Wes Moss: How you can avoid a retirement nightmare

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB.

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB.

The greatest dangers in life aren’t always the most obvious or dramatic. What do you suppose causes the most car accidents? Drunken driving? Texting while driving?

Neither. Under-inflated tires — the result of not tending to a slow leak — are the biggest culprit.

Americans face a similarly insidious danger on the road to financial security. Our retirements are terribly under-funded. And that’s going to come back to haunt both individuals and the nation if we don’t do something about it.

The savings rate in America was nearly flat for much of the 2000s. Americans failed to save for retirement and took on a level of debt that will take years to pay off. The result: 30 percent of workers surveyed in a study this year said they had less than $1,000 saved or invested toward retirement. And just 14 percent of us are very confident we will have enough money to live comfortably in retirement.

As if that wasn’t bad enough, other traditional sources of retirement income are disappearing or endangered:

– Only about one in five retirees today has a pension, according to a recent Wall Street Journal article.

– Investment returns have been well below historic norms. From 2000 through 2011, the S&P 500 barely managed a 2 percent annualized return, even when counting the reinvestment of dividends. Compare that to the 9-plus percent it has averaged since the 1920s.

– The Social Security trust fund is forecast to run out of money in the not too distant future, perhaps as early as the 2030s, potentially leaving all retirees with a significant reduction in monthly income. This is especially troublesome for low-wage earners, for whom Social Security replaces 40 percent of pre-retirement earnings.

Furthermore, life expectancy is soaring, which means whatever money we do save needs to last much longer.

Before resigning yourself to a retirement diet of cat food and water…

The answer to this problem is simple — but not easy. Americans need to save more now, and/or need less in retirement. Instead of the traditional 10 to 12 percent in recommended savings, we need to save between 15 and 25 percent of our gross income. This requires a sometimes painful prioritization of our TSL spending order: Taxes, Savings and Life.

If 30 percent goes to taxes and 25 percent toward savings, that leaves just 45 percent of our gross income to spend in our pre-retirement years.

I see your jaw hanging open. But this goal can be achieved with enough discipline, planning and work.

If motivation is still an issue, think about this: Nearly 75 percent of retirees surveyed recently said they don’t have enough money to live comfortably and wish they had saved more during their working years.

So don’t be a statistic. Start pumping up your retirement tires today.

How does your TSL spending order stack up?  What steps would you advise someone — say, a nephew in his 30s and a cousin in her 50s — to boost their savings levels?

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– Wes Moss, for AJC Atlanta Bargain Hunter blog

10 comments Add your comment

This is Mrs. Norman Maine

October 22nd, 2012
7:11 am

I work with the elderly so everyday I see the results of poor financial planning. This spurred me to get serious about my retirement saving a few years ago, unfortunately I was already in my very late 30s when I got a clue. I started from nothing and 5 years later, I am still pretty much near ground zero thanks to the economy and the sluggish stock market. I am now having to save 40% of my income to have a chance at having something of an enjoyable retirement (if my calculations are correct), God help me if I develop a chronic illness or suffer an extended job loss.

I would tell any person younger than 35 to put something to the side, anything! Even if it’s only 10% of your income, that will make a huge difference later on as time and compounding is on your side. And when you get more, save more.

Chris

October 22nd, 2012
7:26 am

I’d like to add a different perspective. I hear so much from these financial planners “don’t outlive your money.”

But is the alternative really better? I know lots of people whose money outlived them, including those who had heart attacks, cancer, and car accidents. Dropping dead at 65 with a lot of money in the bank, no thanks.

This is one more article that show how we worship money in this society. There are a lot worse things than outliving your money. A retirement “nightmare” is getting diagnosed with cancer, or losing a loved one. Running out of money … that’s relatively small stuff. Have you thought about downscaling to a smaller house, in a cheaper part of the country?

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Lori

October 22nd, 2012
11:18 am

Thanks for your perspective Chris, worthless as it was. The point is if you happen to outlive your ability to take care of yourself others have to pick up your slack. Or kill you. Of course, that’s relatively small stuff, according to your post.

helen

October 22nd, 2012
11:33 am

I’m disgusted at the fact that my retirement was wiped out by a soured economy and now it seems I haven’t made much headway in saving for retirement either. However, before I eat cat food I’ll buy canned tuna first. It’s much cheaper anyway.

Bart

October 22nd, 2012
2:20 pm

Chris,
Just make sure that you don’t whine about having nothing when the retirement years come along. Also, don’t fault those evil “rich” who saved all their lives and lived within a budget. Having a financial plan to take care of you and your family is not “worshiping” money, it is called being a good steward of your finances.

Truth

October 22nd, 2012
3:32 pm

The ability to spend money is not power.

The ability to have money is power.
____________________________

Excess, Flashy cars, short term depreciating assets = “New Money” = Broke Soon

Conservative, long term investments = “Old Money” = Real Wealth and Signature of Class

__________________________

It aint cause the man is holding you down. It’s because you don’t have any sense.

Rose

October 22nd, 2012
5:50 pm

Well, how ’bout you lost your job in ‘09, in your 60’s, have some money in savings, can’t find a job (you’re too qualified, not qualified–but really you’re too old), nothing is earning interest and you don’t want to go full tilt in the market (too risky at our age). And yes, we did save and live prudently – what did that get us?

What would someone recommend to us?

Chris

October 23rd, 2012
5:40 am

Rose you hit the nail on the head. Federal Reserve policies designed to bail out the banks and re-inflate housing are hurting seniors by keeping interest rates at essentially zero. You can’t earn any kind of risk-free return on your savings. To get any kind of return on your money you have to chase risk which is dangerous (you can lose principal.)

And Lori I never said that you aren’t responsible for your own retirement. My point was that too many people see retirement as endless vacations, golf, world travel. Downscaling to a simpler lifestyle with less financial burden should be an option.

Ken

October 23rd, 2012
9:09 am

Rose’s story is one I hear repeated often- laid off in peak earning years for a variety of reasons, primarily to cut into salary,health benefit costs and pension- if there were any still available. Lots of folks say don’t blame the fatcats and the rich, but the book- Retirement Heist from a WSJ reporter exposes the truth behind the conversion from a Traditional Pension to a Defined Contribution plan that ERISA approved- under the Clinton administration in 1999 that basically fattened the executives of corporations pensions, as well as fattened the bottom line of said corporations. As a result, most folks pensions were frozen at around 20% of what they had been told for years…hard to make up this kind of money in 10-15 years of savings, especially when you had the dotcom bubble in 2000 and the housing bubble in 2008.

Now trying to get any returns on fixed investments is a joke with CD;s and Money Markets paying point zero zero nothing. For those that planned and saved wisely, retirement is a dream, but unfortunately for many of our retired and soon to be retired it’s going to be a nightmare. I think its going to be interesting to see how this large group of seniors is going to handle this- move in with the kids, or extremeism? Who would have ever thought we would see this divide in have and have not in this country?

My advice to seniors is do what I did, work extra hard, cut spending to just necessities, stash away as much money as possible, buy lifetime income fixed indexed annuities, which I don’t plan on annuitizing until I am 70, run my business until I am 70 and then and only then kick in my SS at its peak, knowing I will not ever outlive my savings. Of course as a business owner I am afforded better deferred investment options- I benefit, but call a spade a spade- the tax laws are rigged for the higher income when it comes to retirement…and oh yeah, buy guns, cause I can easily see where this is going to go nuts in a few years.