Retirement Realities and Contingencies
By: Roger Nusbaum, AdvisorShares ETF Strategist
Stites on Estates took an interesting look at retirement intentions versus retirement reality along with a reiteration of the dismal statistics about how little savings people who are working have accumulated as well as how few dollars people have put away when beginning their retirement.
First, their table with the numbers of people still working.
Then their table with numbers of people who are retired;
My hunch is that people will look at the tables and either feel good about perhaps being in the $250,000 category or they will be glad they are not the only ones in the $10,000 or less category, in fact they have a lot of company.
The above is data that you have seen before in one form or another. The other point made that is discussed less frequently is how common it is for people to plan to work into their late 60’s or early 70’s only to “retire” much sooner. I put retire in quotes there because people run into health problems that force their hand or their company runs into trouble that results in job cuts.
There are other two tables in the article that address this and they show that 35% of the people who retired in 2014 were 60 or younger and that 32% were between 60 and 64. This compares with 9% younger than 60 and 18% between 60 and 64 who expected to retire at those ages.
It is unclear whether there is any overlap of people but the tables are clear about a dispersion between expectations and reality and the consequence can be significant. It is easy to envision the scenario of someone who in their 40’s and 50’s saved a little for retirement but was more focused on their mortgage and kid’s college expenses who planned to crank up the savings rate in their 60’s and mortgage free with the intention of working until 70. Embedded in that scenario might also be the expectation for generally rising wages all the way through.
Part of retirement planning is the possibility that whatever you have in mind changes from the top down (something with your company or job) or the bottom up (your interests change or your hand is forced for health or family reasons).
If you’re reading this blog then you’re more likely to be in some of the higher categories for how much you have saved or you provide service to clients who are more likely to be in the higher categories. In that case you have some sort of plan for yourself or plans for your clients so what happens if planning for 68 becomes go time at 59? Being lucky enough to be in the $250,000 or more category doesn’t necessarily mean you are financially ready to retire nine years early. I would also add that while $250,000 may not seem like a large sum for this audience the numbers show that very few people have that much saved and so there is at least some element good fortune.
Ultimately a 60 year old who is 2/3rds of the way to their number who is forced to “retire” early will simply have to figure it out one way or another and that might be a scenario that is plausible for this audience versus having nothing saved. Someone who is 55 with $800,000 accumulated, believing they need $1.3 million at 64 who is then forced out of their job is certainly not ruined but they will need to figure a few things out.
This past weekend the Incident Management Team that I am on (this is a fire department thing) was part of the contingency plan for the Sedona Marathon in case the event turned into some sort of big emergency incident. I’m the Logistics Section Chief (trainee) and I spent the last couple of weeks arranging all sorts of resources we would need to call in if something had happened (it didn’t). I am still learning of course but a lot of bases were covered.
I think there is an obvious parallel to contingency planning for your retirement expectations. In terms of emergency preparation the marathon went smoothly but not every event does. Likewise not every retirement plan can go smoothly. Having something unexpected occur is beyond your control but having a contingency plan that covers a lot of bases is within your control.