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So may people treat retirement like it is some sort of nirvana. I know for so many years all I heard from the people around me (mainly in the corporate cube) was them yearning for and dreaming about retirement. And these weren't only people who were a few years away from it. No. People who were "only 10 years away" or "only 15 years away" and they would pine and weep and wish away the years so they could get to retirement. I never understood that. Not when I entered the full time workforce at the age of 21 and not now. Why would anyone want to wish their life away for a "someday"? As I've seen the nature of employment and retirement make a radical shift over the last 17 years it seems to me that this pie in the sky retirement vision is a thing of the past. That doesn't mean retirement planning goes away, it just means that it looks a lot different than it did a few decades ago.
We've shifted from a system where you worked for one (maybe two if you were a rebel!) employer for life and they basically gave you a cushy pension on which you were able to live comfortably with a little social security thrown in for good measure. Today, traditional pensions are an endangered species and people no longer work for one employer for an extended period either by career choice or the simple fact that downsizing, rightsizing, and mergers have made it almost an impossibility. The Financial Insider shares:
Traditional pensions. With these, most of the saving and investing is done by employers, which also bear the risk that retirement assets will fall short of promised benefits. As of 2005, only 37% of workers were covered by a traditional pension, according to the Employee Benefit Research Institute. And a growing number of company pensions are winding up in the hands of the Pension Benefit Guaranty Corp., a government agency and payer of last resort that is under funded to the tune of $14 billion...
Social security benefits are not inspiring and probably also on their way out in terms of being anything meaningful. Timing of benefits is also a losing proposition. If you were born after 1960 you now have to wait until the age of 67 or later to collect full benefits up from approximately age 65 for those born in 1942 or earlier (like my parent's generation). You can and should check out your social security statement annually.
So, like it or not, the onus is on you to ensure your ability to retire. You can do so by investing in a number of different tax advantaged accounts: 401Ks, Traditional IRAs, Roth IRAs, 403b, SEP IRA, SIMPLE IRA, and Roth 401Ks. While they all differ depending on whether they are available to individuals or only employers/small businesses, their premise is the same. Earnings on these accounts range from tax deferred to tax free and contributions can be before or after-tax depending on the vehicle. As with all things there are a myriad of eligibility requirements in terms of who can contribute, how much, and when/how distributions can be taken, but for the most part they are ideal options for people who are ready and willing to take the responsibility for funding their own retirement.
So how much money do you need to retire? That is the booby prize question. There are a million calculators out there and figures range from 70%-90% of pre-retirement income depending on your situation and desired lifestyle in retirement. This article from Trent at The Simple Dollar is a nice walk through of the thought process you need to go through for yourself. Bottom line -- it is a darn lot of money, but don't let overwhelm paralyze you. You have the power of compounding interest on your side.
The other factor that has changed radically over the last few decades is what retirement looks like. The old visions of ending your professional life (and earning potential) completely and never turning back are not as prevalent as they once were. More and more people retire from one career and move into another phase of their life - becoming an entrepreneur, working part-time, becoming a consultant, or becoming actively involved in nonprofit and volunteer activities. Dr. Susan L. Reid asks the question "Is Retirement Even Relevant
