The good ol’ days brought us the rotary dial phone, The Clapper and retirement pensions. Pensions were once a glorious thing and set up many Americans with a comfortable retirement. But pensions are becoming relics of the past. Instead of wistfully longing for the good ol’ days to return (which will never happen), here’s how you can prepare for retirement in the 21st century.
Hot take: Don’t buy into the good ol’ days.
I recently caught a Wall Street Journal article beating the gloom and doom drum for Americans on the cusp of retirement. While I usually don't subscribe to the hysteria, the story was well-written, researched and presented some alarming facts.
As it turns out, no matter your age, you’re in a worse position to retire than your parents or grandparents. But before your mind and spirit fall into a dark place, there’s good news: you’re going to be okay.
With unprecedented levels of debt among 55 to 69-year-olds, life expectancy on the rise and the cost of healthcare has ballooned and leveled off wages, there’s less money that needs to stretch over a longer period of years. Translation: your nest egg is in danger of cracking.
How did we go from mailbox money...
When you weren’t looking (or maybe you were just too young to notice) but we’ve subtly moved away from pensions to 401ks and a market-driven retirement.
Older generations love to flaunt their pensions and with good reason! Every situation is nuanced, but by and large, a pension was money in a fund backed by an institution. Think set it and forget it. Upon retirement, independent of the market or economy, your money was dispensed in fixed amounts in monthly checks. It wasn’t uncommon for Americans to have several separate pension funds. For instance, my grandfather and grandmother had FIVE pensions between the two of them.
Free money on auto-deposit for the rest of your days? Sounds like a great set up, right? Well, not exactly. When they worked, it set up generations for their twilight years. When they failed, innocent and deserving people were unfortunately burned.
...to a market-driven retirement?
To compensate for the pensions' shortcomings, the 401k was created and the Baby Boomers are the first generation to retire with 401ks. Unlike a pension, a 401k or IRA is an investment that is predicated on the market. As we all know, the market goes up and down; in a 401k, your money fluctuates with the tide. So it’s not uncommon when your 401k account balance dips and rises on any given day.
If all the instability has you feeling...unstable, know that you’re not alone. If you’re looking for ways to feel more comfortable in retirement in the midst of the real challenges facing Americans...
Here’s how to put yourself in a better position:
Own your own success. You carry the mantle when it comes to the success of the plan. There’s no safety net or gray area when it comes to a 401k-- you either make contributions or you don't. Life’s expenses are often unplanned and can quickly snowball, so skipping the occasional contribution or tapping into accounts early might be what's best for you at the time, but know those actions only delay retirement.
Don’t go it alone - you need a coach. Just like a sports coach pushes athletes to their limits, you need a financial coach who will hold you accountable and push you to do what’s best for your long-term financial health. Yes, this is what a financial planner does but you don’t necessarily need to hire one. Find a trusted friend or relative and help each other build good habits, tackle debts and save more.
You need a strategy. A natural response to a tanking 401k or IRA account is to immediately want to pull your money out. Instead of pulling your money from the market, allow your money to work for you by pulling on a strategic card at the right time. When you understand all of the tools at your disposal, you’ll know how to best leverage them to work in your favor.
We'll talk about your situation and see if we're a fit to help coach you through that and stick with you as you take that journey.