Thursday, March 24, 2011

Boomer Retirement: You probably have the solution

Yes, you can retire to which you answer: "how?" All of the pundits from every corner of the planet suggest that this is simply not possible, you continue adding that the retirement you envision will simply not be possible. And I listen intently looking for signs of your willingness to compromise. Oddly, you don't mention anything of the sort despite having accustomed yourself to years of doing just that.
Granted, the compromises you made throughout your life were, at best minor ones. You may have come to grips with numerous economic realities that gave way to great stories at the Christmas dinner table or perhaps among friends and family that shared those experiences. Many of these financial tales do not begin with 'remember when we had money' but more like 'no one knew how poor we were'. That's because pulled by the bootstraps stories are far more interesting to the listener and the teller of the tale when there is some drama, some obstacle to overcome.

So we are beginning to tell a tale of woe long before the story is finished. The vast majority of us did not begin our financial journey with money. We may have been given a little bit of a boost by parents who spent their hard-earned money, money they probably could ill-afford to spend, to help us. But the quest for more money would become the only job many of us will have ever had. What we did should have been the great modifier of how far that quest could have taken us. But access to credit sort of screwed that dynamic up; not permanently.

So when I hear forty-year olds tell me that they know they will never retire, adding to the chorus of those who really have a problem as the approach sixty, I wonder whether they aren't telling the tale too soon. And if that is the case, are they listening to the story they are telling?

Here is the problem and the solution in three steps:

One: You probably have the resources available to live on less. I'm not suggesting you go frugal by any stretch - that would probably take some sort of intervention. Instead, understand what your money is going for and how long it took for you to get it. In the good old days, folks saved for the things they wanted. Suppose you approached each item over one hundred dollars with the same thought. Suppose you work 2000 hours in a  given year and you net about $50,000. That's about $25 an hour. So each purchase in excess of a hundred dollars would cost you four hours of labor.

In all likelihood, you throw out about one-fifth of the food you buy either as leftovers or simply because you failed to consume it. You may have worked about an hour or two for nothing, depending on your grocery bill. Each month, you probably work ten hours to pay for your cable (TV, internet, phone), a possibly ten to fifteen to pay for utilities. And that is based on $25 an hour for your work, which is above the national pay-per-hour median and mean average salary reported by the Bureau of Labor Statistics.

Now the answer to this dilemma resides in imagining you earn less. The rich do this quite often and bank the difference. It is often called a cushion, such as when there is more money being brought in but less dollars relegated to the budget, more or less forcing more austere measures on the household.

Two: The what-to-do-with-the-extra-cash basically solves the retirement puzzle. But only in part. Most of us have access to retirement plans but the quality and the cost of those plans varies widely or should I say wildly from one plan to the next. If you are married and don't work for the same employer, you have the ability to pick and choose the better of the two plans.

While many 401(k) plans have been making strides in reducing the cost of the funds being offered in their plans, they have turned around and raised their administrative costs. If you are married, fully funding the best of the two and picking and choosing with the second best plan. This is good couple time and a chance to review how your tale is beng written.

If you are single, the choices are more narrow but not without benefits. You have no co-author for your story and therefore, you are the sole writer of the ending. Even if you have never written a word, you probably have read. Good writers give you several subplots, characters you want to know and a conclusion that both satisfies and amazes.

Your subplots are already in place (kid perhaps, college debt, etc.) and how you handled each one developed your characters (were they handled well or are they going to be redeemed) and as you head towards your conclusion, will the person reading your financial life empathize, sympathize or simply suggest that had you done this or that along the way, the story could have been better.

Three: You are your own critic. Churchill once said: "Criticism may not be agreeable, but it is necessary. It fulfills the same function as pain in the human body. It calls attention to an unhealthy state of things.” being critical of your work thus far is essential in negating the pain and getting to healthy. Once you resign yourself to hear only the downside of possibilities, you entertain no hope of redemption. If you were reading your life, would you be thinking that this particular tome is not worth the time or effort.

Good writers seed this despair with hope. If you suggest that retirement is simply not possible, for instance, what is the ending going to look like? Are you the reader anxious to read further? Probably not. So you think about the positive endings that could take place, list them out and how plausible they might be and choose one. You have all of the information to finish this book by the half-way mark of your working life. You can look at your parents and grandparents and project the potential for your own life expectancy. You can look at how far you've come and know how far you need to go. All that's left is the plan to get to the end.

Yes you can retire. Yes you should retire. Yes, you have the money. This is the ending, you the reader wants.

Paul Petillo is the managing editor of and a fellow Boomer


dancilhoney said...

This was so helpful. I enjoyed all the information and especially having a guide to help me work through this. lifestyle retirement

Bob Lowry said...

Every time I read a statement from an expert that retirement will no longer be possible I am reminded of other pundits. Those were the ones who said housing prices will always go up, that risky loans aren't really risky, or that bankers know what they are doing.

Experts predicted a month long conflict in Iraq, and a vi story in Afghanistan almost 5 years ago.

I have been retired for 10 years, very happily, on a modest income. It can be done and it will continue to be done by those who choose to do so.

I think it is safe to conclude that whenever someone makes a blanket statement that expresses their beliefs and not facts, one should run very rapidly in the other direction.