Without making this post too long, I don’t know how to go about retirement. I was always told that I would never be able to retire, so not to worry about it.
I did go through a meeting with a Fidelity wealth guy in 2009 or so, and he said that retirement wasn’t really an option for someone of my income level. He suggested taking out large life insurance policies when I hit my 40s and if I was married or had kids.
Fast forward to last December. I was asked what my retirement portfolio was looking like by this HR person that bought out the company I was working for. I said, “what the fuck is that?” My work was forced into providing some sort of retirement package due to a law change, but everyone that had 3% of their wages gleaned from it lost it in our company. I guess the value dropped in the 401k thing faster than people put money into it. I was warned right at the start of that process that we were going to lose everything that was put into it. I was part of the group of people that threatened to walk if we had our wages garnished for this without our consent. Most of the other people that threatened to walk were super religious, and they can’t participate in 401k things due to the gambling aspect of it, only pensions. The only thing I know about 401k type things is that everyone in my family that was hoping that they could retire on one has lost everything they put into it right before it was time to retire. We won against the garnishment after a few months. They did take money out, and for a while those funds gradually got smaller, and now I get a letter that keeps reminding me that my balance is now $0.00. That letter comes from Fidelity as well.
I asked around to the people I work with about the retirement thing. Nobody I work with says that they will be able to retire. My wife and I don’t and can’t have kids, so we take care of the older folks that have already retired in both of our families. They don’t seem like they can retire either, because they keep needing help from us. We don’t have anything saved for retirement, pretty much because there isn’t anything to save, nor has their ever been.
I do pretty well at work, but I have been told all my life that there isn’t a point in worrying about retiring, it wasn’t a thing that my generation would be able to do. I was planning on driving off a bridge or something when I turned 64 so my wife could hit her 60s and be able to retire. The “life insurance retirement” for your spouse. Its pretty common where I grew up.
Is there a point of trying to do anything for retirement at this point? I don’t know a lot about finance. I have great credit because I can pay my bills and hate spending money in general, but thats probably more due to the fact that I was pretty damn poor growing up and spent a decent about of college living in a 1980s Honda and taking showers at a gas station.
I ask here because I know so little about this kind of thing that I wouldn’t know if I was wasting my money trying to worry about it.
What generation is that? I gather from your earlier remarks that you hadn’t yet hit 40 in '09, so I’m guessing maybe you’re generation X? That’s my generation, but I don’t remember ever getting the “you’ll never be able to retire” memo.
In one paragraph you say you do pretty well at work. I assume you mean in terms of salary? But in another paragraph you say you don’t have anything to save for retirement because there has never been anything to save. So are you pouring a ton of money into your extended family, or are you and your wife also living well for yourselves?
If you were less than 40 in '09, then I’m guessing maybe you’re about 50 now? If you really are doing “pretty well” at work, then maybe there is some room to make some adjustments in your lifestyle so that you have money to save? If you can save and invest aggressively for the next twenty years (Dopers will be along shortly with lots of advice on this front), you could have something meaningful with which to supplement your social security benefits - and you’ll want to do that, because SS doesn’t give much.
If all your spare take-home pay goes toward taking care of the older/retired folks in your families, then you may find it difficult to make changes, but you’re going to need to do it. Have you talked to your wife about your driving-off-a-bridge-at-64 plan? Because I’m guessing she wouldn’t like it. When you lay out in writing the choice you’re facing:
stop giving all your spare wealth to your extended family, or
drive off a bridge at age 64, destroying your own family in the process,
most rational people would not choose that second option. Your first loyalty should be to the members of you own household, with your extended family somewhere further down the list. It’s one thing to be generous when you’re able, but what you’re describing is a deliberate act of self-destruction, sacrificing your and your wife’s futures. If a looming financial crisis in your household really is the only thing pushing you in that direction, then you really do need to consult a financial professional so you can avert that crisis before it comes to be. If there are other issues that are complicating this, you may want to seek counseling for your own mental health as well.
Note also that your “life insurance retirement” plan may not work. If your insurer somehow comes across this thread, or if they see anything that suggests you have deliberately killed yourself for the purpose of assuring your wife’s financial security, they may decline to pay out on the policy.
It sounds like you got really bad advice about saving into your 401k, and got screwed over by a profit sharing plan as part of that. That really sucks, but isn’t the norm.
What people do is they budget a good portion (contribution limits in 2024 are $23k/yr, but maybe $7500/year is more realistic) of their income into their 401k (or other employer-provided plan), their employer contributes a smaller portion (usually 3-4.5%, sometimes much higher if the employer is awesome), you invest it into a diversified (repeat: diversified) assortment of curated investment options in that 401k, those assets grow over time, and when they retire, they pull a portion of that amount out and supplement it with Social Security. The generation prior also got a pension, which was really nice.
For extremely hypothetical purposes, someone at age 30 begins putting $7500 in ($5000 of their own, $1500 from their employer) in every year. It grows at 7% per year. By age 67, that balance would be just short of $1.4m. There are radio personalities that insist you can earn 12%/year, which is an insane recommendation (but would put you at $5.4m at retirement). 7% is fairly conservative for a well-diversified portfolio in the market long enough.
Current general consensus is that you can withdraw 3.5% of that balance per year and not jeopardize your income late in life - so that would be an annual income of $48,468, plus Social Security. That does NOT factor in inflation.
Also, I’m sorry that this doesn’t help you NOW. But if you still want to retire, you begin the process of reducing your spending, saving money, investing that money responsibly, and setting realistic retirement goals to aim for.
In the era of defined-contribution plans (like the 401k) rather than defined-benefit (pension) plans, the only way to retire is to save a lot of money into that plan, invest it wisely (diversified, and low-fee), and hope it does well enough that you can live off of 4% of the balance + Social Security for the rest of your life.
It’s not unreasonable if you can save 15%+ for your working life, but there are lots of pitfalls: not saving enough, “borrowing” the money from yourself via 401k loans, giving lots of your savings to investment bankers via high fees, over-investing in risky assets (or even worse your own company), getting injured in such a way you can’t work as long as you hoped. And probably more I haven’t mentioned.
I think it’s likely that there are a large number of folks like the OP that are beginning to realize they are rather screwed in a way that prior generations with pensions were not.
At this point, depending on your age, there are likely some things you can do. The first thing is to cut spending or raise income to the point where you can start saving significant amounts, and investing that money in a smart low-cost way. Actually probably the first thing is to sit down and actually figure out what you are earning and spending so you know where you actually sit.
Out of my backside. Not sure how that slipped…. I was using a hypothetical $50k salary with a 3% match. That’s $500/month from the employee for $6000/year and $1500 match. Thank you for catching that, that was dumb.
It’s hard to provide specific answers without more info that you probably don’t want to disclose online (e.g., current age, income, savings, etc.). That said, absent a pension, you’re retirement options probably include:
Social security. You can use an online calculator to estimate your benefits. It is difficult to subsist on social security alone but people manage it.
401k/IRA and similar programs. Not sure of your time horizon but it may not be too late to begin contributing to a 401k or IRA.
Home equity. For many Americans, their home is their biggest investment and it’s not uncommon to sell their home upon retirement and downsize to a lower cost-of-living arrangement/location while living off the remaining proceeds .
That said, your best bet would be to talk to a financial advisor. Perhaps start with your bank or credit union, which may offer no or low cost consultations.
I just want to add that I am probably in the same cohort as the OP, and I do remember people saying I would “not be able to count on Social Security” (not that “I would not be able to retire”). Maybe the messaging got criss-crossed there, but my take-away was that SS would not be there for me and I had to make and manage my own retirement plans, financially-speaking. Of course that whole SS fear thing is not entirely true, but that’s a different topic.
For the OP I think others will have more learned advice, but I would suggest finding ways to both increase income and savings, while at the same time reducing costs. It’s probably not too late to do something, which will be better than doing nothing.
And I’m in an older cohort and had been hearing it all the time as well. It’s a Republican talking point. Take all the SS money and invest it in the market. Wheeeeeee!!!
I’ve always preached getting into your company’s 401k plan, diversifying your investments, and contributing the maximum percentage of your salary you’re comfortable with. My company contributed an awesome 6% matching. I had a supervisor who didn’t even contribute 1% because she “couldn’t afford it.” Dang, woman, it’s free money!
This particular mindset (and related ones like in the OP where folks believe that the 401k is a scam) is extremely destructive, and is going to ruin a lot of folks retirements.
I do wonder why companies are allowed to make this portion of compensation dependent on the employee contributing as well. Why shouldn’t that 6% just be put into the 401k no matter what? I understand we want to incentive employees to contribute, but isn’t punishing the ones that don’t even worse? Or maybe legislation to require some portion of the match be involuntary (i.e. the company has to put in the first 3% but the second 3% could be dependent on employee contributions)?
I’ve also always thought companies could address the “I can’t afford to contribute” part by making the first x% of pay raises go directly into the 401k. Hard to argue you can’t afford it if you were literally affording it yesterday. Once you hit the match limit then you can get your raises into your paycheck again.
Isn’t the answer as simple as:
-obtain secure employment, hopefully with an employer with a pension;
-live within your means;
-save from day 1, including maxing out in any 401k;
-and - less in one’s control, avoid catastrophic bad luck such as health crises?
I recall back in the go-go 80s and 90s, many people said I was a sucker for sticking with my government job, as I could make so much more in private employ. Decades later, after so many of those private employers and their pension plans went belly up, those same folk are saying how “lucky” I am to have such a generous pension!
When our 3d kid was born, we decided we wanted one of us to stay at home. It was easy, as we had always lived on 1 income. Of course, we had 1 car, rarely ate out or took vacations… We put 3 kids thru state colleges, where they graduated without debt.
Now, I plan to retire in 4 yrs at age 67. I just got my '23 report from my TSP (think 401k). My TSP annuity, plus my pension, plus my social security will exceed my current salary. And that doesn’t count anything my wife has coming from her 401k/pension/SS, and doesn’t touch our savings.
I didn’t derive a moment’s pleasure or satisfaction from my career, but it did support a comfortable lifestyle, and will support a comfortable retirement. So that’s worth something, I guess.
However old you are, it is not too late to reduce your expenditures and increase your savings. And you will be receiving some SS sometime in your 60s-70.
Good on you for playing the long game (and winning it). This is the model of retirement planning IMO.
As for the TSP annuity, I’m guessing you’ve already weighed the pros and cons but IMO annuities are often a bad deal. Guaranteed income for life is certainly attractive, but they often pay out less than the fund principal and leave nothing for heirs.
Thx. Yeah, over the next four years we’ll be deciding how to handle that “pot.” And, of course, the value could tank. But just getting that “ballpark” number was reassuring. In my ignorance, I was kinda thinking how we would be spending down our “investments/savings” to make up for lowered income. But it doesn’t look like we are really going to need to.
First of all, most people are bad with money. Taking advice from them is a bad idea.
But, likewise, a financial adviser is generally just trying to sell his products. Those might be perfectly good products but he’s not going to review your life and comment on it. You’re not going to get advice like, “Stop helping your family out. Sell your car and take the bus.”
For nearly everyone in the USA, it’s very possible to save money for retirement. The reason most don’t is because they try to keep up with the lifestyle of everyone else - all the people who aren’t saving for retirement.
And if you don’t have any money to invest, retirement products aren’t going to do a lot. Social security comes from a fairly significant percentage of your income, hence it has some real value. If you want to do better than that, you will need to have free money.
How to have extra money after every paycheck would depend a lot on where your money is going. If you’re paying $2000 in rent and $100 on food in a month then switching your cereal from Kellogg’s to store brand isn’t going to be the key to financial freedom. You’ll need to figure out how to reduce your rent. If you’re giving away 40% of your money to other people, who failed to plan for retirement, then you will need to stop doing that or shrink it to something that’s supportable.
Without knowing your monthly spending, knowing where you live, etc. there’s a limit to what recommendations we can make. If you can share it then I’m sure that we’d all be willing to throw out suggestions. Otherwise, you just need to sit down and start writing down numbers, doing math, and weighing out alternatives.
If you’re living above your means, there’s unlikely to be any solution except to sacrifice some comfort to live below your means. The upshot of that, though, is that you don’t have to drive off a cliff and hope that insurance doesn’t have an anti-suicide clause.
Munch already wrote a great post and mentioned that inflation wasn’t figured in, but just in case - if you’re planning to retire, say, 15-20 years from now, you should rule-of-thumb and divide your expected retirement income by half to get a sense of what a dollar will mean by then - considering how severe inflation is nowadays, and just to err on the side of caution.
In other words, if you expect to collect $40,000 per year in retirement at age seventy from your 401k and Social Security, that money may only be the equivalent of $20,000 today, in today’s dollars. So, budget accordingly.
