Boomers 401 plans fall short

[Isoman]

Article:Boomers Find 401(k) Plans Fall Short - MarketWatch

From Article:

"The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal. Even counting Social Security and any pensions or other savings, most 401(k) participants appear to have insufficient savings. Data from other sources also show big gaps between savings and what people need, and the financial crisis has made things worse"

Interresting article about alot of ppl struggling to make it to retirement. this doesnt look good, and also this about Vanguard,

"Vanguard Group, one of the biggest providers of 401 (k) plans, has changed its advice on how much people should save. Vanguard long advised people to put 9% to 12% of their salaries—including the employer contribution—in their 401(k) plans. The current median amount that people contribute is 9%, counting the employer contribution, Vanguard says.
Recently, Vanguard has begun urging people to contribute 12% to 15%, including the employer contribution, because of the stock market's weak returns and uncertainty about the future of Social Security and Medicare"

I know a am saving about 30 %- 40 % of my net salary, what is or was your saving goals to reach ER.

 

[growing_older]

I find studies like this are not useful to me.

It seems designed to reach the conclusion it wanted. Target retirement expenses were set at 85% of pre-retirement income. If the retiree was saving 15% or more that amounts to no change in spending. No effort made to adjust for lifestyle. Amounts outside the 401k don't appear to be considered. So, IRAs, pension and taxable savings are all invisible. How many people with a current 401k have their entire retirement savings in that one account? Even if they stayed with the same employer their entire career and that employer was an early adopter of 401k plans, people at retirement age today would have started work before 401k plans existed so looking at 401k balances only is guaranteed to underestimate retirement assets.

It's fun to read and fun to think I am so much better prepared than these people, but I don't think it's solid enough information to make any kind of policy decisions.

 

[youbet]

I find studies like this are not useful to me.

It seems designed to reach the conclusion it wanted. Target retirement expenses were set at 85% of pre-retirement income. If the retiree was saving 15% or more that amounts to no change in spending. No effort made to adjust for lifestyle. Amounts outside the 401k don't appear to be considered. So, IRAs, pension and taxable savings are all invisible. How many people with a current 401k have their entire retirement savings in that one account? Even if they stayed with the same employer their entire career and that employer was an early adopter of 401k plans, people at retirement age today would have started work before 401k plans existed so looking at 401k balances only is guaranteed to underestimate retirement assets.

It's fun to read and fun to think I am so much better prepared than these people, but I don't think it's solid enough information to make any kind of policy decisions.

Me too. Nicely said.

 

[travelover]

.............
It's fun to read and fun to think I am so much better prepared than these people, but I don't think it's solid enough information to make any kind of policy decisions.

Isn't that the reason that these articles are constantly posted here - to make those of us who are "set" feel all warm and snuggly and a little smug?

 

[steelyman]

It has been difficult to accumulate much money in 401-type plans. I recall starting a Roth when they were first offered, and at that time I believe the max contribution allowed was $2000/yr. That's not going to buy you much of anything, Employer-provided plans were better, but still low.

The limits have improved since then, of course, but I wonder if the thinking is that if you allow the retirees to put away more money now, they will be able to finance the deficits in the future.

 

[LOL!]

Isn't that the reason that these articles are constantly posted here - to make those of us who "set" feel all warm and snuggly and a little smug?

Maybe that's why these articles are posted here, but a reason to publish them in the WSJ is to scare people into not doing what the folks written up in the articles have done.

So I am all for these articles, especially if it means more folks can take care of themselves in their retirement and not have to get a government bailout. Let's reserve the big bailouts for major banks and investment firms instead.

 

[rescueme]

Isn't that the reason that these articles are constantly posted here - to make those of us who "set" feel all warm and snuggly and a little smug?

Yes, they are writing for our entertainment - no doubt about it ...

 

[meierlde]

It has been difficult to accumulate much money in 401-type plans. I recall starting a Roth when they were first offered, and at that time I believe the max contribution allowed was $2000/yr. That's not going to buy you much of anything, Employer-provided plans were better, but still low.

The limit for the last few years for 401ks has been 15,500 if under 50 and 20500 if over 50. (Not counting employer contribution). At that rate significant money could be accumulated.
Note that if you had just invested in S&P index funds, other than all in 2007 you are likely about even on those investments. Since then of course you got dividends and additional money came in. The limit for IRA's if not covered by a 401k is now 5000 a year and 6000 if over 50. Plus if self employed there are a large number of additional options available.

In addition the s&P 500 funds do take small contributions. Of course you decide that you won't get rich quick off the market. (Or try total stock market if you prefer they are about 80% the same)

 

[steelyman]

The limit for the last few years for 401ks has been 15,500 if under 50 and 20500 if over 50. (Not counting employer contribution). At that rate significant money could be accumulated.

That's right, plus there is also a post-50 catchup. For many people though, there are no employer matches (I've never gotten one, I am a university employee). I suppose my point was that for quite some time, the contribution limits were quite low compared to what they are today.

 

[grasshopper]

The last 10 years before ER at age 54/51 Ms G and I were saving 60% of our salaries. It was a great lesson learned, that at ER we knew we could live well below our past incomes.

Smugly he says.

 

[samclem]

The limits have improved since then, of course, but I wonder if the thinking is that if you allow the retirees to put away more money now, they will be able to finance the deficits in the future.

Folks can save as much as they like right now, there's no limit on what folks are "allowed" to save for retirement--you just won't get favorable tax treatment outside of the government-sanctioned retirement plans. I know you know that, but I do wonder how many folks were on autopilot, just saving up to the limit of the tax-favored retirement accounts. Lots of folks don't seem to give this "savings thang" much thought, and I'll bet some figured they must have saved enough once they met the limits of the tax code.

 

[Gumby]

I see several problems with the article. First, it assumes people aren't saving outside of a 401k. It doesn't matter if I only have a nickel in my 401k if I have $2 million in a taxable account. Second, it looks at the average in a particular account. I don't know about most people, but I have worked at several places and have several different 401k accounts. Each one may be "too small" under the criterion set forth in the article, but together they will be enough.

It never hurts to shine a spotlight on what may be a problem of insufficient saving, but, with all its flaws, this article generates more heat than light.

 

[W2R]

Recently, Vanguard has begun urging people to contribute 12% to 15%, including the employer contribution, because of the stock market's weak returns and uncertainty about the future of Social Security and Medicare"

I know a am saving about 30 %- 40 % of my net salary, what is or was your saving goals to reach ER.

After a disasterous divorce at age 50 (leaving me essentially penniless), I saved more than my goal of 33% of net after maxing out my TSP (=401K) plus over-50 catch-up. I did this only from ages 51-61 until retirement. That was a lot to save, but it was for a limited time and I needed to gain control of my situation as fast as possible.

It wasn't so bad once I got used to it.

I think that for people who are not starting over after 50, saving 12% ought to be reasonable (?) I haven't run the numbers for such long term savings.

 

[steelyman]

Folks can save as much as they like right now, there's no limit on what folks are "allowed" to save for retirement--you just won't get favorable tax treatment outside of the government-sanctioned retirement plans. I know you know that, but I do wonder how many folks were on autopilot, just saving up to the limit of the tax-favored retirement accounts. Lots of folks don't seem to give this "savings thang" much thought, and I'll bet some figured they must have saved enough once they met the limits of the tax code.

That is a very good point, I completely agree.

 

[LOL!]

The limit for the last few years for 401ks has been 15,500 if under 50 and 20500 if over 50. (Not counting employer contribution).

You may be a modern day Rip Van Winkle.

The limit for the past few years for 401(k)s has been $16,500 if under 50 and $22,000 if at least age 50 on December 31st.

 

[Katsmeow]

Just 8% of households approaching retirement have the $636,673 or more in their 401(k)s that would be needed to generate $39,465 a year.

This was the quote that interested me.

Really? That is a little more than 6% withdrawal rate.

For me, the real showstopper in the article is the use of 85% of pre-retirement income for retirement. That is just ridiculous particularly the higher your pre-retirement income.

 

[rescueme]

For me, the real showstopper in the article is the use of 85% of pre-retirement income for retirement. That is just ridiculous particularly the higher your pre-retirement income.

Yes, that oft quoted 85% dosen't work in most cases, assuming you are accumulating and paying a buch of "extra" taxes while w*rking.

DW/me simply planned for 100% of our pre-retirement net income, adding taxes due in retirement (e.g. no FICA, state, or local tax on TIRA withdrawls) and subtracting whatever we saved/invested during our accumulation years and ajusted each year based upon our "personal rate of inflation" - for the things we actually buy.

Works for us.

 

[martyb]

You may be a modern day Rip Van Winkle.

The limit for the past few years for 401(k)s has been $16,500 if under 50 and $22,000 if at least age 50 on December 31st.

I'm glad you corrected that, I thought I was gonna have to!

 

[Mulligan]

Yes, that oft quoted 85% dosen't work in most cases, assuming you are accumulating and paying a buch of "extra" taxes while w*rking.

DW/me simply planned for 100% of our pre-retirement net income, adding taxes due in retirement (e.g. no FICA, state, or local tax on TIRA withdrawls) and subtracting whatever we saved/invested during our accumulation years and ajusted each year based upon our "personal rate of inflation" - for the things we actually buy.

Works for us.

I agree the 85% doesnt mean anything. Depends on how old the kids are you have, whether your mortgage will be paid off soon, have to pay for your health insurance, etc. My expenses are almost the same as they were before retirement, but will drop by 40% in a few years when the DD has graduated and house is paid off.

 

[missionfinder]

I think the investment savings advice should be: as much as you possibly can, the sooner the better, regardless of age. Naturally that requires adjusting my attitude about consumerism... fact is blowing money is fun but the hangover isn't worth it!

Yeah, the smugness is there, hard to over come sometimes. I don't want to sound like grandpa talking about how he sacrificed, walked to school 5 miles, uphill (both ways) in the snow. I gave up trying to talk to friends and family about FI, its hard to overcome long ingrained attitudes towards money and I end up sounding like a cocky holier than thou ass if I'm not careful, when the real underlying feeling is one of panic for their futures.

 

[meierlde]

You may be a modern day Rip Van Winkle.

The limit for the past few years for 401(k)s has been $16,500 if under 50 and $22,000 if at least age 50 on December 31st.

I have been retired since 2004, so I have not needed to worry about the limits.

 

[clifp]

After a disasterous divorce at age 50 (leaving me essentially penniless), I saved more than my goal of 33% of net after maxing out my TSP (=401K) plus over-50 catch-up. I did this only from ages 51-61 until retirement. That was a lot to save, but it was for a limited time and I needed to gain control of my situation as fast as possible.

It wasn't so bad once I got used to it.

I think that for people who are not starting over after 50, saving 12% ought to be reasonable (?) I haven't run the numbers for such long term savings.

Interesting my saving were done over basically 15 years also. I had a small IRA in my first couple of years out of school. But once I joined Intel I maxed out my 401K, which was generally restricted to 12.5% of my salary, only my last couple of years I hit the maximum allowed contributions. What I find astonishing is that my current IRA balance is $634,000 almost exactly the figure listed in the article that less than 8% of families have. The last contribution was made in 2000 and clearly the last decade was not a great one for my generally heavy equity exposure. Considering that this figure contains no employer matching funds, I just have to scratch my head and wonder what the hell my fellow boomers have been doing?

 

[teejayevans]

I think 85% of your NET take home pay after taxes, SS, and retirement savings is a good number. It's just that that little details are left out.
TJ

 

[Isoman]

I think 85% of your NET take home pay after taxes, SS, and retirement savings is a good number. It's just that that little details are left out.
TJ[/QUOTE

thx for answer abouve for these who doesnt get the big picture. This is a short article who are trying to describe average Joe problems.

Agree 85 % wasn't best way to describe the problem but I understood what they meant.
This isnt a problem only for US its a western sociaty problem.

Pension founds are insuffient worldwide...

Learn mandarin and adopt.

Sorry this was from a iPhone with no spellsheck possible

 

[Isoman]

Yeaa and I also was on a big party tonight, witch could make an impact on my writing. Nahhhh beer is good