As my thinning gray hair reminds me, and the little zings I get in the morning alert me, getting old is not for sissies. But as someone once said, and I have repeated hundreds of times, it sure beats the alternative. You do have to be tough to get old because you are constantly reminded, either when looking in the mirror, or getting buck naked to take a shower, that our bodies aren’t what they once were.

In addition to the physical reality of growing old, is the emotional desire to slow down and enjoy life a little more. Replace the work a day routine with one where we can take advantage of the remaining time God has given us on this Earth and do what is fun, inspirational and relaxing.

For many, a worry free retirement is something only the rich will be able to have. Only the rich will truly be able to “retire”. For many, retirement will mean collecting a social security check that averages about $1,341 per month and living a month to month existence with little hope of being able to do much more than exist.

Anyone born after 1958 will have to wait until they are almost 67 years old to collect their full social security benefit. Take benefits sooner, starting at age 62, and you will permanently lower the amount you receive to approximately 75% of the full benefit amount. Financial advisers will always advise you to hold out until you get to full retirement because of health care costs. You are not eligible for Medicare until you reach age 65. Retire before age 65 and health care costs are prohibitive for most.

Government employees, most union employees and a very small number of private sector employees actually pay very little in health care costs in the gap years up to full retirement age when Medicare kicks in. To those who were fortunate enough to work in government service, a union, or for a large corporation, a pension plan serves to provide a steady monthly income supplementing social security. Also known as a “Defined Benefit Plan”, an employee’s years of service converts to higher monthly income in retirement; the longer you stay with an employer the more you can expect to be paid in retirement. There is relatively no risk of losing your investment because your retirement income is “defined’ by the employer as a benefit of your years of employment. The employer controls the amount being contributed to the overall plan and how the funds will be disbursed.

For those not eligible to receive a pension, the other option is a “Defined Contribution Plan,” or most common, 401k plan. With this plan, the employee contributes, and in most cases, the employer does also, based on a predetermined formula. As an incentive to encourage employees to fund their own retirement account, most employers will contribute a percentage of an employee’s earnings up to a certain level, usually 3%. And, as a further inducement to save, the funds deposited into the account reduce the employees taxable income. The employee is responsible for how much of their income to squirrel away for retirement and where these retirement monies will be invested.
So with all this being said, what exactly will retirement look like for many of us? How will we support ourselves in our golden years when many of us have little if anything saved for retirement?

According to the Employee Benefit Research Institute, 24% of all workers have less than $1,000 saved for retirement. Even more distressing, 42% of all workers who participate in employer sponsored 401k plans have less than $50,000 saved for retirement, with 22% of them having less than $10,000. Interesting to note is that nearly the same percentage, 45%, have saved at least $100,000, which may seem like a lot, but when you rifle down on the numbers, it becomes obvious that major shortages exist between what is saved for a comfortable retirement and what is necessary for a comfortable retirement.

Based on these figures and the average household income of $51,939, as of 2013, it will take several lifetimes to accumulate the $1 million that many financial advisors recommend in order to enjoy a comfortable retirement. Unless you are able to get returns on your investments of 20% or more, most people will fall far short of this amount.

39% of employees are saving at least 15% of salary toward retirement, or approximately $9,000 per year. Add an employer match of 3%, and the total being saved for those at the highest contribution percentage is about $10,000 per year. If you do this for an entire working career of 45 to 50 years, you could easily accumulate a $1million dollar nest egg.

But for most of us, saving for retirement isn’t something that we started until well into our working years. Other priorities got in the way, like marriage, children, a mortgage payment. Needless to say, that unless you are getting a return in excess of 20% per year, the average worker is going to come up very short of the $1 million mark.

So how is it that 60% of workers feel very confident or somewhat confident that they will enjoy a comfortable retirement?
I sense that many baby boomers have a false sense of security. They think that because they are saving for retirement they are doing the right thing. All will be fine as long as I am putting “something” toward retirement, they think until they get in their late 50’s and look seriously at their retirement account balance and come to the realization that they will outlive their money.

Other workers receive the benefits of a pension as well as having the financial awareness to also put additional monies aside and not rely on just their pension and social security.

Paying attention to your retirement goal needs to begin with a realistic evaluation of exactly what one will need to fund a 20 year retirement. With the average lifespan of a male being 85 years and woman 87 years, estimating your monthly expenses necessary to achieve your retirement spending goals is absolutely the most critical component of a retirement plan, and probably the hardest.

A common rule of thumb is that you need approximately 75% of your pre-retirement income to support a comfortable retirement, although, this number fluctuates with the financial needs of the individual. Some will want to live more extravagantly than others, and some will be able to get by with a lot less. 52% of workers, over half, estimate that they will retire at age 66 or possibly never retire. 79% of workers believe they will need to work in some capacity in retirement.

Everyone knows someone of retirement age who is still working; some full time, some part time. The days of retirement where one gets to say goodbye to the workaday world and travel and play golf in their “golden” years without worry or care are becoming less and less of a reality for many. Even those with pensions quickly discover this.

So what is a person to do if retirement, real retirement, is a financial goal? If having a million bucks at age 66 is not realistic, how can a person “plan” for retirement? Do you just resign yourself to the fact that you are going to work till you die? Do you just stop putting money away and decide to spend it while you’ve got it?

Retirement is something that needs to be considered as soon as you start working. Perhaps the younger generation actually is paying attention. A recent survey of those with 401k plans at their places of work shows that workers age 60 have an average of $172,000 in their retirement plans while those age 35 have approximately $45,000. A rather wide gap until you consider that 35 year olds have another 30 plus years for their funds to accumulate, and they will continue to add to these balances annually.

If you only consider the compounding at an average rate of 7% return in a stock based mutual fund this $45,000 will grow to over $400,000 . Continue saving 35 year old, and a million bucks will be the lower end of what your retirement savings could possibly be.
Next month we will explore options and strategies to consider for a comfortable retirement.