How do I process bleak retirement news?
October 24, 2019 1:58 PM   Subscribe

A friend posted an article that hit me hard. I'm on the cusp of GenX and Millennial and cannot save 40% for retirement. Talk me off the ledge.

I'm the breadwinner. I already have a side gig. I save a measly 3% of my check. I'm working on increasing salary so there's more to work with and hence more that can be saved. I try to be frugal without a level of deprivation that is bad for my mental health. Trust that my family is optimizing our earning power in every logical way.

I'm not as financially literate as I could be. Is this article valid? What the actual F is an entire generation supposed to do? I'm not literally at the ledge but it seems there is so much working against those of us trying to be "normal middle class" and my family will never get ahead and I'll never enjoy my golden years etc etc. I'll be a burden to my children or working myself to death.

How does one not catastrophize when there's articles like this coming out every week? What's that one cheap trick to make retirement at an early enough age to enjoy it plausible?
posted by crunchy potato to Work & Money (26 answers total) 13 users marked this as a favorite
Is this article valid?

It is a hypothetical of a hypothetical of a hypothetical. It could be correct, but imagine if is: you would have the overwhelming majority of a generation of people not having enough money to survive. That could happen and poverty does happen to many older people today. Lots of people end up depending on their children (and hoping they are not a burden), for many reasons. But does it seem more likely that the country would change in some structural way to help fix such a situation? Does it seem more likely that the US would let Social Security pay out and end or that we would pass laws to try and fix or replace it? Does it seem likely a generation of people would remain complacent about getting a negative return on retirement investments?

What can you do? Save as much as you can (you’re doing it). Look for good retirement investments that will provide you with a good return (you’re doing it). Treat your family well so taking care of you will never be a burden (I bet you’re doing it). Hope that you and your family live to a nice old age to deal with this problem (I bet you’re doing it). What about, get involved to push for a better safety net for the future, like supporting local, state, and federal political candidates who want to shore up and protect Social Security and assistance for the elderly? Volunteering for food banks and meals on wheels to keep these organizations thriving in your community?
posted by sallybrown at 2:12 PM on October 24, 2019 [12 favorites]

Articles like this come out every week because they sell content. It's not "news," it's content, and it's a product. Selling it makes people money because that's how capitalism works.

You can choose not to buy that product by choosing not to read it or give it clicks. Because it's not news, you're not missing anything. Make good choices for your family, visit a financial advisor if you think it will help you, and do your best.
posted by juniperesque at 2:13 PM on October 24, 2019 [32 favorites]

I have seen a lot of people saying that article is bunk, but I'm not qualified to comment myself.

In any case, I make myself feel better about retirement like this: if my saving 15%ish of my income isn't good enough due to slow growth/ economic collapse/ rising healthcare costs or whatever, I'm gonna be in it with everyone else. Who's saving 40% for retirement? If that's what it takes the idea of retirement as we think of it is no longer feasible. We'll either figure something else out as a society or at least we'll be in good company in our shacks. Maybe a little bleak, but it makes me feel better.
posted by geegollygosh at 2:17 PM on October 24, 2019 [29 favorites]

First of all, you're letting outside "news" -- and I use that term loosely -- affect your mood way too much. There are dozens of stories like this every month. They're just trying to strike fear into people's hearts. And look! It worked with at least one person!

Let's be clear: The overall economy does affect your personal economy. But it doesn't have to control your destiny. The analogy I often use is this: Imagine that you are a boat on a river. You are subject to the current and the tide and the depth and the various landforms, etc., but that doesn't mean you can't steer your own course. In fact, boats are boats because the can go where they want on the water.

Well, the same is true for your personal economy in the midst of a national economy. Yes, if the economy gets stormy, that's going to make it tough for individual economies (individual boats). But if the boats are built well, if they're piloted well, then they can navigate in the direction they want to go.

As for practical advice...
  • If you feel scared, do what you can to educate yourself. Forget "financial literacy" (because it mostly doesn't work) and instead focus on "behavioral finance", or the psychology behind money. I recommend books like Your Money or Your Life and/or The Simple Path to Wealth.
  • There are only two things you can do to improve your cash flow: Earn more and spend less. Spending less is quicker and easier. From my experience -- and trust me, I have a lot of experience -- people can and do earn more, but it takes time and planning to make that happen. But in 13+ years of working with other people, I have never (never ever) met with somebody who didn't have stuff they could cut from their budget. They say they can't cut anything, but there's always something to cut. People will go to great lengths rationalize why they must have Netflix or cable, why the couldn't possibly take public transportation, why they have to live in a big house. But these are just rationalizations.
  • Despite what @geegollygosh says, there are plenty of people who save 40% for retirement. I'm 50 now, but when I was in my twenties, I knew three separate couples that saved one partner's entire income, living off only one salary. My ex-wife has always saved a minimum of 30% of her income -- even as a school teacher. It's very possible to do this, but you have to be willing to make choices that most people aren't willing to make.
There's no "one cheap trick", as you request at the end of your post. It's a matter of developing habits and systems that support positive cash flow, then using this cash flow to pay off debt and save. But you have to decide that your future is as important (or moreso) than your today. Until you do that, you're going to maintain that 3% saving rate.

I'm sorry if I sound dismissive. I don't mean to be. But I've been reading and writing about personal finance for a long time now. One thing I've learned is that it pays to ignore the financial news. The financial news is mostly bullshit meant to scare folks. And it works. It has almost zero to do with your actual personal finances. In every economic environment, while people are crying that the sky is falling, there are other people quietly making choices that lead them to financial freedom.
posted by jdroth at 2:31 PM on October 24, 2019 [18 favorites]

This is very strange: The economist cited (Olivia Mitchell) is one of the nation's leading retirement experts. But I have no idea what assumptions she is using to come to that conclusion, and those numbers are completely inconsistent with the numbers I'm familiar with (e.g., the 10-15 percent cited here, and they are pretty aggressive in assumptions about how much you need in retirement).

In general, the concept of a "retirement crisis" is hugely overblown: Older people are generally better off than younger people, whether you measure it by poverty rate or by asking them.

Hopefully this will reassure you: "...retirement saving isn’t about making yourself rich in retirement. In reality, retirement saving is about being able to maintain your pre-retirement standard of living once you stop working. And most Americans, including low earning workers, seem able to do that. ...nearly every U.S. worker actually does have a retirement plan: it’s called Social Security. ...Social Security’s progressive benefits mean that low earners get a more generous payback than high earners. ... the median low-income retiree has a retirement income equal to 103% of earnings just prior to retirement. ...low earning workers seem well prepared to maintain their pre-retirement standard of living. ...That doesn’t mean there aren’t poor retirees. There are. But the poverty rate is lower among retirees than it is among working-age adults."
posted by Mr.Know-it-some at 2:31 PM on October 24, 2019 [1 favorite]

Have you actually sat down with a financial planner & worked out what you will need to retire? Then worked with them to create a plan to achieve it? Or are you just going off of articles from publications that need click bait articles to get views?

Not trying to be snarky but sweeping generalizations in articles are only going to feed your fear. If you're don't feel confident about your skill with numbers then this is the perfect job for a financial planner (make sure they are the sort you pay not the sort that make money from selling you "products").

Then sit down with them & work it all out. On the off chance the article is vaguely right & there is bad news, they will be able to suggest compromises & options you may not have thought of & that certainly won't be in a page long article written to get page views not to share information. Right now you're just kind of scared of something that might or might not happen to you. Investing some money in seeing a professional planner will help you take control of the situation & help you figure out what will be viable in retirement & how to do what is best to achieve your retirement goals. Then every few years, check in with them to see if you need to change anything & are on track. You got this. Take a deep breath.
posted by wwax at 2:34 PM on October 24, 2019 [1 favorite]

Your ability to retire depends on how much you can invest, how long you can invest it for and the rate of return you can get (plus your government cheque). Invest as much as you can as early as you can and choose appropriate investments. It is possible that you may need to work longer or live off less in your retirement.

My favourite rule of thumb is half your age as a %age of your salary when you begin investing for retirement (start age 22, inveset 11%). Then I favour low cost investments with something like a target retirement date fund. And then not worrying about it. If you can't save as much as you ought to by the rules of thumb and are more than 10 years away from retirement you've probably still got a good chance of getting some benefit from investing anyway.
posted by plonkee at 2:37 PM on October 24, 2019

The current generation of retirees has set, I think, an unrealistic standard for past and future generations. (White) Baby Boomers, as a generation, have enjoyed an unprecedented amount of wealth and stability, and they've set the tone for how we talk about retirement in the US: that it should include a paid-off home (and possibly a vacation home), lots of travel, matching dining room sets and fine china, etc., and a general sense of security.

A lot of that is desirable, but a lot of it really isn't--I think about my personal preferences for housing (a modest ranch-style house), flooring (not wall-to-wall carpet), yard maintenance (not maintaining a lawn), dishes (not fine china), furnishing (mostly thrifted) and vacations (low-key road trips, not in an RV), and I feel like I can maintain that standard of living without saving fully 40% of each paycheck. Could I afford to take five grandchildren on a Disney cruise? Probably not! But will that even be on the table? Also probably not.

And, as always, anything could happen. A meteor could strike and this would all be for naught. So just try to enjoy your day--don't skip out on lattes if you enjoy lattes!!
posted by witchen at 2:37 PM on October 24, 2019 [11 favorites]

Basic math says if you get spending to zero you can retire tomorrow. If you spend every penny you make you can never retire (ignoring social security for a minute.) Between zero and 100 is a continuum, and this chart lays it out for you. It's not nearly as dire as that article.
posted by COD at 2:39 PM on October 24, 2019 [2 favorites]

Hey, Dr. Mitchell's pivoting to the millennial crowd! Good for her; she always did stress porfolio diversification.

(Seriously, see a fee-only financial advisor.)
posted by Iris Gambol at 2:44 PM on October 24, 2019 [3 favorites]

Speaking as one who is staring down the barrel of my “retirement” years, and having gone through medical things with my mom and FIL, the concept of saving 40% certainly seems prudent. It is, of course, nearly impossible to do unless you have an astronomical income in the first place.

When you look at the situation you will find yourself in...mid 60s, accumulating health issues, and the real possibility of living another 30 years with no real’s effin’ scary as hell. I’ve done what I can, savings-wise, and I still lose sleep over this. My advice is to religiously save what you can, and try not to panic. Too much.
posted by Thorzdad at 2:45 PM on October 24, 2019

I find the content about the imminent apocalypse more believable than that article, and then you’d be off the hook. For example, I’m supposed to be making a newsletter right now, but I’m putting it off because I believe in the Rapture.
posted by dianeF at 2:53 PM on October 24, 2019 [2 favorites]

There's an industry based on retirement funding; they want you to save and invest lots of money, pay lots of fees, and inject cash into the stock and bond markets. I see tons of advice, a lot of it conflicting.

Save what you can. Invest in taking care of your family because that'swhat it's about. Pay off your house if you have one; like many Boomers, my house is a lot of my savings. People lost a ton of home equity and retirement savings in the Big Bad Recession, they have to work longer, live carefully. Many people save almost nothing, many people are in debt. You are probably doing fine. Reduce your debt, be kind of frugal, avoid consumerism, and worry less.
posted by theora55 at 2:57 PM on October 24, 2019 [6 favorites]

After my earlier comment, I realized I should have given you a quick and dirty tool to determine whether or not you need to panic. (As opposed to panicking from a news article.)

Based on standard assumptions regarding investment returns, inflation, etcetera, most Americans can retire once they've saved roughly 25 times their annual spending rate. If you want to be conservative, you should save about 30x your annual spend. If you're willing to take risks, you can go with 20x your annual spending.

This money should be in retirement accounts or regular investment accounts.

So, for instance, if you spend $50,000 per year, then you need around $1.25 million invested to have enough for retirement. ($1.0 million if you're aggressive, $1.5 million if you're conservative.) If you spend more, you need to save more. If you spend less, you need to save less. If you plan to retire at 65, you can probably save less too. But if you want to retire early, you need to boost that saving rate.

I'm not making these numbers up, although I am glossing over how they're determined. They're real, workable numbers that are commonly used in early retirement circles. You should not base your retirement needs on your income because that stuff is just nonsense. Your income is irrelevant to your retirement needs. What matters is the amount you spend.
posted by jdroth at 3:03 PM on October 24, 2019 [24 favorites]

Also, many models assume you need 100% of your salary to live well in retirement. I live on @3/5 of my pre-retirement income. I was a single parent and unable to add anything to my retirement except what an employer contributed. When my kid left the nest, I saved a lot more. I don't need a big house anymore.

My big fear, like most retirees, is health care costs. The only rational solution to that is to stay as healthy as possible and Vote.

Jdroth, would you include home equity in that savings amount?
posted by theora55 at 3:05 PM on October 24, 2019 [3 favorites]

One of the biggest assumptions in this model is that the stock market will return only 3% a year between now and retirement age when the historical rate has been about 10%. You imagine that if you reduce the rate of earnings by 67%, it will take a lot of saving to make up for it. Even if the returns are lower than usual for the next few years, I find it hard to believe that they will stay so far below historical averages over the next 15-20 years that you will be investing..
posted by metahawk at 3:12 PM on October 24, 2019

I save 0% -- the only money in my savings account are from times where I temporarily lived rent-free and saved up my rent after paying off other bills. Technically every dollar I ever make it already owed to someone else. It is exceedingly unlikely I will ever make very much more money than I do now. I am not panicking or worried at all, kind of sounds like I should be though.
posted by GoblinHoney at 3:24 PM on October 24, 2019 [2 favorites]

@Theora55 -- I'm trying to keep all of this simple without getting into common arguments re: dogma. ;) And one of those popular arguments is: Do you include home equity or not? I include home equity when my calculations. Many people do not. I have a higher risk tolerance than many people, so I feel comfortable doing this.

@metahawk -- Historically, the stock market returns 6.8% after inflation. Many modern models are cautious. They assume lower returns because the U.S. stock market of the last century seems to many people -- even the most bullish people -- to be something of an anomaly. We're all hopeful these returns will continue, but we're also trying to temper our expectations.
posted by jdroth at 3:30 PM on October 24, 2019 [2 favorites]

Part of why they say you need to save so much to retire at 65 if you're in that age bracket now is that they are anticipating your health to be such that at age 65, you will have a lot of years ahead of you that the money needs to last you. As far as I'm concerned for my own life, that makes one of two things true: Either I will at age 65 be perfectly capable of continuing doing what I'm doing because my job isn't physical labor, or I will not but I will probably not at that point be expecting to live to be 100. I don't actually anticipate having any problem working until I'm 70, if not longer, if I need to. I am really not bothered by this, except insofar as I'm bothered by the general idea of having to work to live. My dad's health was only poor enough to need to retire at 62 because he'd spent his whole life smoking and wound up with COPD. He didn't live to 70--this is was very sad, but basically, if something similar happens to me, I don't think I'm going to be worried about not having 30+ years worth of savings if I can't work at 65.

Is it optimal? Of course not. But man, being nearly 40 now, I cannot picture being 65 and feeling as old as my grandparents seemed to feel when they were 65. If I can retire by then, great, but I don't see any reason to freak out about that.
posted by Sequence at 3:40 PM on October 24, 2019 [5 favorites]

From the link: "About a third of millennials say they expect to retire between the ages of 65 and 69, according to a recent T. Rowe Price survey. However, 43% of millennials say they actually expect to retire earlier."

Clicking on the link to the survey: Recent T. Rowe Price surveys asked more than 3,000 adults about their opinions on retirement and other financial items. While some differences were revealed, the results also showed similarities both within and across generations. See how your approach to your finances compares with others in your generation.

Survey sorts respondents into categories: "Baby Boomers," "Gen Xers" and "Millennials." Participants were "never retired; currently contributing to a 401(k) plan or eligible to contribute and have a balance of $1,000+." How many millennials, feverishly working three part-time gigs, are offered 401(k) plans?

In a country of roughly 330 million people, fewer than a thousand "Millennial" respondents to this survey said they actually expect to retire earlier than 65. You've noticed "there's articles like this coming out every week;" consider that the industry is in desperate need of new eyeballs for its products -- between death and distrust, its customer base is evaporating. Absolutely, you can increase your financial literacy and contribute to your own peace of mind. Just remember filler pieces like these are mainly useful for noticing an overall trend.
posted by Iris Gambol at 4:07 PM on October 24, 2019 [3 favorites]

How does one not catastrophize when there's articles like this coming out every week?

Oddly, the exact same articles were coming out when I graduated from college 30 years ago, except it was my generation that was completely doomed.

The future is always horrible, the past is always idyllic. Such is the imagination of the human race.
posted by Tell Me No Lies at 4:08 PM on October 24, 2019 [8 favorites]

If anecdotal notes are any comfort:

About 5 years ago I was you. I was 45, underemployed, with 5 figure debt and with no real plan in place, and screwed as all hell when it came to what I was saving for retirement. I had an IRA I occasionally threw money at, and no real idea of how much I needed for it to be.

About one year ago I finally said "okay I think I need to talk to someone who can help me figure out what the hell I need to do," and I found a free program through the city that could help.

Now I am approaching 50, and I will be debt free within about half a year (for the first time since I was 17) and with an actual practical plan in place for how to accumulate enough to retire on; I'll have to be on the later end of my 60s, but I'd already assumed that would be the case anyway.

My point being: a lot can happen to you over the next couple years, and some of it could indeed be GOOD. Your job right now is to keep doing what you can, and talk to people to figure out if there's a way to make "doing what you can" even better. But it is possible.

Good luck.
posted by EmpressCallipygos at 4:39 PM on October 24, 2019 [8 favorites]

First of all, we don't get to retire at 65. The official retirement age is creeping up to 67 and counting anyway. 65 was for boomers, etc. Also we are healthier a bit longer, so that's based on thinking we might live longer.

Next, there's a lot you can think about. Are you presuming you pay for your kids to go to an expensive college? Maybe don't do that, or save more for retirement, less for college (kids can to community college and a public university). Also, you say you are the breadwinner. Are you married with kids? Is your spouse working? If you have an underemployed spouse, that's less for both of you. Are you living in an expensive area and do you have a home with a mortgage? Maybe you can sell it when you get older.

I think a lot of those millennials looking to retire early are anticipating big inheritances from their boomer parents. (I've wondered if broke millennials from privileged families will skip past Gen X with economic gains as boomers start dying and their inheritances go to their kids.) Will you get anything as an inheritance?

In the bigger picture: yeah, I think things are different now than when we grew up. I think it's likely that, if we're not rich, our kids might stay closer to home and live with us longer. That's not necessarily a bad thing, to have a larger family as a more stable economic unit.
posted by bluedaisy at 4:50 PM on October 24, 2019 [1 favorite]

There's a number of assumptions made in this article that will not apply to many people.

First they assume retirement at 65 but that isn't even the "official" social security retirement age for people in their 50s now, let alone for millennials by the time we get to that age.

The assumptions about permanently lower real returns is conservative but also very possible.

They assume that you will retire at 50% of your final salary but don't specify what they've assumed that will be. If they assume high salary growth then you may find that you have plenty of money with less than that (also because you're no longer saving - if you're saving 40% of your income before retiring and then going down to 50% of previous salary at retirement, the implications is that you're barely reducing your costs at all when you retire. Is that realistic?)
posted by atrazine at 6:31 AM on October 25, 2019

To avoid unnecessary anxiety, don't read any of those Mr. Money Mustache links, fer crying out loud. No point in comparing yourself to someone who is way out there in terms of savings. I would bet that fewer than 1 in a 1000 people save that way. The median (middle, not average) 401(k) balance for a 50-year-old is $46K, basically the same as the median income. It's a lot of money to save up all at once, but no need to worry that everyone else is saving huge amounts and you're not.

I won't lie, the demise of the pension has been a real financial problem. Individually held retirement savings accounts are used overwhelmingly by the well-off. And the simple math of compounding means that if (big if) stocks stay at about their historical percentage of 7% after inflation, a dollar saved in your 20s has 8x the impact of a dollar saved in your 50s. But that's the worst of it. Delaying retirement by just a few years or taking a part-time job in retirment can make a dramatic impact on how long your savings lasts. Right now you're paying Social Security taxes and Medicare that you won't be paying on retirement income, and you won't pay as much for commute costs. Medicare and Social Security aren't a panacea but they do help a lot of people have decent lives, even if their savings can't cover all their needs.
posted by wnissen at 11:54 AM on October 25, 2019

The article makes pessimistic assumptions, but is not crazy. The core question is what stock market returns will look like over the next decade. There are reasons to think they might be substantially lower than the long run average. If so, everyone will have a harder time saving for retirement than previous generations who experienced quite high average returns on their invested savings.

But it's ok, there is a very straightforward solution: IF there is slow growth in the stock market THEN work a bit longer before you retire. If growth goes more smoothly, then you may not have to.

However, at 3% savings you should evaluate what the tradeoffs you will face between current consumption/savings vs. the lifestyle you will be able to afford at age 70+. It's entirely reasonable to decide that you may prefer relatively more consumption now vs. then, but it is better to make that choice with open eyes. Take a look at what your social security payments will look like in retirement and remember that every dollar saved now is worth several dollars at retirement age.

Generally speaking the 10-15% savings values are roughly what you would need to be able to spend 75% as much in retirement as you do right now. You can get by with less if you are prefer to have a more severe cut to your budget in retirement.
posted by vegetableagony at 10:25 AM on October 29, 2019

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