The recent MetLife Research on Retirement Readiness has received a little bit of buzz of late. And with good reason. People like lists and the approach to these fifteen tasks suggest that all you need do is pick one, any one, and you will have begun to do what you have not already done. The problem with the list is really quite simple: most of the questions ask the same thing.
The list is broken down into five categories that all hinge on the same topic. Segregated into work, liesure & activity, relationships, planning and income & benefits, the so-called retirement task list depends on the very thing they ignore. Can you work in retirement, do you have to work in retirement and what can you do now to not have to work in retirement?
First off, the concept of retirement has really turned into a parlor game of sorts. You have never been retired so any concept of it is based on what you already know about it. The people who have retired are often the only real tangible reference we have to this change of lifestyle. And unfortunately, what got them there is not what will get you to the same place.
We have discussed that in many instances, the currently retired or recently retired had one distinct advantage over your potential retirement: a stock market run-up unlike any that has ever been witnessed. The period from 1982 to 2000 was the real retirement maker for many of these individuals. Even if they didn’t have amazingly generous pensions, they benefited from those boom years in equities that made every investment decision seem like genius. It wasn’t. But they took it nonetheless.
So looking at this group, how they are living and what they are able to afford is not a good jumping off point to your concept of retirement. Those of us able to fully retire will do so based on one concept: the ability to live within a fixed income that is gradually diminished over time due to inflation, taxes and the cost of healthcare.
The vast majority of us will not be able to sustain a long-after-this-career lifetime without some sort of employment. So the questions are not: whether you want to fully retire, or whether you want to work part-time, what your ideas are about how much you would like to work in retirement, which skills you might use to get post-career part-time work or even what the employment possibilities or even exploring the possibility. It is whether you can?
Most of us will be confronting a vastly different workplace than the one we currently know. If this unemployment shadow ever shakes loose and begins to provide jobs, it will do so for those who are currently out of work and those who have never sought a job before. This last group is estimated to be about 150,000 strong and add to the need for employment every month. These are not counted among the current unemployed in part because they never have been employed. Those that had for a short time and were laid-off may also be among the disparaged worker living with you, in your house, with their collegiate debt hanging over their collective heads.
Believing that your employer will keep you, at a much higher wage than this hungry group is willing to accept needs to be considered as well. MetLife doesn’t ask you if you will do the same job for less just to keep working. Yet, it is a very real possibility.
Many of us have held on to the same job in large part because of the benefits that accompanied it. This came at a cost that your current employer is hoping to eliminate and can do so quite easily with this new group who have never had those perks and, quite honestly, don’t expect.
The second part, do you have to work in retirement is not something you should be asking yourself at any point. You know. If you are currently not living within your means and you think retirement on less income will be something you are able to do, there will be no liesure and activity portion to list on your MetLife Task list.
They suggest that in some way, your retirement will hinge on your relationship with your co-workers. If seniority plays any sort of role in your workplace dynamic, they want you gone. On the other hand, your kids, no matter how much nurturing you have done in their lives, how much support you have provided throughout the years, are unwilling to return the favor and with good reason. They have problems of their own.
Thirdly, what can you do now based on what you know now? Just like any new skill, retirement will require practice. Try living in one-third less for a year. For some of you, try living on one-half less for a year. This is your underfunded retirement. The first health mishap will completely derail any possible satisfaction you might be hoping for in retirement.
That sounds so discouraging and certainly something a task list such as this might then scare you into considering an annuity, much like a company like MetLife would do. But the reality is very daunting.
If you are in your fifties, look around at your debt to income ratio. The only part of that equation that will change in retirement, if you do nothing about it now, is the income part. Look at your health to income ratio. How much of your income is devoted to this subject and do you really expect it to lessen as you get older?
You can do three things to fix the whole of this problem, a task list much shorter and more concise that the one published by MetLife.
1. Invest more – a lot more. Chances are you are not. As entitlements begin to be examined as a way out of any fiscal problem, as taxes need to rise to cover the higher cost of basic civic services and interest rates need to rise, your future is yours. My suggestion: If you have a 401(k), increase your contribution to 10% and go risky. Then open a Roth IRA, max it out with a conservative investment. If you have anything left over, go back to your 401(k) and finish fully funding it.
2. Examine your current liabilities. If you have broken through the 40% threshold, the manageable debt to income ratio that used to be what determined your ability to borrow, you need to get it in line while you are employed. Include in this list of obligations your potential tax liability, your insurance costs (all of them) and your upkeep expenditures.
3. Evaluate your downside potential. Most of us, including the MetLife report, look at the bright side of life. Don’t get me wrong, I’m an optimist as much as the next guy. But the truth be told, a plan is a disaster contingency. If you don’t think in worse-case scenarios, your ability to survice retirement for the long-term will be seriously impacted.