Stop Freaking Out About Retirement...

This does not come from some rose colored glasses, “The future is copacetic” kind of article. It comes from ConsumerReports, a pretty sober and practical publication. We have all read the stories that Americans are not saving enough and it’s probably true. It is estimated that 14% of Americans over 65 have no retirement savings at all and 33% of those between 30 and 49 also have nothing salted away. We need to do better.

But at the same time, says ConsumerReports in their October 2014 issue, Americans who are already in retirement say things are not bad. Seventy-one percent told ConsumerReports that they are highly satisfied with their retirement. In addition, the Social Security Administration’s model shows that current and future retirees as a whole have relatively small savings shortfalls. 

This doesn’t mean we can go blithely forward with no concerns. As Andy Grove, the former chairman of Intel likes to say, “Only the Paranoid Survive.” Retirement will work but only if we do the heavy lifting. Here are some suggestions from ConsumerReports.

1. “Take care of what is difficult while it is still easy.” Start saving as early as possible. The chart at the bottom shows the result. Saving early and letting compound interest do its thing is the miracle of finance.

2.  Do the math. Know your individual situation and be prepared to replace 80% to 90% of your pre-retirement pay. And remember, spending in the early years of retirement will often be more expensive as you get to your travel/hobby wish list.

3.  Work as long as you can. The best retirement plan is keeping some or all of your day job in order to hold off spending retirement assets. I realize this is not always possible for everyone (see chart below).

4.  Don’t take Social Security too early. Your Social Security benefit increases 8% per year between 62 and 70. The longer you wait the more you get.

5.  Be educated. The best book we know of on investing is Burton Malkiel, “A Random Walk Down Wall Street” (paperback, WW Norton). ConsumerReports also recommends “The Little Book of Common Sense Investing” by John Bogle (John Wiley). Get them. Read them.

6.  Don’t avoid risk. In retirement the real risk is living to 105. You need to have a decent amount (at least 50% we think) in things like stocks which will keep up with inflation in retirement.

7.  Enjoy life.