My 14-year-old has been taking an online class in financial literacy. It has kind of freaked him out. He’s been asking us if we have 401(K) plans, and other investments for retirement. He said to me the other day that he thinks it’s time to get a job so he can start saving for retirement.
This is good. I told him that if his father had started saving even just a little bit, beginning when he first started working out of college, we would be in much better shape today than we are. I told him that vast numbers of people in this country do not have enough money to retire on, and that we are going to be in a very serious situation, very soon. Ted Siedle at Forbes writes:
At some point, lack of savings, lack of employment possibilities and failing health will catch up with the overwhelming majority of the nation’s elders. Let me emphasize that we’re talking about the overwhelming majority, not a small percentage who arguably made bad decisions throughout their working lives.
Given the certainty that a retirement crisis is headed toward our shores, you’d think that our elected officials would be hard at work preparing a response. Of course, that’s not happening. To the contrary, conservatives are trying to pare back so-called entitlements that will mushroom in the near future and liberals have failed to acknowledge the crisis or propose any solutions.
Earlier this year, USA Today reported:
Most people have very little tucked away for retirement, and many aren’t even trying to figure out how much they’ll need later in life, a new national survey reveals.
About 36% of workers have less than $1,000 in savings and investments that could be used for retirement, not counting their primary residence or defined benefits plans such as traditional pensions, and 60% of workers have less than $25,000, according to a telephone survey of 1,000 workers and 501 retirees from the non-profit Employee Benefit Research Institute and Greenwald and Associates.
Only 44% say they or their spouses have tried to calculate how much money they’ll need to save by the time they retire so that they can live comfortably in their golden years, the survey shows. Workers who have done calculations on what they need to save tend to have higher levels of savings than those who haven’t crunched the numbers.
My mom and dad — he a state worker, she a school bus driver — were reasonably careful about saving for retirement, and they have some land that they could sell if they had to. They live fairly frugally, too. Still, they worry, and have to pinch pennies. If even they have to worry about having the resources to make it through retirement, what about the rest of us? It looks like many of us just aren’t thinking about it, assuming that Something Will Turn Up.
I get that. That’s how I’ve lived for most of my professional life. Insufficient retirement savings — that was an abstract threat. Finally, we came to our senses, and engaged the services of a terrific financial adviser, one who specializes in dealing with writers and artists, and who seems to have an intuitive understanding of why people like us often make poor financial decisions. Though you have to do your research, and not just take any financial adviser out there, our guy has been worth every penny. Julie and I are now in better shape than we ever could have been absent his help.
Seriously, if you don’t have a steady plan for retirement savings now, don’t put off doing something about it. In my twenties, I thought that I could put off getting my financial house in order until I got married. I turned 30 shortly after I got married, and we moved to New York, a city that was so expensive (cost of living, taxes) that it was very difficult to save. We only got the breathing space to start putting money away when we moved to Dallas in 2003. Though we didn’t move primarily because of the expense of life in NYC, it would have driven us out eventually.
It is so, so difficult to adopt a prudent, ascetic attitude towards savings, because there is little in our culture that encourages us to be that way, and a lot that promotes exactly the opposite. Still, we have no realistic choice. The gods of the copybook headings, and all that.
Earlier this year, I was talking to an elderly man down on the bayou who was born into rural poverty at the height of the Great Depression. His father was a farmer with a third grade education. But the father was very wise, and sternly instructed his children to save at least a third of every dollar they made, no matter what, and to resolve not to spend a penny of your pay packet until at least 24 hours after receiving it. Everybody in that neighborhood was very poor in those days, but the prudent farmer’s family, with seven kids, did better than anybody else, precisely because of the farmer’s ascetic discipline. The idea was that no matter how little you have, if you aren’t saving a meaningful portion of it, you have to find some way to cut back. There is no other way.
UPDATE: Couple of good comments in the thread. First, Adam:
Always pay yourself first. Start early and contribute religiously. What’s interesting is I did all of that right, was well on my way to a fully funded retirement, thought I was bullet proof and was much more fiscally conservative than I am today(isn’t it funny how beliefs can change based on experience?). Then came the Great Recession, a two year stretch with no income( the industry pretty much disappeared overnight, I worked, but at a start up that never got off the ground) other than what we drained from savings, and I’m back to square one at 47. The moral of the story is you can do everything right and still have circumstances outside of your control knock over your whole apple cart. That is why I am a proponent of the so called Welfare State. It’s why I think 401k’s versus pension is a terrible idea when looking at the whole versus individuals. It’s why I do not believe the Market is omnipotent and serves all. By all means, we need to teach this stuff earlier and get good habits started so that they become a part of every day life, but it’s not the panacea some would make it out to be.
Second, T. Sledge:
Your son shows more maturity than a lot of people my age (who are old enough to be his grandparents). One of the most pathetic things I’ve seen recently was an online court document in which a judgment of $2053.36 was levied against someone I dated shortly in 1987.
She had failed to pay a credit card debt and had been convicted in a non-jury trial. This woman is now 63 years old, and obviously doesn’t have $2k to her name, 45 years after graduation from high school.
I recall how this woman would jump on planes and take excursions at a whim, charge everything on one of the 15 credit cards that she kept in her purse, and give no thought at all to how the bills were to be paid. That was when she was 35 years old. She is now at retirement age and doesn’t have the proverbial pot to you-know-what in.
We are a nation full of hyper-consumerist fools, who are long overdue for a karmic kick in the butt. On another thread, I read comments from others about how poverty is rarely the fault of the poor. I used to believe that, but not anymore. I have personally known too damn many people like the woman above, who, in spite of the fact that they weren’t affluent, used debt to live as though they were. I’ve made too many “loans” that never got paid back, to friends and relatives who never once in their wasteful lives ever set aside a penny for a rainy day.
We had a nice long run, with a few hiccups, from WW II to the end of the last century, where too many people regarded frugality as a mental disease. And I’m afraid there are still way too many people in this country who think they have a divine right to affluence.
UPDATE.2: Yuval Levin sends this article from his magazine National Affairs, saying that we really shouldn’t freak out. Bad Yuval! Never tell Your Working Boy not to freak out about anything! Chicken Little-ism is my modus vivendi. Anyway, from the piece:
These predictions of doom typically point to one or another recent study prepared by important-sounding groups. The Center for Retirement Research at Boston College estimates that more than half of working-age households are at risk of having inadequate retirement resources. The National Institute on Retirement Security goes further, claiming that at least 65% of workers are saving less than required to meet their retirement income needs. The New America Foundation reports that, among middle-income retirees, “[f]ewer than half…have any form of pension income, and only a slim majority have any form of asset income.” Unsurprisingly, 92% of Americans believe that we face a retirement crisis, according to one recent survey conducted for PBS. “And they’re right,” the PBS web site notes in reporting the finding.
But the facts are not nearly so simple, and the story of the retirement crisis has often been sold as much as told. Sometimes this selling is entirely well-intentioned, moved by a desire to get Americans to save more. In other cases, there may be selfish motives: Ask yourself, what are the chances the financial-services industry will tell me I’m saving too much for retirement? In yet other cases, the motives are political: By arguing that America’s private retirement-savings system has failed, progressives pave the way to eliminate tax incentives for retirement saving and expand Social Security to take its place.