enough to get the second marshmallow.
Even more interestingly, follow-up studies with the same group of children have showed high correlations between the ability to wait for the second marshmallow and overall success in life — based on everything from parental evaluations of general competence and well being to other measures into adulthood. Heck, the kids who were able to wait the full fifteen minutes scored an average of 215 points higher on their SATs than the children who couldn’t wait 30 seconds!
Of course, even if some people have a higher innate propensity for retirement saving — which is perhaps THE biggest real-world example of delayed gratification — I still believe reasonable adults can at least change their ways a bit, assuming they’re given reasons to do so.
So if you know someone who just wants to eat all the darn marshmallows right now, here are a couple things you can tell them …
Fact #1: Social Security is not going to bail you out.
A few weeks ago, I went into great detail on the current state of our nation’s Social Security program. Yet astoundingly enough, plenty of people I talk to still seem to think that they’ll be doing just fine by retiring on Uncle Sam’s dime.
What they fail to realize is that — even if Washington finally gets around to shoring up the Social Security program’s finances — those monthly checks won’t come close to covering even a modest lifestyle in retirement.
In fact, the average monthly benefit that’s going out to a retired worker right now is $1,231.73. That’s just $14,780 a year!
Fact #2: You’ll probably need an extra quarter of a million just to cover your medical expenses!
In the same article mentioned above, I also explained why Medicare is in even worse shape than Social Security right now.
But again, even if you assume that Medicare is okay for the long haul, the typical 65-year-old couple that retires this year will spend at least $240,000 in out-of-pocket medical expenses. That number comes from a Fidelity Investments study and doesn’t include long-term care costs, non-prescription drugs, or even most dental work. And it also assumes an average life expectancy of 82 for the husband and 85 for the wife.
Which brings me to …
Fact #3: If you like eating marshmallows that much now, you are REALLY going to hate the last 20, 30 or 40 years of your life!
Two last ironic twists of retirement fate to consider:
FIRST, the people who love living large right now will actually be the same people who want to spend the most money in retirement!
By learning to save a bit more in the present, they can simultaneously reduce their needs, desires and expectations in the future. And these changes can be pretty simple to implement. For example, just go take a nature walk instead of spending an hour trolling the mall!
SECOND, the longer they live the worse their lack of planning becomes!
This is both because of the basic math involved (i.e. more years = more money needed) and also because of the compounding nature of inflation, which will further erode what little buying power they have as time elapses.
Look, I can’t tell you how many people tell me they’re simply enjoying their lives now because there are no guarantees that they’ll live all that long, because they never had a chance when they were younger, or some other similar rationale.
And just to be clear — I am all for enjoying every day of your life, having some regular indulgences, even splurging from time to time.
However, “dying” is not an adequate retirement plan unless you are truly ready to pull the trigger when the money runs out.
That’s why I say a little balance goes a long way.
So go ahead and have a marshmallow or two from time to time. But also make sure you’re saving at least as many for later in life … because 20 or 30 years is a heck of a lot longer than 15 minutes.
Best wishes,
Nilus
P.S. Saving for retirement is just the first step, obviously. Investing wisely is the second step. And for more of my thoughts on that, just click here.
{ 9 comments }
Nilus,
Nilus,
Your comment about almost half the population not saving for retirement, and the subsequent remark “…but the idea that half of us have it so bad we can’t put anything into our retirement accounts just doesn’t ring true based on my own interactions and observations.”
I want to take some issue with that statement. I come from what I think would be described as an average family. I was the third person across all my relatives to go to college and get a degree. My sister followed me, bringing the total to four college degrees across a family of about sixty people. My cousins are all non degreed blue collar workers.
It’s easy for me to look at one of them and criticize their buying decisions. I can afford to buy my kids a fast food burger or pay for them to participate in a club sport. The rest of my clan is not so fortunate. They on average gross in the 40k to 50k range. A few still live in the homes they bought, although three have lost their homes to foreclosure. The net off of 50k doesn’t leave much left for food, transportation to work (most of them don’t own cars – they bus), and rent/mortgage. I could give a lot more details, but I’m sure you get the point. At these income levels debt is almost inevitable, unless you had the foresight from your teen years to live as a minimalist; and no one is educated that way.
In some ways worse, I have neighbors who lost their jobs back in 2000-2001, and while they’ve worked since, it’s never been at the same income level. Houses are about 3,000 sq ft where I live – nice size homes, that didn’t appreciate astronomically, but also didn’t crash in the down market. However, I name at least two families who after job losses, and at a time when kids were going into college, AND parents were moving back home (my dad and mother in law live me, along with my wife and three kids), found themselves borrowing against equity to pay bills. I could say they were foolish to send their kids to college, but I’d certainly do the same thing.
Bottom line is it’s bad. And there are many people struggling to make ends meet. I’m not surprise at all about the retirement numbers. Those same cousins I’ve mentioned largely have zero put away for retirement. As an HR professional, I’ve seen this problem even in the good years with lower income people. They’re on fixed budgets and every dime is accounted for. As that pool of people increases, and it is, the problem gets worse as “middle class” people are suddenly rocketed into another group and may not realize it until so far under water they also become trapped.
Those unemployment numbers we see have people connected to them. I think it can get very abstract for those who aren’t living it, but it’s a cancer that’s killing the country. I do agree entitlements can’t go on as they are. I do have some strong opinions on SS, which I don’t think should be touched, but in the interest on keeping to my main point, I spare everyone those opinions.
Wonderful comments; substantive and well expressed too! I know so many people, hard working and well-meaning who are in this situation, including mose of my own family and most of the other people I know. This, in itself, detracts from any attempt to enjoy my own success as, I think, it should. Although I was always one who could defer gratification myself, and have profited by it, I also learned an inability to BE gratified, even when it is earned; and in deferring, there are many things that I have never experienced or learned how to do. At 75 yoa, it is too late now.
“”” I do agree entitlements can’t go on as they are. “””
I can relate to your post in two ways. I have a friend who was laid off from a programming job 3 years ago. He works as a cashier at a grocery store. He’s not counted as “unemployed” even though his income went from $80k to $15k.
He said the most depressing thing about his new job is seeing how people spend their EBT (food stamps). They buy a $40 birthday cake. Or, 4 cases of bottled water. Or, tons of candy, potato chips, frozen dinners (and a bottle of liquor on a separate order).
He works in a middle to upper-middle class area. He said these food stamp transactions aren’t the exception. He gets quite a few every day. He can almost predict by the quantity and quality of food he scans whether the customer will swipe an EBT card.
What disappoints me is how politics has become so polarized. A topic like this will turn into whether we should or shouldn’t have welfare. It won’t be a matter of reforming the system so that recipients can only buy “approved” foods (like WIC does, which is an infant nutrition program that allows mothers to buy only certain milk, bread, eggs, beans. Just the basics. Fancy breads, cage-free eggs, flavored milk? Forget it.). We could probably cut food stamp costs by 70%.
This was one of your better articles.
I always look forward to Tuesday as your articles all exhibit great common sense and are not completely full of doom & gloom. That said, I wonder what is going to happen to this country when people who should have been saving for retirement can no longer work and Social Security & Medicare will not cover the bills. No one is going to want to see people dying in the streets, so those of us who have done the right thing to save for our own retirement will continue to foot the bill for those who don’t.
And off course if we listen to you colleagues at Money & Markets and their “shocking” forecasts for 2012 and beyond, the world is going down the toilet anyway. Even big banks (JPMorgan) trying to hedge against disaster are losing. I think there are a lot of people out there who have lost hope and are simply partying like it’s 1999.
I have had an above average income and an average income and below average income over the years. Right now, 5 years before reitrement, I have an average income (40k-50k), I have a Roth IRA (opened in 2010), a small pension at work, and $27,000 in savings. Although I have some savings to work with, I can tell you that the last thing I can afford to do is tie money up in a government-regulated account when the economy and my job are in such a vulnerable state. I am saving and my wife and I live very close to the ground, but the savings will go into accounts that I have immediate and tax-free access to w/o worrying about the next pension/IRA bill to be introduced into Congress. I just don’t have enough leeway to risk any surprises. Congress needs to take care of the budget deficits, tax policy and the economy before I can be sure what I am dealing with.
First off, I appreciate ALL the comments that have been coming in both here and through my editor’s mailbag. I’m going to do my best to further explore these issues in next week’s column since there are definitely valid arguments to be made on both sides of the issue. For now, I would like to point out that I did specifically note that the current economic climate IS making it difficult on a lot of Americans. Still, I stand by my statement that the number of people who truly have no money to save for retirement currently is far less than 50% of the population … especially when you consider all the tax incentives for doing so as well as other “free” sources of retirement funds such as 401(k) matches.
Worst, elitist column you ever wrote.
I couldn’t disagree more; Nilus’ newsletters and his column have nothing of even the slightest “elitism” about them. Among the Weiss editors, some of whom seem “gamblers” and traders who have little to say to most of us, Nilus seems very practical and down to earth. Too, Martin and his history of the, uniquely objective and conflict-free, Weiss Ratings has much to recommend it, despite what sometimes seems excessive criticism of government actions, without recognizing the fact that the government is often just honestly attempting to make the best of a bad global and economic situation. Nilus is probably just trying to encourage what should be encouraged, despite the fact that so many are now beyond encouragement. Too, there has been a great loss of faith in the honesty and transparency of both the financial markets and the corporations that are traded in those markets. When, and if, “re-regulation” is eventually successful in making the markets much less volitile and more boring, and when the “traders” have had to go elsewhere (perhaps to Monte Carlo), perhaps we will all again consider “investing”.