There are all sorts of online calculators for figuring out how much money you will need in retirement and live the same quality life as you do today.
Considering that 67% of all American workers believe they are way behind schedule in the retirement savings department, according to the Employee Benefit Research Institute, I suggest that you not waste your time plugging in a bunch of random numbers.
How much will you need to retire? Way more than you think. How much to retain your same lifestyle? Probably a lot more than you will have.
In fact, website Statistic Brain reports that more people who start working at age 25 will be dead at age 65 than will have adequate capital stowed away for retirement. To be exact, 29 out of 100 will be goners—may they R.I.P—and just 4 of 100 living fairly comfortably.
The median household income in the U.S. is about $80,000. If you retire at age 65 and live another 20 years, you will need $1 million. If you live 30 years, about $1.3 should do. With life expectancy at age 78.7 and inching higher, never being able to retire or outliving your money are very harsh realities.
Here are a few more reasons you may never be able hang up your working shoes:
Spending Too Much Too Late
Today the average age of first marriage in the U.S. is 27 for women and 29 for men, compared to 20 and 22 in 1960. This means, for the most part, that couples are much older when they start families, and buy homes and mini-vans and everything else associated with having children. So late, in fact, that a poll conducted by CESI Debt Solutions found that 56% of American retirees still had outstanding debts when they retired.
We reach our peak spending age at 46, just about the same time we should be saving as much as possible. And, if you find yourself in the position where you can either pay for your child’s college tuition or fund your retirement, but not both, now is the time to be selfish. You can’t take out retirement loans, but student loans are viable options.
Borrowing From Your 401k
Let’s say you aren’t in the majority. You are saving and spending wisely, having tucked away a tidy sum in your 401k with quite a few years left until retirement. You’re quite enamored with the balance, and decide it wouldn’t hurt to borrow against it to buy a few items, or take that dream vacation, or put a down payment on a home.
This move couldn’t be more wrong. Granted, when you borrow from a 401k, you pay yourself back with interest over a set period of time, but it’s with after-tax dollars. Plus, many companies won’t allow you to contribute to the plan until the loan is paid off; and you lose out on possible compounded growth on your investments.
Of course, this move is much better than simply withdrawing 401k money before age 59.5. Do that and you can expect a big, fat income tax bill from the IRS the following year.
Taking On Too Much Risk
It’s one thing to be young, in your prime earning years, and wanting to dabble in the stock market. So you invest in a stock a co-worker may have told you about that tripled in price, and is expected to go even higher. No harm, no foul as long as you can afford to lose that amount you invest. And, if the stock does triple in price again, your office pal is a hero.
However, if you are 15-20 years from retirement, risk is something you need to seriously consider. All too often we have our eye on the prize (what we can gain) instead of the risk (what we can lose), and that’s when costly mistakes can happen.
When investors experience losses in their portfolios—think the financial crisis in 2008-2009 and technology bubble in 2000—they often panic and look for ways to make up for lost principal and time. They invest in stocks with tremendous growth potential, and ignore the tremendous risk that goes along. That’s a perfect strategy if you want to work the rest of your life!
Relying on Social Security
Another way to ensure that you’ll never retire is by thinking Social Security benefits will cover your living expenses. It’s hard to believe it, but one-third of seniors today rely on Social Security for 90% or more of their income, according to the National Academy of Social Insurance. Considering the deteriorating state of the system, we can’t even rely on its survival, let alone a crutch in retirement.
Approximately 63 million Americans collect Social Security benefits today. By 2035, that number could soar to 91 million. With a potential $124 trillion shortfall over the next 75 years, we may very well live to see the system’s demise. Add to that another $222 trillion in unfunded pension and healthcare obligations for government retirees, and you’re better off not expecting a dime from Uncle Sam.
Those are four sure-fire ways to ensure that retirement is out of the question. The sure-fire ways to ensure you will retire are by saving consistently, investing wisely, spending moderately and taking financial matters into your own hands.
Written by Karen Ricci