Is saving for retirement hopeless or easy?

My last post probably made you think this blog is turning into a financial blog. 

It’s not.

But in order to look at the concept of retirement as most Americans understand it, we must see some things.

1. Most people want to stop working completely when they turn 65 yrs. old (or 67 if you take the government’s suggestion).  We think this because that’s what everyone tells us is normal.

2. Most people don’t really know what they want to do when they retire.  They have vague dreams of travel, leisure, family time, and hobbies, but no real concrete plans.

3. Financial experts warn us to save money for retirement, but it’s hard to know how much.

We’ve discussed #2 a bit, and #1 is where I want to go, but in order to do that, we need to look at #3.

Confusing I know…

I got onto several popular websites today to calculate how much I’ll need for retirement.  I was asked to enter my age, income, and expectations for how much I’ll spend in retirement, and how well I thought my investments would do over the next 40 years.  Obviously, there’s a lot of guessing in this game. 

I looked at AARP, CNN Money, and Yahoo Finance.  Each one gave different answers, but they all agreed that if I wasn’t planning on Social Security helping me when I retire, I needed to save somewhere between $1.1 million and $1.35 million to maintain my current lifestyle after retirement.  That’s a ton of money, but this is not counting the help from Social Security, if it exists when I retire.

That’s a big IF.  I don’t think that America’s finances will allow a retirement program by the time I retire unless we make some major changes now that no one seems willing to do.  If America continues to be in a bad financial situation, and it can’t offer any retirement help to me, then my retirement plans will look very different than if it can offer me help.  The example below explains what I mean:

 

If Social Security exists, and I want to maintain my lifestyle after retirement…

AARP says I need to save 1.5% of my income every year, about $450 per year.

Yahoo Finance says I need to save 1% per year, about $300 per year.

 

If Social Security doesn’t exist and I want to maintain my lifestyle after retirement…

AARP says I need to save 20.5% per year, about $6150 per year.

Yahoo Finance says I need to save 10.5% per year, about $3,150 per year.

CNN Money says I need to save 12% per year, about $3,750 per year.

 

I hope you see the huge difference.  With Social Security, I have plenty of years to save so it will be pretty easy, as long as I’m consistent.  Without Social Security, I’ll need to save $3000 – $6000 every year.  I earn about $30,000 per year, so those numbers look impossible.  If I counted every penny and never gave any money away to anyone…

I still couldn’t do it.

I’m left in a sticky situation.  My only hope for a decent retirement is a government program I don’t think will exist when I need it.  And it won’t exist, not because someone decided to change a law, but because we literally won’t be able to afford it. 

I know all the experts say that if Social Security isn’t here, then something else will take its place.  I certainly hope it does, but I’m not holding my breath.

So now that I’ve wrecked your day and mine, we’ll re-evaluate some assumptions and see if we can’t see another way.

Social Security – What is it really?

I’ve read many opinions about Social Security.  Everyone agrees it’s a flawed system about to collapse.  Let me first explain very briefly what it is, and why so many are concerned.

What is it?  Social Security was created in 1935, and it’s job is to protect elderly and disabled people from poverty. 

How does it work?  Part of the paycheck of every worker in the US is taken from them before they even see it.  This money is given to retired people to help them pay their bills.  The young healthy workers’ money is given to the older population.  This system works great when there are many many young workers, and not so many retired people getting benefits.

Why is it messed up?  Any ten year old will realize that the system will break down when there are more retired people than young workers.  The “Baby Boomer” generation is huge, and as those people retire, more and more people are getting money out of the system, and fewer and fewer people are putting money into the system.

When will it crash?  Experts say that by 2036, the savings will be gone, and all retirees will not get as much money every month.

Will they do something about it?  In politics, it’s always hard to change a huge system until it really crashes.  Although people are complaining already that something needs to be done, it’s likely that the nation won’t really focus on a change until the cliff is right in front of us.

What will they do about it?  That’s the million dollar question.  Some want to “tweak” the current system to make it more sustainable.  Others want to throw the entire thing out the window and do something completely different to help people. 

What is the bottom line?  If you are going to retire in a few years, count on Social Security.  Go to the AARP website to calculate how much you’ll receive.  However, if you are planning for retirement many years from now like me (full benefits from the program wouldn’t apply to me for 40 years), then don’t count on Social Security to be there for you.  Hopefully something will take it’s place, but there is no guarantee.  If you want money saved for retirement, don’t count on the government to do it for you.

Retirement – what will I do?

I’ve discussed the need to clarify my dreams for retirement.  I’ve said that there are some retirement dreams that I cannot fulfill with any amount of money, and so I’d best not try.  There are other dreams I have for retirement that I can experience now, and if I can do that, I should.  After all, I might not even live until I retire, or I might be in such bad health when I do that I can’t pursue my dreams.

So what dreams do I have for retirement? 

1. Are they something completely new that I can’t do at all now? 

2. Or will I be more completely devoting myself to a dream I’m living now, since I will no longer have the restriction of trading my time for money?

For the first, Rachel and I would love to spend some months living on a house boat while cruising the Intercoastal Waterway that runs along the Atlantic coast from Texas to New Jersey.

For the second, I can mentor young men now, teaching them about bushcraft, firemaking, fixing things, weaponry, and being a man.  But without the need for full time employment, I could devote more time and attention to this dream.

In the next retirement post, I’ll talk about the safety net called Social Security, and whether I think it will fall apart before I retire.  And if it does, what in the world will we all do?