Over this weekend I’ve heard two different stories about After Fiftiers who are significantly downsizing their lives and selling their homes in this down market. Why? Both are looking to generate extra income. One needs to support the care of an aging loved one; the other needs to support her own unplanned, unexpected, early retirement.
So, it’s not surprising that a recent article in the New York Times by Teresa Ghilarducci – who works on retirement policy – caught my attention. Teresa doesn’t mince her words.
“Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts.”
“The specter of downward mobility in retirement is a looming reality for both middle- and higher-income workers.”
“Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day.”
“To maintain living standards into old age we need roughly 20 times our annual income in financial wealth.”
These statements can be overwhelming. They impact every After Fiftier. And we can’t address the issue if we bury our heads in the sand and hope the problem goes away. It’s not going to. You can count on it.
How did we get ourselves in this fix of being so unprepared for our retirements? There’s plenty of blame to go around. We can start by looking in a mirror. How many among us have saved the necessary, magical amount in our retirement accounts AND have not drawn against it when we lost our jobs, or faced a health crisis, or sent our kids to college, or (well, fill in the blanks). And then, even if we were saving the necessary amount (7% of annual income if starting at age 25; 30% if starting at age 55), did we invest it appropriately. Did we earn at least 3% above inflation – every year as we saved? No?
The crux of Ms. Ghilarducci’s article is that the “do-it-yourself” retirement system is doomed to failure. She asks, “What results would you expect if you were asked to pull your own teeth or do your own electrical wiring?” Why did we ever think that we’d be able to successful manage the investment of our retirement savings (if we got around to saving in the first place). Bottom line, the 401(k)/IRA, do-it-yourself pension system has failed. And we After Fiftiers allowed it to fail by supporting the 401(k), “let-me-do-my-own-thing” mentality.
So here we are: some of us approaching retirement age, others of us thrust in the middle of it, and few of us really ready for it. I don’t have a solution but we desperately need to figure it out for the 75% of After Fiftiers who are completely unprepared financially to step into retirement. And if we can’t or won’t do it for ourselves, let’s do it for our children. Do you really want your child to have to sell his house or jeopardize his retirement to take care of your expenses? Really?