Do you love new things? Do you like driving a new car off the dealer’s lot? How about getting a new pair of shoes? We like getting new gifts but how about a new retirement? Are we ready for a new retirement?
Corporations continue to scale back on pensions and benefits. In 2015, 99 companies in the Fortune 500 offered a pension plan down from 292 in 1998, a drop of 66%. Only 9% of the Fortune 100 offer full healthcare benefits for their employees a drop from 34% in 2001.
My wife’s grandfather worked his entire career for a large oil company in Texas. He retired with a pension allowing him to receive a lifetime income stream for him and his lovely bride. The payments from his former employer would continue for as long as one of them was living. In addition, they didn’t have any out of pocket expenses for health and medical benefits, including drug prescriptions, as these items were covered by the company. His pension, coupled with his Social Security payments, allowed him to enjoy a substantial retirement income.
Today, workers will have 10 to 15 jobs over their working career with an average of 12. A college graduate who retires at age 65 may switch jobs every three to four years. By switching jobs often, a worker won’t accrue much in the way of company retirement benefits. If you join a company with a 401(k), you may have to wait a year to join and if you leave before year end you might forfeit an employer contribution to your retirement plan. By repeating this process over time, a lot of money will be left on the table.
Living longer is also causing heartache for the retiree. A long, happy retirement can be enjoyable especially if you have money but longevity risk is making this a challenge for some. According to the Motley Fool, Social Security will cover about 40% of your retirement income and the average monthly benefit will pay $1,350. This means you’re responsible for the other 60% of the financial pie. According to the Social Security life expectancy tables an individual aged 65 today will live another nineteen years to age 84. Will your assets generate income for nineteen years?
What does this mean for today’s worker? We have entered a brave new world for retirement. The responsibility for retirement is now on your shoulders and you must bear the weight of making your money last a lifetime. However, you’re not alone. With the right help, you can achieve your goals.
To start on your new journey, you’ll need a plan. A financial and retirement plan will give you a financial target and this will be your guiding light as you journey through your working career. Your financial plan will outline the amount of money you’ll need to save to achieve your goal. To achieve your goal, you’ll need to commit to it as well. I met with a friend recently who was bemoaning the fact he didn’t have enough money saved for retirement. We talked about a few ideas but he wasn’t willing to commit – yet. He likes to eat out often and his Facebook page shows him on elaborate treks with his family. At some point, he’ll need to bear down and get serious about his financial future.
In addition to your new plan, you must save money. Contributing to your company retirement plans, IRAs and investment accounts is paramount. Saving money today will pay dividends tomorrow. A worker who starts saving a $1,000 a month at age 25 will have $6.3 million at age 65. Her nest egg will be worth $759,000 If she waits until age 45 to start saving money, a drop of 87%! Automate your savings to help accumulate assets by establishing a draft between your bank to your investment accounts.
You can control your spending and saving. The less you spend and the more you save will be a winning formula for your new retirement so start today and put your plan into action! I know you can do it!
All hard work brings a profit, but mere talk leads only to poverty. ~ Proverbs 14:23
Bill Parrott is the President and CEO of Parrott Wealth Management. For more information on planning and investment management, please visit www.parrottwealth.com.
July 13, 2017
 https://www.businessinsurance.com/article/20160222/NEWS03/160229986, by Jerry Geisel, 2/22/2016.
 http://fortune.com/2016/03/30/employer-paid-health-insurance-is-dying-off/, by Lauren Lorenzetti, 3/30/2016.
 https://www.thebalance.com/how-often-do-people-change-jobs-2060467, by Alison Doyle, May 1, 2017.
 https://www.fool.com/retirement/2016/10/23/can-you-live-on-social-security-alone.aspx, by Chuck Saletta, 10/23/2016.
 FV calculation with assets growing at 10% before taxes and fees.