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Retiring on lots of savings

By Jennie L. Phipps ·
Wednesday, October 13, 2010
Posted: 3 pm ET

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'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.

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1 Comment
October 14, 2010 at 12:41 pm

There are regulations that are becoming increasingly impossible for anyone to get personal advice on 401k's. Blame ERISA, the IRS, DOL, and Congress.

If the employer is abiding by and documenting their fiduciary duties than it is very hard to sue an employer on a self directed plan. That is the reason they are called "self directed". You could sue for not having enough "good" investment options since that "could" violate fiduciary standards. However, suing at any level would take enough bodies to make a small class action so it is worthwhile for the lawyer. (DB's and certain pensions are a different story but that is not what you are talking about in the article.)

There are GREAT planning booklets and tools that the vendors offer to enroll in these plans so lack on information is a cop out. Ever heard of the Internet? 😉

The issue is, people are human. Biologically we are wired to deal with what we need now. Planning is as fun as a root canal for some people and most people are worried about paying today's bills.

The key to this is starting young...but the younger people make less and tend to have more bills. Also, it is hard to convince a 25 year old to save for retirement instead of spending it on beer money. And, since tax rates have been so low, 401k's have not been as desirable in the last 9 years to the high income earners. That is some of the reason participation has dropped off. That, and the fact that people have over leveraged. All of this will eventually turn around but I wouldn't blame "uncertainty surrounding workplace savings". It makes no sense for employers NOT give planning information for fear of being sued. That goes against logic and their fiduciary responsibilities.