I Don’t Want to Eat Dog Food When I Retire
Posted by jefferson on Sep 19, 2012 in Saving Money | 60 comments
Let’s do an exercise, everyone. I want you to close your eyes and imagine what your life will be like when you retire. Ready… Go!
Okay, what did you picture? Were you sitting on the beach next to your significant other, sipping a giant margarita? Were you traveling through Europe, sampling local cuisine and checking out the sites where Western Civilization began? Or were you struggling to pay for your basic necessities, trying to figure our how you were going to eat on your miniscule budget?
The Easy Life
I am betting that you didn’t imagine the last one, because people tend to associate their retirement with an easier life. But the simple reality is, you probably won’t have as much money during your retirement as you do today. Even with social security factored in, your standard of living may be in line for a major hit. Without regular income coming in, you could easily find yourself having to make some tough choices each month. It costs a lot of money to travel, and unless you have planned and saved appropriately throughout your working life, your reduced budget might not allow for much recreation at all.
It gets worse. Most Americans are not saving enough for retirement. According to a piece published recently in the NY Times, the typical American age 55-64 has only $54,000 in their 401k and $120,000 in all of their retirement accounts combined. How long could you live off of $120,000? Keep in mind that many folks actually have far less than this amount (or none at all) and will be mostly counting on government programs to support them in the later years. Considering the fact that our Social Security system is only expected to be solvent until 2036, this plan is not really a plan at all.
Tough Choices
So what does it mean for the next generation that tens of millions of people will be entering retirement age with little to no savings? First, it means that most of these folks may not be able to retire at all. This can be a scary proposition considering that studies show that if they lose their job, people over the age of 55 are far more likely to stay unemployed for long periods of time, and will often have to take a large pay cut if and when they do re-enter the workforce.
Secondly, it means that many folks may find themselves living in poverty during their later years. This means having to make decisions like: do I heat my home in the winter, or do I buy groceries? Stories of “retired” folks because that is all they could afford are frighteningly real. If you are anything like me, just hearing those words is enough to light a fire underneath you to start coming up with some kind of plan.
Priorities
There are many sites and blogs out there that provide great insight into the proper way to prepare for your retirement (start here or here). These sites will tell you that if you start early and the let the magic of compound interest take effect, you can see your retirement savings grow and grow. With patience and persistence, you can build a nest egg to live (decently) off of in your formative years. Realize that the days of having a company-funded pension waiting for us are long gone, which places the entire onus of retirement preparation directly into our hands.
When you are living paycheck to paycheck or are trying to fight your way out of debt, establishing a savings routine for retirement is probably the last thing on your mind. However, as I look at my own financial goals, I realize that funding my retirement has to hold a spot near the top of my financial goals. I prioritize retirement savings just after paying off consumer debt, but just before saving for college. I believe that retirement should be prioritized before college savings because there is no such thing as a student loan for your retirement. If you don’t have enough savings for college, at least there are alternatives. On the other hand, if you don’t have enough savings for retirement, it could mean dog food. Of course, the hope is that you can create a budget where you fund both your retirement and your children’s college savings.
Coming Up With a Plan
Even though we are still paying off our debt, I do (and have always) taken full advantage of my company’s 401k match. This is basically “free money” on top of my normal salary, and even the worst credit credit card out there can’t match a 200% return on investment. But this is certainly not enough in and of itself. Once our debt is clear, our plan is to max out a Roth IRA for both my wife and myself ($5000/yearly each). If we are able to fund the Roth at this level for the next 30 years, this should equate to over a million dollars by the time we reach retirement age (assuming an 8% ROI). Combine that with increasing our 401k payments and taking the company match, and that number should more than double. Could my wife and I retire off of two million dollars? We can’t be certain what the future will hold, but that certainly seems more realistic.
Remember the retirement that you envisioned for yourself at the start of this post? Statistics show that a traditional retirement just will never become a reality for many folks who never take the time to develop a plan. While you are navigating your own financial landscape, planning for something so far away can seem like it is not worth the cost, but at least for me, it certainly beats eating dog food.
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Saving for retirement is one of our top priorities. We have no desire to eat dog food for retirement either:)
Obviously, $120,000 in your retirement savings is not enough. However, I’ve been guilty of thinking that I need far too much to retire on as well. We certainly won’t need a the monthly income that we have today because we will be out of debt. Our house will be paid off as well. So, our expenses will be much lower.
I read an article yesterday that said to “give yourself a pension.” I think that is also a great idea. In essence, have some income each month so that you don’t panic that money is leaving your retirement funds. We are going to help fund our retirement through our rental income. Plus, having a part-time job may just give you something to do.
Greg@ClubThrifty recently posted..Why Saving Money Feels as Good as Spending Does
Really good point Greg.. We certainly won’t need to match your current income during retirement.. As we hope to have your home and cars paid off, and have no debt.. But the amount that we will need, especially if we want to enjoy the fruits of our labors and travel the world a bit, is substantial…
Absolutely, I wouldn’t want to minimize that. Unfortunately, people just don’t have enough long-term vision in this country…
Greg@ClubThrifty recently posted..How to Get an International Bank Account
Our goal is to develop income streams that don’t require much in terms of a time investment. I think one of the best models of this we ever saw was my landlord at my former apartment. With his brother, they owned two little apartment buildings in different areas of town that each had about 15-20 apartments. Every Saturday, they were on site at one of the two buildings cleaning, checking in with people about maintenance, making improvements etc. It was something they were building in their 40′s so they could let the incomes pay them for smaller investments in their time as they aged.
Mrs. Pop @ Planting Our Pennies recently posted..What We Use – Wells Fargo Bank
Developing income streams is a great idea, and we hope to go that route as well. I don’t know if being a landlord would work well for me, as my DIY skills are a bit lacking, and I don’t want to be on the hook for paying for costly repairs, but luckily– there are other options.
I really like this article. I’m still struggling with my debts and seriously, I don’t know when I want to retire, where and how much money I want to have until that time. I haven’t found the answers to these questions and I’m not even sure if I’ll figure out in the nearest future. But I started contributing some money every month to my retirement account. It’s not a big deal but I’m happy it’s regular and this amount is the same every month (I mean, not less because of different excuses I can find). When I’ll find regular job, I plan to spend more money on myself… ekhm, I mean-to give my retirement account a rise
IMO .. If you are still battling debts, you need to prioritize that even above your retirement savings. The interest alone on consumer debt is enough to eat your budget alive.. Just look at what it is doing to the US budget!!
That said, if you have a company match on a 401k at work, you need to be all over that..
I’m thankful we were encouraged to get on top of our money at 24/25 years old. We’ll be maxing out one Roth IRA and spilling over into a second this year! It’s so easy to get caught up in wanting what the world deems as “needs” but our goal is to live at OUR standard of living regardless of our paycheck.
Jessica @ Budget for Health recently posted..Save time: Pack your lunch the night before
We are a few years older than you.. and really haven’t got our butts in gear up to this point.. That said, in the spring when your debt is paid off, we plan to jump in full throttle..
I know that most of us are past this age but the standard to teach and set up for our children is to have at least 1 year of income in your retirement by the time you are 30 years old. I have been at my job for 10 years, mostly because of the benefits. In my 401K, they match plus I have profit sharing….the profit sharing is huge in my reirement. I am 32 years old and have more money in the my retirement than my parents.
And I want to add regarding most people in their 50′s. The baby boomer generation kind of got the bad deal when it comes to retirement. It is likely when they retire there will be no Social Security. And the 401K saving plan was intiated in 1978 but did not become popular with employers until the mid 1990′s. By the time the Baby Boomers started to save in their 401K, they were in their 30′s. It is imperative to start saving as early as possible to ensure a retirement that you will enjoy.
That seems like a reasonable estimate.. Unfortunately, I am nowhere near 1 year of my income in my 401k.. and I am well over 30.. So I am starting a bit late..
But since we have a plan and are fully committed to it, I don’t see why we can’t make up for lost time..
You can absolutely make up for lost time. You are still very young. =)
That is not entirely surprising that the average person 55-64 only has an average of $120,000 in retirement accounts. I think a lack of education and a mindset that I will start tomorrow has led to that.
Sean @ One Smart Dollar recently posted..Gangnam Style in America
I wish that our high schools took the time to show kids the reality of not planning for your retirement.. They show scary pictures of STDs to scare kids out of having the sechs.. Why not show them pictures of grandma eating dog food in a similar vein?
Your post is the counter to what I used to see daily: people coming into my office because they’re 50 years old and have just started thinking about retirement. Ugly. Hopefully many of them saved enough to buy the premium dog food!
AverageJoe recently posted..Why You Shouldn’t Invest Like President Obama
I bet, Joe.. I can only imagine what you see when folks come through your door having made no proper planning at all..
It’s pretty scary to see how little most people have saved for retirement. Being a financial advisor and helping people transition to that stage in their lives has certainly been eye-opening. People have absolutely no clue when it comes to understanding how little their assets can/should actually pay them in retirement. Some people feel that they’ve done a great job by accumulating $250,000…but unfortunately for them that means they can only safely withdrawal $10k/year without having to worry about running out of money.
I’m not sure about you, but you can’t do much with $10k/year.
WorkSaveLive recently posted..Recipe: Vegetarian Enchiladas
$10,000 a year won’t buy much more than dog food.. And certainly not the “retirement” that I want.. $250,000 sounds like a nice amount, but the reality is that we will need exponentially more..
I am so glad I read Pf blogs in college and started saving for my retirement immediately with my first post college job. I am willing to save a big chunk of every paycheck so that I hopefully have the opportunity to retire how I want to. No dog food for me!
Lance@MoneyLife&More recently posted..Is Being On Reality TV Worth the Money If You Don’t Win?
I always knew that retirement was important.. but I can’t say that I ever made it a priority until recently.. Running the numbers and realizing that you will need more than you think, can be quite a revelation.
Those are some scary stats. Eating dog food during retirement doesn’t sound too appealing. I’ve been trying to think about retirement more these days, but I can only work so hard saving money and building up income. It’s looking more and more that I should just go back to school asap to start making more substantial money and possibly get a pension and/or retirement savings matching. As it is right now, both of those things just won’t be there in my industry.
Modest Money recently posted..Catering Your Blog To Your Readership
Good point, Jeremy.. The options related to pensions/401ks vary wildly industry to industry, and company to company… To top it off– In a crippled economy, many companies cut back on these benefits even further. In that case, you are on your own entirely to get your retirement kick started.
This post was a real eye opener Jefferson. Thank you. It just reminds me even more, that after we pay down our consumer debt, to really get in gear about funding our retirement.
Mackenzie recently posted..Things You Will Never Hear Me Say
It was an eye opener to me as well, Mackenzie.. I am in the same boat. Retirement is priority 1 when we get our debts paid off..
I’m still hoping my plan of attracting someone from the uber-wealthy crowd comes through. If not, then maxing out my IRA is a close next step.
Kathleen @ Frugal Portland recently posted..How Heartbreak is like a Water Pitcher
Hah.. Funny, Kathleen.. Your initial plan is certainly the easier road.. But far from a certainty. Best to have a back-up plan, just in case..
Good points here. I think everything is rational, and enjoying the good life now and not saving, outweighs the pain of living like a pauper in retirement. As a result, I don’t worry about everybody, because everybody does things that make them feel good in the long run!
Financial Samurai recently posted..Definitions Of A Middle Class Income: Do You Consider Yourself Middle Class?
Eh.. I think if someone is only enjoying life right now, without considering that it could cause you pain in the future.. Then they are not rational at all..
Oh, but they are, b/c everybody knows that it is irrational not to save for retirement. Hence, people have a strong belief they will be OK in retirement thanks to the government, support elsewhere, or getting another job.
I truly believe there is WAY more wealth out there than we know. Stealth wealth!
Financial Samurai recently posted..Definitions Of A Middle Class Income: Do You Consider Yourself Middle Class?
When I get any kind of regular, steady income this will be serious business for me. I’m closer to retirement than most in the pf blog world, and it scares the hell out of me!!!
Budget and the Beach recently posted..How the Other Half Live
I know that you have had some struggles lately… And I do hope that you guys find some steady income sooner than later!.. And yes, when all that gets sorted out, you should certainly makre retirement a priority.
With all of the fancy dog food advertised NOW maybe it’ll taste even BETTER when I retire. Just kidding! Ugh… I’m worrying about survival now, save later. Just crazy how fast someone’s life can turn around.
Veronica @ Pelican on Money recently posted..Make Your Credit Cards Work for You
don’t start thinking that the “do food” idea is an option, if only you can somehow get the “premium” premium dog food
Wow, that is a scary thought. I’m only in my twenties, so I’ve already come to terms with the fact that social security is basically kaput. I’ve always pictured the “traveling” aspect of retirement because my grandmother was lucky enough to go wherever she wanted- however this was because both her and her 2nd husband were doctors. In the next few years of my life I’m definitely going to start a retirement plan. I know my friends will be like, “what?” but after reading so many personal finance blogs, I know its the right thing to do.
Kelly@Financial-Lessons recently posted..What Debt Collectors Can do and Not Do
Kelly, if your friends give you grief for considering your retirement, then you probably shouldn’t be consulting them for financial advice
You don’t need to start lowering your standard of living considerably.. You just need to have a plan. Saving even a small amount now, will help you down the road.
I’m so glad you’re writing about this because it really is a topic people need to start thinking more about. Even though I can’t even imagine being retired, I know that I have to face the reality that retirement isn’t even necessarily a choice – even if you could work forever, it can be hard to do so based on your health plus the way some companies view their elderly employees. My fiance and I are finally starting to take retirement savings seriously so hopefully we’ll have options when that time comes.
Shannon-ReadyForZero recently posted..Why I REFUSE to Play the Credit Score Game
Eventually.. Our bodies will break down.. Our minds won’t always be capable of processing things as quickly as they do today… At some point, we have to realize that our earning potential wont always be the same..
It amazes me how many of my parent’s friends aren’t ready… I know I like to harp on my generation to get it together but I don’t think our parents have it figured out quite yet either. While many of us save for retirement, the biggest issue I see is “catastrophe savings” (like what happens if you’re incapacitated or need serious surgery as you age?) and is your health insurance ENOUGH and does it cover things like physical rehab or long term care?
My Gram was doing just fine living off her savings until she fell and broke her wrist, suddenly the coverage and savings she thought would get her through her 90′s wasn’t nearly enough… it was a lesson for sure! Luckily she did have enough, but we were all astounded on how bad things can get when your health care provider and insurance get picky on what they cover and offer.
Shannyn @frugalbeautiful.com recently posted..Unapologetically Strong…A Personal Post With Degree
This is a positively GREAT point, Shannyn.. The older you are, the more likely you are to have unexpected serious medical issues.. If yo have little to know savings before that point, you may be in for a bit of a shock when your insurance (assuming you have it) doesnt cover as much, or when you can’t work AT ALL immediately after the issue..
Great point on prioritizing paying off debt before retirement savings. I know some might disagree, but just think if you throw what you’d put towards retirement at your debt. It would get it paid off quicker, plus you’re freeing yourself of the burden of the interest and debt. Then, once you get the debt paid off you can start throwing it all at retirement. That said, I would still take full advantage of a 401k match as you don’t want to give up free money.
John S @ Frugal Rules recently posted..7 Frugal Ways to Save Money at Costco
Make no mistake about it.. Our goal first and foremost is to get out of debt.. Our financial path after that point is becoming clear as time passes on.
The house we just bought was owned by an older couple and inherited by their three children. We bought the house for 193k, and they are going to split it three-ways. For one of the siblings, the money they get from selling this house is their “retirement plan.” If that’s not a scary retirement thought…I don’t know what is.
DC @ Young Adult Money recently posted..How to Make Money on YouTube
That is a scary thought, DC.. I wonder how many folks had that same thought before the housing market crashed!
I definitely picture myself traveling or being on the beach instead of eating dog food, but that’s just because I realized if I wanted that retirement plan I had to start saving and making a plan asap. I don’t want to be old, poor, and eating dog food from a can, no way!
I’m with you.. living a life of poverty is not how I want to spend my final years on this planet.. I want to spend it spoiling my grand kids and great grand kids..
I definitely picture myself being able to live comfortably in retirement. I’m not saving anything right now, since I’m still very, very young, but my fiancée isn’t as young as me, maybe I’ll start harping on him to save. It’s better to start early than be sorry!
Jordann @ My Alternate Life recently posted..Picking the Perfect Wedding Dress
The only way to live comfortably in retirement is to start saving for it.. Otherwise, you may never get to retire at all!
I want to not eat dog food either so I I’m starting to plan for retirement. Better late than never, right? One of things we’ve discussed is where we would want to live and other random things. We know eventually we want to buy a house and we also know that we do not want to be paying it when we retire. We both would like to take vacations/travel so we know we have our work cut out for us now.
bogofdebt recently posted..Updates
I am the same way with travel.. I LOVE to travel, but it is so hard with children that we don’t get to do it near as often as I would like.. So when I am older, and the kids are out of the house.. I want retirement to be a big part of my life… I want to have the funds to see all corners of the globe.. Which means I need to save a lot more, I am sure.. I highly doubt that air travel is going to get any cheaper in the future.
Thanks for the wake-up call. Retirement is definitely not something I associate struggle with. I picture a carefree life, generous giving to family and others in need, and traveling. I only have about $16k in my retirement accounts, but am really working on getting my income up over the next few years. I hope to get to a point where I can contribute 40-50% of my income toward retirement accounts and still live comfortably.
I think you’re dead on, as the numbers show that most people just DO NOT PLAN WELL for their retirement. I don’t know if it’s fear that they started too late, or what, but it’s definitely scary to think about retiring and running out of money within 5 or 10 years.
Jacob @ iheartbudgets recently posted..How To Save Money: New Dishwasher
I like that a lot, Jacob.. “Giving to those in need” is also something that I want to be a big part of my later years.. I want to spoil my grandkids rotten and pay to take them and their families on awesome vacations
And I also want to help those in need as much as I can..
I sure have a lot of plans for this money that I don’t even have yet..
Some of those stories of homelessness are heartbreaking!
Brian and I hope to have a very comfortable retirement, hopefully even an early retirement, so we’ve been planning and saving pretty aggressively.
CF recently posted..Eating well while traveling
Yes.. The stories are indeed heartbreaking.. I hate that in this modern world of comforts and luxuries that anyone would have to go hungry enough that doing something like eating dog food even enters the realm of possibilities.. But we can’t rely on anyone but ourselves to take care of us.. Because of that, we need to be prepared.
I love the title!
I certain that I will be able to live comfortably when I retire. That is my top priority as of the moment, so I have set up a plan on how I can reach that goal. The key is to start early and try to pay off all your debts before you retire or have enough assets to cover the debt load.
Dominique Brown recently posted..How I Order My Free Annual Credit Report
Good call, Dom. Making a solid, realistic, and attainable plan is the first part of the battle.. That is how we have been climbing out of debt, and how we will start to build our retirement nest egg.. It all begins with a plan.
You make a great point about not having the same level of income when we retire, and standard of living taking a hit, but I’d also like to point out that your living expenses should decrease in retirement as well – no commuting costs and lunch costs associated with work, etc.. one of the HUGE problems I see with Boomers is their taking on of student loan debt for their kids, and mortgages on larger homes held for less than 10 years.
When previous generations retired, they had little to no debt, but the next wave of retirees changes that…
Joe Morgan recently posted..I Was Wrong About Gold Coins From Blanchard, Rosland And Lear Capital.
Absolutely.. Our expenses should be lower when we retire.. Which means that we won’t need the amount of money that we need today.. But there will still be food costs, property taxes, utilities, home and vehicle maintenance, and an increased health care cost.. Social security wont even come close to covering all of that, even if our homes are paid off and we have no credit card debt..
Great point about older folks taking on huge mortgages and student loans.. How do they expect to be able to pay those off in retirement?
Yeah, this post is certainly motivating. Like anything in life, you have to be forward thinking. An unfortunately that is a quality so few people possess. Saving for retirement now is a priority! My parents are older and they probably haven’t saved as they should. Luckily, they both worked in major companies with pensions, but I can’t imagine what it would be like if they didn’t have that and social security.
Johnny@ Easy Financial Tips recently posted..Warning Signs of an Unhealthy Business
Part of me wishes that I had lived in the time of yore, when pensions awaited me to help cover the costs of retirement.. But the reality is that they don’t.. Even my 401k is tied up directly in the stock market and as such, there is always a risk that my savings could get wiped in a market downturn. We have to diversify and be prepared for anything..