Investment newsletters will usually tell you that during retirement you will need about 80% of your final pay to maintain your lifestyle. They go on to point out that it's less than 100% because you don't need to support a work wardrobe and will no longer have commuting expenses.
I guess they think you'll be just sitting in your house watching TV for the rest of your life. Doesn't work that way. You'll want to be active, and it doesn't matter whether it's golf, or classes, or volunteering, there'll still be expenses. Even more if you want to finally travel - even if it's only to visit the grandbabies. And they don't seem to consider inflation, either. I sometimes wonder if the people who write this advice are kids, who think 65-year-olds are decrepit and happy to just sit and knit.
The following is the scariest part. It's from a newsletter from the IBM 401(k) Plus Plan (an aside - "Plus" what?). It's absolutely discouraging, especially since corporations, IBM included, are gradually doing away with retirement plans in favor of personal savings plans.
"Someone who saves 12% annually over a 40-year career could expect to have enough savings to replace 40% of their pre-retirement income, according to Russell Research."Um, you said I'd need 80% (and I think that's low; I think you need 100% or more if you plan to live through another 20 years of inflation), so where's the other 40-60% supposed to come from? Social Security? Not if the Repulsicans have their way and sh*t-can Social security.
Shortly after I retired, IBM announced that for people hired after a certain date, they were no longer going to maintain a retirement fund and pay a monthly retirement. Instead they were giving people a lump sum which employees would manage as savings toward retirement, with some kind of matching plan. (But, um, they didn't get raises to put into that fund to be matched, duh, so this was effectively a pay cut....)
It doesn't matter that when those people were hired they were promised retirement. Same as when I actually retired I was promised free lifetime health care. Yeah, sure. There was fine print, saying that the company could change the terms in any way at any time.
My friend Nancy had 22+ years in, and was 59 years old when they "lump sum"ed her. Know how much she got toward her retirement? $125,000. Total. She is now retired, and living with her daughter and son-in-law.
There's a lot wrong with all of that.
You'll have to save more than 12%. More like 25-30%. Nobody is paying anyone below the executive level enough to easily save 30%. Raises aren't happening - companies are pleading bottom line (even as the execs get multi-million dollar bonuses). The government is allowing companies to do away with retirement plans. Conservatives seem to consider social security to be some kind of welfare, without realizing that social security, since its inception, has allowed corporations to reduce what retirement incentives they had to offer to get the best workers. Corporations don't have to offer incentives any more. They are allowed to import workers and export jobs with impunity. The Man says there are very few "Americans" working with him these days. But the corporations still get huge tax breaks, and now with unlimited contributions they can buy all the politicians they want.
There's a LOT wrong with all of that.
Note - I am fully aware that no matter how much or how little you are paid, you CAN save 30%. I did it the first three years after I left Ex#2 because I was scared sh*tless. Daughter and I ate beans and hot dogs, I made my clothes, she wore hand-me-downs, and she didn't get the name-brand stuff to keep up with the "in" kids at school. It can be done. But it was hard, it hurt, and it needn't have, shouldn't have.