Retirement, retirement, retirement. It’s all over the newspapers and magazines. It’s in the TV commercials and the news programs. It’s on the front page of Yahoo and Bing. Is that all we ever talk about? If you’re 25, or 35 or even 45 that’s a long time from now. And there is Social Security and Medicare to take care of you then. Can’t we just shut up about retirement already??!!
Unfortunately the answer is NO. There have been three enormous changes that have happened over the last 60 years or so. These changes have made retirement very expensive and very long term. They are:
- The loss of pensions.
Roll back to 1950. 32% of the US population was unionized and these people were virtually all covered by pension plans. Most major corporations also had pension plans. The majority of the population didn’t have to think about it. A combination of Social Security and a fixed pension meant you didn’t spend much time worrying about retirement income. But that has changed dramatically. Now only 11% of the population is unionized. And corporate pensions are all but gone. They have been replaced by voluntary 401k plans. Voluntary is just that. No pension now. If you want to have money for retirement, you have to save it yourself. - Retirement now lasts a long time.
In 1950 the average person retired at 67 and lived to 72. They were retired for 5 years. But today the average person retires earlier and lives into their 80s. They are retired for 25 years! The number of years that we must support ourselves has increased by 400% over the last 60 years. That’s a huge difference. - Health care costs are ever rising.
In 1950 if you couldn’t walk because the joint in your knee went out, they gave you a cane and sent you home. In a few years you’d be upgraded to a wheelchair. Total cost was probably $500. Today they replace that bad knee for a cost of more like $50,000. Much better quality of life, but 100 times the cost. Cancer treatments, transplants, stroke therapies, have led to much longer and healthier lives. But that stuff isn’t free. And it’s in retirement that you’ll be paying for those things. Even with Medicare, you’ll still be paying quite a bit for health care out of your own pocket.
What does this all mean? Two things. First, that you have to think about retirement as a regular part of your life from an early age. Retirement is much more expensive and lasts so much longer than it did just a couple of generations ago. We have to plan for it early. The second thing is really the key. What is the really big change here? The answer is self discipline. Before it was taken care of for you. You’d have a pension and some health insurance that you’d have for a few years. But now you are on your own, and for 5 times as long. We all MUST save a whole bunch of money somewhere that we won’t touch it. Someplace it will be invested for long term growth. Because we are going to need it. If you’re under 35 maybe saving 7 or 8% of your income will do. But if you’re 45 and in your prime earning years? You should be saving at least 15% of your income, and 20% is better. Yeah, that’s a lot of money. But it’s money that you will need. Retirement? We talk about it all the time. But talk is cheap. We all collectively have to put our money where our mouth is.