Why I Want You To Start Thinking About Retirement

For those that are young (or young at heart), retirement seems like a completely far off destination.  It conjures up images of white haired folks who golf.  Or, for those that maybe have a less rosy vision of retirement, it conjures up images of the elderly who have constant health issues.  Either way, it’s an image that we tend to not dwell on during our younger years.

For me, retirement is still decades away.  So why am I putting some serious thought into it right now?

Apparently, there was a time when you could graduate from high school, work at a local factory for your entire working career, then get a nice pension when you retire.  They may have even thrown in a gold watch for good measure.

But times have changed, which means that we must change with the times.  With the advent of technology and globalization, the world economy is evolving at breakneck speed.  Our current workforce has had to adapt to this new reality in addition to the typical ups and down of our national economy, as well as changing demographics. Here are some key differences between the working population then and now:

1. Education: It’s hard to get by on just a high school diploma.  A bachelor’s is considered a minimum requirement for decent paying careers.  For some fields, this is not enough, and you will need to pursue further postsecondary education.  In this regard, veterinarians have gone above and beyond the requirements for education in this modern world.  It may have required a lot of work to get your degree, but be thankful that your DVM can actually be quite versatile and provides a level of job security.  
2. Job longevity: How many people stay at their first job after graduating?  Not very many.  According to this article about job-hopping, those that have graduated between 2006-2010 have averaged 2.85 jobs in their first five years post graduation. The odds of staying with one employer for a long period of time is getting smaller, in part due to….
3. Pensions: Otherwise known as defined benefit plans, these are becoming more uncommon as they are becoming quite costly to provide for beneficiaries.  With these plans, the employer is responsible for ensuring that the benefits are provided.  The trend is to shift this responsibility onto the individual.  This is where the 401(k) and similar retirement vehicles, otherwise known as defined contribution plans, come into play. 

RETIREMENT STATISTICS

The Economic Policy Institute came out with a report in 2016 that gave a snapshot of retirement in America.  Here were some interesting findings:

1. Working age families (those between 32-61) have saved an average of $95,776 in their retirement accounts.  The median is $5,000.  The reason there is such a huge gap between these two numbers is because nearly half of working age families have nothing saved in their retirement account.  Having these data points clustered at one end of the spectrum throws the numbers off quite a bit. 
2. The numbers change slightly when you break it down by age.  For those 56-61, the average was $163,577, while the median was $17,000. 
3. Considering that one way to calculate your retirement number is to have 10 times your salary saved for retirement, the numbers look bleak indeed.  This means that a person earning $100,000 a year should theoretically have $1,000,000 in retirement savings before they can safely retire.

Note: These numbers are reflective of savings in defined contribution accounts and IRA’s, NOT pensions.

Bottom line– People are not very good at saving money on their own.  This is problematic because pensions are disappearing while the responsibility of saving for retirement is falling more heavily on the individual.  

CAN’T I JUST RELY ON SOCIAL SECURITY?

The Social Security Act was signed by President Roosevelt in 1934. You can read about the fascinating history here.  It’s no coincidence that the nation sought to provide some economic relief and insurance in  response to the Great Depression.  However, it has become clear that a law that was crafted in the 1930’s will not necessarily stand the test of time nearly 100 years later.  

First, the life expectancy was only 58 for men and 62 for women in 1930.  Now, the numbers are 76.1 for men and 81.1 for women.  This creates a significant increase in the length of time that people can benefit from Social Security.

In addition to the aging population, the birth rate has gone down over this time period.  This means that there are fewer workers paying into the system in order to support those that are taking Social Security benefits.

If there are no changes to the law, Social Security is expected to go bankrupt around 2034.  I have a difficult time imagining that this will actually happen, but with all of this uncertainty, it becomes even more important to be proactive about saving for retirement.  If Social Security is there for me in the future, I will consider this a bonus since I do not calculate Social Security as part of my retirement income.

Hopefully I’ve encouraged you to think about retirement in a different light.  Stay tuned for another discussion about how much you should be saving for retirement.

Have you been maxing out your retirement account contributions?  Or have you barely given it a second thought?  Comment below!