Wednesday, September 15, 2010

The New Retirement Ain't Going to Be Better than the Old Retirement

There has been a lot of talk about "the new retirement" that the baby boomers were going to experience. It appears, however, that the new retirement ain't going to be any better than the old retirement. In fact, it could be a lot worse.

The question that arises is How Much do I need to retire?

Here are some recent tidbits of news reports to show what the new retirement will be like as it relates to retirement income and how it is spent.

From Retirement USA:

    The gap between what retirement savings Americans need for retirement and the amount they have actually saved is a staggering $6.6 trillion, Retirement USA, a coalition of orkers’ groups, said in a study published Wednesday.

    “The retirement income deficit is the gap between the pensions and retirement savings that American households have today and what they should have today to be on track to maintain their living standard in retirement,” said Karen Friedman, executive vice president and policy director of the Pension Rights Center, in a conference call with reporters.
From Allstate Financial Retirement Reality Check Survey:

    The first-ever Cost of Leisure Index revealed that surveyed Boomers anticipate spending approximately $10,900 a year on having fun during retirement. When Baby Boomers are ready to retire, more than half of the survey respondents (55 percent) cited travel most frequently as their top- rated retirement pursuit. On average, Baby Boomers said they would take four trips per year, and spend about $7,700 on travel annually. Estimates from various associations and trade groups representing these top-rated activities were identified to determine how they compare with the survey results.

    "While Baby Boomers know what they want to do in retirement, and in most cases have a realistic estimate as to the cost, the Retirement Reality Check survey found that there is a fundamental disconnect between what middle-income Americans expect out of retirement and what they'll get if they don't get help," said Wilson. "Baby Boomers have terrific enthusiasm and vision when it comes to making their retirement the best it can be, and part of that vision should be a program to accelerate their savings, make a commitment to their future, and realize the rewards of their work."

    In short, there is a problem. Knowing how much something costs does not mean it is affordable. Survey respondents said they would need $40,900 per year in retirement, to cover the cost of their top-rated activities and basic living expenses. To have that, the average Boomer will need to have more than $1.2 million at the beginning of a 20-year retirement, factoring in a return on savings and inflation.

    The problem is that surveyed Baby Boomers, on average, have less than $120,000 in assets - not even a tenth of the amount they say they will need when they retire in the next 10 to 20 years. And Social Security isn't going to help much.
Here are some quotes about retirement to put the new retirement in perspective:

    The new retirement reality may be a messy proposition.
    — Alicia Munnell, director of the Center for Retirement Research at Boston College.

    We have a manufactured vision of what [the new] retirement is, and that doesn't necessarily correlate with reality. Unless you have a well-thought-out scenario, you're going to be in for a shock at retirement.
    — Paul Allen

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