Will my money last long enough?
My retired senior citizen friends often articulate a deep-seated worry: "I wonder if I will outlive my financial resources?" In spite of careful planning and a modest life style, many are concerned that they will consume all their funds before the end of their lives.
This eventuality poses many distressing alternatives: Being forced to rely on family for income; end-of-life health care being restricted by meager Medicaid coverage; leaving a much-loved residence for a spartan nursing home. This idea is a first class stress producer for many older folks.
Why is this concept worrisome? First, we seem to be living longer. While recent statistics indicate that longevity has flattened out somewhat due to increases in mid-life deaths (opioids, suicides), people in their 70s and 80s are living extended lives. Better nutrition, better health care and regular exercise are contributing factors to this trend. A local retirement community has recently increased the actuarial time line for estimating resident longevity from 95 years to 105 years! Obviously, those additional years of life can deplete our financial resources, especially when we consider inflationary factors.
How much must we save to enjoy a comfortable retirement? There are hundreds of books and articles written in answer to this question. A basic internet search will uncover many retirement calculators that can be helpful. A general consensus is that we should have an on-going income stream that is approximately 85% of our pre-retirement expenses. An important caveat is that this amount may not adequately address the need for end-of-life medical care. Most retirees will utilize Social Security payments, company pensions, 401(k) withdrawals and investment income from other financial assets in some combination to produce the required income stream. Another important general guideline is that, in most cases, you can draw down a maximum of 4% of your financial assets per year and still retain your principal amount. This is referred to as the Tobin Rule.
Knowing what to do and doing it are two different things. For most of us who are retired the die is cast. Few have the opportunity or energy to replace or build up assets after we leave the work force. The statistics about retirement savings for those thinking about a future retirement are grim. According to Rebecca Lake of RothIRA.com many Americans are "woefully unprepared for retirement. The mean retirement savings of working households, age 31 to 62, is approximately $95,000. 38% have less than $10,000 in retirement savings." She claims that "20% of all workers believe they will never be able to retire." This scenario is almost impossible since it does not recognize the virtual inevitability of health related issues as one reaches advanced age.
Can we do anything to improve this situation? On a macro basis, individual action may not be effective. On a micro basis, however, there are a number of things we can do to make things better.
First, we can impress on our children and especially our grandchildren to "pay themselves first" with all income they receive starting with their first paycheck. In other words, commit the first dollars to savings. Setting aside 15% from each paycheck is ideal; 10% should be a minimum standard. Second, we should advocate for classes on personal financial planning in our schools. Many of our youngsters are illiterate about the effects of compound interest, how to deal with credit and the necessity for personal budgeting and financial planning.
Finally, we can serve as mentors and counselors to young folks, showing them in word and deed what it means to be a prudent steward of financial resources.
We don't want to create misers or ungenerous givers. We do want folks to understand that saving for the future is important and later happens sooner than we often expect.
Greg Hadley is a member of the Jottings group at the Lake Oswego Adult Community Center.
You count on us to stay informed and we depend on you to fund our efforts. Quality local journalism takes time and money. Please support us to protect the future of community journalism.