Relying on retirement income from conservative investments is tough sledding these days. If your retirement planning doesn't already include an aggressive savings plan, take a look at these numbers and reconsider.
With the average one-year certificate of deposit yielding 1.16 percent, you'll need a hair less than $2 million to earn an inflation-adjusted $50,000 annually for 30 years, according to Bankrate.com's retirement income calculator. If you invest in 10-year Treasury notes, currently yielding 2.625 percent, you could get by on $1.6 million to get a 3 percent inflation-adjusted $50,000 income.
That's a lot of savings -- out of reach for many people. If you can't count on more than a 2.65 percent return on your savings, you'd have to save $2,326 per month for 35 years to have $1.6 million, according to Bankrate's savings goal calculator. That's a staggering goal. In order to reach that goal by saving 10 percent of your income, you'd have to be earning more than $275,000 per year.
The one thing that may save ordinary working people is participation in an employer-sponsored retirement savings plan, especially one with a generous savings match. But an analysis of recent data from the U.S. Census Bureau by the Employee Benefit Research Institute, a nonprofit organization whose membership includes pension funds, insurers, banks and mutual fund companies, shows that surprisingly few people take advantage of their 401(k)s and other employer-sponsored plans.
Among full-time, full-year wage and salary workers ages 21 to 64 in 2009, 54.4 percent participated in a retirement plan, down 6 percentage points from the high of 60.4 percent in 1999.
So what would persuade more people to save more money? I vote for reducing uncertainty surrounding workplace savings plans. Participants have to hold their noses and jump in because companies shy away from offering much useful retirement planning information, for fear people will sue if returns go south. Feeling confident that your retirement savings will grow reliably and won't disappear because you made the wrong investment choice is a huge incentive to keep saving.
And saving aggressively is the only thing between us and an all-kibble diet in our old age.