Which of These 7 Fantasies Could Wreck Your Retirement

Category: Financial and taxes in retirement

May 27, 2013 — Several recent surveys of current and prospective retirees paint a very disturbing picture about retirement in America. The data made us realize that we American workers are kidding ourselves- with potentially dire consequences for our retirements. The studies drew us to come up with 7 dangerous retirement fantasies. Following those we have included the supporting data from the surveys.

The 7 biggest lies that workers tell themselves about their retirements:

1. I can’t save any more than I do. The fact is that if you are working, there is always something (clothes, alcohol, tobacco, eating out) you could cut to save a little more.

2. I will solve my retirement problem by working past 65 or even longer. Sadly, even though people say they will work, what they don’t count on is losing their job or their health. Some 42% of current retirees stopped working before they were 60 (Source: BlackRock and Boston Research Group poll).

3. Once I retire I will find some full or part-time work to supplement my income and give me a comfortable retirement. Fact: only 25% of retired workers have any employment income

4. My 401k or savings will provide the bulk of my retirement income. Fact: only 15% of retirees get 25% or more of their retirement income from their 401k type accounts. About half (47%) of Americans 45 and over have less than $25,000 in savings

5. I will have enough saved to last my lifetime. Fact: Only a quarter of workers think their savings have to last more 30 years. But people are living longer – what happens if you retire at 65 and live 30 more years? Or if your spouse survives you beyond that?


6. Medicare will take care of my medical expenses. Fact: A retired couple will need somewhere between $220,000 and $293,000 for ordinary health-related expenses for 20 years of retirement. (Society of Actuaries (SOA) using data from Health Care Cost Institute (HCCI)

7. I have a good idea of how much I’ll need for retirement, and how to invest it. Fact: 45% of workers just guess how much they’ll need for retirement. Only 18% have asked a financial advisor for assistance in determining that amount, with just 23% using a financial advisor for investment advice.
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Alarming Data
Consider these snippets from the surveys (see Further Reading below). What makes the data even more alarming for the future is that many current retirees, particularly those with traditional defined benefit pension plans, have it better than younger workers.

– Seven out of 10 workers say they will work for pay after they retire – yet only 25% of adults over 65 actually have any work income
– Although many more current workers are now much more likely to say they will work past 65, almost half (47%) of retired workers reported that they had to retire before they intended (usually because of poor health or a job loss)
– Adults aren’t saving nearly enough to pay for a comfortable retirement. Half of Americans (47%) 45 and over have less than $25,000 in savings (ERBI survey). Only 57% of workers are saving for retirement
– Mathew Greenwald, who heads the research firm that conducts EBRI’s annual survey, believes that Americans’ explanation for their saving troubles is “not really true” – most of them could save a little more if they wanted to
– EBRI research found in 2010 that 60 percent of those 65 or older received at least 75 percent of their income from Social Security. One-third get at least 90% of their retirement income from Social Security
– Defined benefit pension programs (fixed payments regardless of contribution) are very rare now. And only 58% of American workers are enrolled in pension or 401k type plans
– About half of workers (48%) assume that their 401k will be their largest source of monthly retirement income. But only 15% of retirees get 25% or more of their retirement income from their 401k type accounts
– Retirees aged 61-70 are taking out alarming amounts of money from their 401ks – before they are required to age 70.5 (EBRI)
– Some 28% of surveyed workers say they are not at all confident about being able to have enough for a comfortable retirement.

For further reading:
Retirement Lie: The Big Lie and the Big Fantasy
Retirement Expectations Vs. Reality
Blackrock Annual Retirement Survey
Low Earning Retirees Hitting IRAs Hard Before RMD at age 70.5
EBRI’s 2013 Retirement Confidence Survey
Retirement Health Care Tab is Surprising
How They Do It Elsewhere

Comments? What do you think – do you have any of these fantasies? What do you think could be done to encourage American workers to do a better job of preparing for retirement? Should companies require participation in 401k programs. Should the federal government require mandatory participation in a new retirement savings program (such as in Australia and Chile).

Posted by Admin on May 27th, 2013

21 Comments »

  1. Good list.
    Here is another fantasy:

    “I will live in my home until I die.” If you want to age in place as long as possible, be sure to integrate universal design principles into your home, such as a curbless shower, “comfort height” toilets, non-skid flooring, wider hallways, a first floor entry w/o steps, and a first-floor master/bath or room for an elevator (some people stack closets that can become an elevator shaft). For a free guide, go here:http://www.toolbase.org/Home-Building-Topics/Universal-Design/aging-in-place-checklists

    Jan Cullinane, The Single Woman’s Guide to Retirement

    by Jan Cullinane — May 28, 2013

  2. Another one is that you only need to save for yourself and/or your spouse (if married). Fact is most retirees still provide some kind of support to their adult children and most always spend money on the grandkids, and do not forget your own parents needing help, lastly all of those worthy charities out there wanting your donations of time and/or money.

    by Bob — May 28, 2013

  3. Well, I think this is all well and good. But for those of us who have lost our houses and all of our retirement money to live, can’t find employment nor save, then what? You savvy people….have you lost your job through no fault of your own and gone through all your money to just survive? Have you had two major surgeries (thankfully had insurance), and been unable to return to your lucrative job? None of this stuff is ever addressed and quite frankly you lneed to address what people like us do ….thanks.

    by mmaccaux — May 29, 2013

  4. Regarding these 7 fantasies, I couldn’t agree more. The vast majority of “struggling” Americans bite off more than they can chew, living in debt and assuming that’s okay. I’m 50 and am definitely ready for retirement–I’m just waiting for a buyout/early retirement offer so I will get my full pension. I wouldn’t consider myself lucky because I have health problems that have worsened in the years I have cared for my elderly mom, and I’m extremely frugal, having sacrificed many luxuries. The sooner I can retire, the more I will be able to do the things I enjoy while my health is still okay.

    I’ve been saving money since I was a teenager. I chose a secure (but not my preferred, more risky) career path with the Fed. Govt. after getting my graduate degree. I’ve sacrificed more luxuries (vacations, smart phones, eating out, cable TV) than most people on public assistance have, but I like the peace of mind of a large safety net and no debt. I paid off my home ten years ago, and I have been debt-free ever since. Although I’m single and have no kids, I have expenses too, including house upkeep, healthcare, elderly pets, and my elderly mom. But I’m not greedy either: I have helped pay for my nephew’s education, and I donate to charities.

    My TSP account will provide about half my retirement income if I live until 85. And I don’t rely on Medicare or Social Security. I predict my healthcare will be my biggest retirement expense. I bought a small long-term care policy at age 40 before my health began to decline. Most single folks with no children shouldn’t buy long-term care insurance, but I wanted that extra safety net.

    In retrospect, I’ve sacrificed many luxuries over my lifetime by working so hard and spending so little, but I don’t feel I’ve suffered by being frugal. I’m responsible for myself and have nobody to rely on, so for me, the long-term safety net is essential. My only regret is not having a child (yes, only one because kids are expensive). Maybe I didn’t have as much “fun” as others and wasn’t as carefree, but being debt-free and not having to worry about my future finances is buck fun for me! (no rhyme intended)

    If I had young ones just starting out, I would suggest they choose a trade career (electrician, hairdresser), where they’d always have a job regardless of the economy, weather, etc. Some high schools even train students for these careers, so they can avoid outrageous tuition expenses. Then I would advise them to invest as early as possible and take advantage of compounding interest.

    by Bootsy — May 29, 2013

  5. I would like to hear from folks retired for one year in regards to item #7. Many say you need anywhere from 70% and up to 90% of your final years net income when you are retired. So, those that have retired, what number would you say one should plan on? If your total household net income in final year is say 70,000, that spread means anywhere from 49,000 to 63,000 in retirement income from all your sources. That is a pretty large range. I am thinking about retiring in 1 or 2 years and trying to figure out what is an accurate percentage to plan on? So retired folks, what say you???

    by Billy Bap-AZ Bound — May 29, 2013

  6. :mad:I have retired in Las Vegas, NV. The worst things not talked about until one is confronted with them 1. Cigarette smoking is a state past time. It is impossible to get away from cigarette smoke. This state has no interest in preserving ones lungs and breathing. It is the worst I have seen in 20 years. 2nd. Desert dust is never mentioned until one finds themselves choking and coughing. The sun is wonderful, but between the cigarette smoke and the desert dust, I live in a mask much of my time when I am not in my apartment. They also do not cater to non-smokers at all. Maybe your apartment is non-smoking but your neighbor is puffing away outside your doors and windows and sharing the vent system with you. Instead of making sections non-smoking, my mangement treats me like I am a problem and claim they can’t do it as it would be against the law. What a scam. I am almost imprisoned by the smokers in this community I live in as management offers no non-smoking areas. Very disappointing. Don’t come to Vegas if you plan to breathe!

    by Sag1127 — May 30, 2013

  7. Billy Bap: ” Many say you need anywhere from 70% and up to 90% of your final years net income when you are retired.”

    Maybe this is accurate if you live pay check to pay check, but for us it will not apply. We have planned for about 33% of our current income in retirement. We came up with a dollar amount based on our expected costs, rather than taking a percentage. Your expectations in retirement, a rural low key one like ours focused on free outdoor entertainment and RV travel, or the Cadillac retirement with world cruises. Until you understand what your requirements are, you cannot anticipate your costs.

    Some things we will not be paying for in retirement: commuting, work wardrobe, high taxes and SS, living in a high cost of living area with expensive housing and high property taxes, saving for retirement and college costs for the kids. Our retirement home was bought out of preforeclosure very reasonably for cash, so no mortgage, very low taxes, low insurance costs.

    The big question for us is health care. It is so unpredictable, unable to be locked in, that we made sure we had a $20,000/year extra just in case. Years we don’t need it we’ll continue saving those funds, or use some of it for small luxuries. We are low maintenance.

    by Julie — May 30, 2013

  8. To Billy…

    Although not retired yet, I will be retiring next month – June 30th – close but yet to far away…

    To Plan For Retirement – 2 years ago we determined what our retirement income would be and continued working. Our budget then was cut back to our projected retirement income only and any extra was put into saving. At 1st it was a little difficult, but we eventually found that we could live comfortably on 80% of our current base income and still manage to save for a rainy day.

    by Russ — May 30, 2013

  9. Ditto what Julie said. That’s a great way to strategize. Move to a place with low cost of living, eliminate any mortgage, and live low on the hog until you’re sure you have enough to blow on luxuries. Then the only worry will be healthcare, and the more cushion you save, the less you worry.

    by Bootsy — May 30, 2013

  10. mmaccaux — There is an elephant in the room and you have acknowledged it. Thank you. Many of us, for one reason or another, don’t have the nest egg we may have planned (or even “strategized” for). Everyone has a different tale to tell. Mine is that I’ve been self-employed for the past 30+ years as a bookstore owner. Even though my husband and I tried to be smart about keeping the business alive while seeing bookstores close all around us, our sales have gone down more than we could ever have foreseen.
    Now we’re officially poor, though we work as hard as we possibly can, seven days a week. Poverty is nothing to be embarrassed by or humiliated about.
    Bad things happen to good people.
    I love bookselling, and I never thought I’d ever retire from this business, but pretty soon it might make sense to clear out and reinvent ourselves somewhere that doesn’t have so much snow and upkeep costs.
    I’m thinking — low-cost places with opportunities for part time work for semi-retirees. I’m still wondering about towns with venues for local artists and the tourists and/or locals to buy them. That’s what I’ve started to do here, with some success (but I know I can’t make a living from it)!
    More older people are in similar positions to ours than you may think, and I’m sure we’d be amenable to hearing some advice we could apply to our own situations! Thanks!

    by Judith — May 30, 2013

  11. I would also like to find a place where there exists opportunities for part time employment. While I am looking into various locations in Florida, what are the chances of finding part time work there among the multitude of other retirees? On a limited retirement income, part time even minimum wage employment would make a difference. Not to mention get me out of the house. So low cost living, part time employment – advice anyone?

    by Pam — May 30, 2013

  12. Billy Bap-AZ Bound says
    I would like to hear from folks retired for one year in regards to item #7. Many say you need anywhere from 70% and up to 90% of your final years net income when you are retired.

    30% – I started saving at age 30.

    by Mark — May 30, 2013

  13. Mama caul and Judith…I’m going to be long-winded, but hopefully helpful. I retired early in 2005, but I made an unfortunate investment choice that turned out to be a Ponzi scheme and lost 220K. I also owned three homes, all of which went upside down in the mortgage crisis. And I lost money in the stock market crash. I lost about 500k in 3 years. So I went back to work to try to plug the hole in the dam. Worked for 3 years for the state of ny as a systems analyst. Quit that job in feb due to illness and stress. I filed bankruptcy last summer and now have no credit. So what will I do? I have found a few strategies..
    Get a subscription on line to Work at home Gazette and watch for jobs u may be able to do from home. They usually pay only 8 or 9 dollars an hour, but this is way more than not working. And it doesn’t cost to work from home…no clothes, no commute, no lunches out.
    Eat at home and look for ways to eat well cheaply. Now that u have more time, you can take the time to make yummy soups out of tough pieces of meat or a turkey carcass. Make a pot of beans to use in soups and salads. Be creative. Eat more veggies. Better for your health and cheaper.
    Look for clothing in thrift or consignment shops. Doesn’t have to be the latest style when u stay home.
    Cnsider renting out your spare bedroom thru http://www.airbnb.com. Meet a lot of fun people and make some money. When u trial, look for places to stay on airbnb and avoid high hotel costs.
    Always maintain your vehicle well. Frequent oil changes will make that engine last longer. If u haven’t already, get into a vehicle that gets good mileage. If possible, garage it. Your insurance will be cheaper. Drve carefully and avoid tickets and fender benders that raise your rates.
    Get rid of your expensive phone and get a phone thru Walmart. Unlimited long distance, text, and Internet for $45 month. Get rid of your house phone.
    I am looking or a mobile home in a community somewhere warm. I think I can get a reasonable place for $25k or less and pay cash, then only have monthly dues. I think I can find dues under $400 month. Will the place be new and large…probably not. Will it be sufficient for me and my little dog? Yes. I intend to get at least 5 more years out of my 10 year old Toyota…it only has 110k miles. In that time I will save in order to pay cash for my next (used) car.
    I will move to a place where (hopefully) I can walk to shop if I need to. Ad a place that has hr block tax offices…I work for them during tax season. They are great about hiring seniors.
    I start receiving my soc sec in sept (I’m 64), and I have a small Ira. But I can earn money in addition, and I plan to. I plan to keep saving as well. By the way, the only reason I will pay cash for my mobile home is I have no credit. I’m just hoping somewhere will be willing to take a chance on a resident who filed bankruptcy.
    I think I have additional tips but must go..have a meeting to attend. I’ll post more later. cheers!

    by Ginger — May 30, 2013

  14. Mmaccaux and judith…Well, my meeting cancelled. I wish my iPad didn’t correct so many things…it corrects things I don’t want corrected!

    Additional tips…I hope to find a community that has a pool and gym on site. No membership fees for a gym, and exercise will help me stay healthy longer. I will pick a state with best tax situation..probably Arizona…maybe Nevada. Also because I will work from home as an Independent contractor most of the time, I can have some business write offs to help with my taxes. If I move back to the west I will also be closer to family and can drive to see them…or take a bus. Whatever is cheaper. I make it a point to cultivate friendships with younger people. Sometimes neighbors, sometimes people I meet thru clubs, etc. this comes in handy when I need help cleaning out my garage or moving furniture. And it keeps me young.
    I read…libraries are fabulous for saving money. You can also get a lot of cheap or free books thru either the Barnes and noble Nook app, or the Amazon app. Likewise, I play games online like Lexulous and Words with friends. Free, fun, and you meet people. I have not had tv for several years. If I want that, I have Netflix and hula. Much cheaper than tv. I do have Internet at home and would not be without it. I also spend money on certain supplements that protect my health, like omega3 oil. Very important to take care of our health. I’m currently studying baking and improving my pie recipes. Working on making gluten free and sugar free desserts. Then, when I find my community, I hope to be able to sell them, at least to my neighbors. I also write and edit and am looking for ways to use those skills to earn money. I also have a group of friends that get together for ‘swaps’. Sometimes we swap clothing and shoes. We have also swapped furniture and household goods. This is a super good way to recycle things and save money. If you live in a retirement community, see if you can do some swaps. Fun and a way to meet folks.
    If you can’t even afford a cheap mobile home (and you can find them as low as 12 or 15 K) then watch for rent to own opportunities…I see them all the time. Another thing is selling things you don’t need on ebay. If you don’t know how, there is a book called ‘how to sell on ebay for dummies’ that will tell you what to do.
    When you buy new clothes or shoes, buy online from Lands End or LL Bean. Watch for sales. The advantage is that you can return anything at any time, even if worn, no explanation needed. Tis is great when you are hard to fit, or if the item doesn’t hold up well or shrinks. Just return it for a replacement or a refund.
    Ok…I’m going again. Hope these ideas help someone.

    by Ginger — May 30, 2013

  15. Billy bap….I spent a lot in my first 3 years of retirement, because I was stupid and thought I had a lot…then I lost most of it. Now I find I can live pretty cheaply. See my post above for tips. Here are some others…get rid of your magazine and newspaper subscriptions…most are available online, or a good substitute. If you have space and time grow vegetables. Fun and, if you can, will save you money. If you travel, travel cheap. Use kayak to search for fares. If domestic, compare bus, train, car and plane to get best deals. Plan ahead. Stay at airbnb homes or hostels. Always save. Take your saving off the top of your income and pop it into an IRA. If you have any substantial amount of money, see investment expert and get some help.

    On the whole I am living on less than 50 per cent of what I used to….and I’m fine.

    by Ginger — May 30, 2013

  16. I have a few suggestions to add to Ginger’s living on the cheap. I guess I was fortunate to be dirt poor in putting myself through college, and because of that became a serial saver.

    For clothing, I am a huge fan of Kohl’s clearance racks. You typically have to buy a season ahead, but the savings are ridiculous, particularly if you have a 30% off coupon to go with the already 80% reduced prices and Kohls cash bonus. It is rare that I buy something that is not on extreme sale. Kohl’s also has a very generous return policy if the product does not live up to your expectations, even if already worn.

    Or look at resale shops. I prefer the ones that are affiliated with a hospital, or in a good area, as opposed to many of the chains like Goodwill. There are some decent Goodwills out there, but go where the quality donations are.

    For furniture, I’ve bought most of my things at auction. It’s bigger in some areas than others, and not all my purchases have been a huge success, but I’ve had some stellar deals. And it is a way to meet people on a weekly basis, as the same people tend to go week after week.

    I’ll second Ginger’s suggestion of soup. A pot of turkey soup with lots of veggies is what kept me from starving during college. It is cheaper to eat healthily than not. Find a good source of vegetables, though, such as a green grocer. The quality tends to be better and much cheaper than the grocery store, which charges excessive prices on produce. And buy your meats on sale, freezing what you don’t need right away.

    And how about those extra rooms in your house? There are people of all ages out there who are looking for a reasonable place to live. Get a housemate or two. Or if you are in a tourist area, and what isn’t these days, look at putting your place up for rent during season. Homeaway.com is a good place to look to see if there is a market for your area. Renting out by the week this way can gross you what the place would rent for the month on a long term rental.

    I realize that none of us wanted to have to economize in our retirement, perhaps even dreaming of the Cadillac world cruise version, but if you have to economize it can be done. Perhaps it even should be done, to conserve the assets you have for future uncertainty. Take it from someone who has done it both ways, economizing is much more fun when it’s voluntary than forced.

    by Julie — May 31, 2013

  17. Ginger & Julie —

    Many thanks for the useful tips! Husband & I are already doing much of what you suggest. We always cook at home, and I get my clothes (except underwear!) at the local thrift shops, where there are usually a few gems to be found (L.L. Bean, Land’s End, Nordstrom, and Jones New York!) for a pittance. At times living within a very strict budget can almost seem like a game — except of course the mortgage lender doesn’t think of it that way http://www.topretirements.com/blog/wp-includes/images/smilies/icon_confused.gif🙂
    Anyway, we’re getting by. Working full time at the bookstore (which, by the way, is in the same building that we live in so there go any commuting problems!). Also no place to put boarders, I’m afraid. On the bright side, no separate storefront rent. Husband has taken a few jobs as website consultant and part-time auctioneer. He also just got $400 worth of gym equipment for $40 via craigslist so no more gym fees. Since I own a bookstore, I’m never at a loss for something to read — no nook or kindle for me! We have internet access because we need it for the business (selling books online as well as in the shop).
    Anyway, I’ve gone on too long. I want to particularly thank Ginger for the Work at home Gazette suggestion — sounds right up my alley since I already basically work at home.
    Also appreciate the low-cost housing suggestions — We have been thinking manufactured/mobile for a while but will have to take a trip to personally check out what these are like.
    Cheers and thanks again! Now, if I can figure out how to sell This Old Building I’ll be on my way —

    by Judith — May 31, 2013

  18. Thank you everyone for great suggestions!!
    Our main concern is health care. We are currently semi-retired (working a part-time job) and getting health insurance through my husband’s job. We are about 4.5 years to go to get Medicare. How much do you think we should put aside if we have to buy insurance until Medicare kicks in? My husband has chronic condition and we can’t be without health insurance.

    by Francesca from NY — June 1, 2013

  19. I have posted here before. Long story short. Both my husband and I have cancer. He is on hospice and I am doing well. We are on Social Security Disability. I was luck with my job to have a long term disability policy that paid 2/3 of my salary until I am 65. Which is good for us since it gives us a better income that what our projected retirement income will be. We cut costs immediately by selling our house in NY and moving to a condo in Florida which is near my parents. They helped to decide on the best community for us since I am disabled. We chose Century Village in Boca Raton for 4 major reasons, the bus service included in the maintenance inside the community and outside to all the shops and other important areas of Boca Raton, the heated indoor pool that is all year round, the clubhouse and community activities, and the cost of the condo and yearly maintenance. I could live easily on only my social security after 65.
    Healthcare cost is a problem. Before my husband was eligible for Medicare, we paid almost $2000 per month for health insurance and then $1000 per month for me alone. I am finally getting Medicare in July. It has been a long 2 years. I will now pay $120 per month.

    by Joan — June 1, 2013

  20. […] Retirees Need Financial Advisors (US News) Choosing the Safest Investment Path (Jane Bryant Quinn) 7 Fantasies That Could Wreck Your Retirement (Topretirements) Can You Afford to Retire: And What to Do If You Don’t Like the […]

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  21. […] For Further Reference: See “Which of These 7 Fantasies Could Wreck Your Retirement” […]

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