Retirement today looks very different than it did a few decades ago. While the current reality requires some adapting, some truths about fiscal prudence remain the same.
As part of our year-end series, I thought it would be a good idea to take a look at the overall state of retirement. It is not necessarily a pretty picture. While physicians are generally lumped into the “wealthy” category by some who don’t know any better, the simple fact is that doctors, like many Americans, aren’t likely to retire as early as they want to, in part because of a lack of sufficient retirement savings.
Retirement today looks very different than it did 50, 30, and even 15 years ago. Long gone are the days in which a person works for the same company for several decades, builds up a great pension plan, and retires on a combination of those funds and Social Security. Today, the great institutions, and even Social Security, are pretty much tapped out. Employers who used to offer “defined benefit” plans, in which retirement funds were exactly that, have moved to “defined contribution” plans, in which retirement funds, while matched, are based on the contributions of the individual investor. The number of companies offering pension plans at all continues to plummet; less than one in five companies will offer such a plan in 2016.
As the pension plan has fallen off, 401(k) and 403(b) retirement plans, along with individual retirement accounts, have taken their place. Many employers will match a certain amount of your savings
matches that can be very substantial and should always be taken advantage of
but for the most part, the onus on saving for retirement has shifted to the future retiree.
Responsibility Can Be Liberating
Now that you’re in this situation, let’s talk about how to make the best of it. There will be no one to blame but yourself if your retirement savings don’t add up. It’s a bit liberating, isn’t it, knowing that you are responsible for your own future?
When preparing that future (no matter how close or far it may be), consider the following trends and issues:
• Without exception, the earlier you start saving for retirement, the better off you will ultimately be. All other considerations aside, when you start is in your control, and it is a huge determinant of your future success.
• Everyone is living longer. As fellow contributor David Alemian noted recently here, living in retirement is no longer the epilogue to your book--it is now the entire third act. Save accordingly.
• Don’t let past mistakes linger. Do you wish you had saved more, earlier? Don’t we all? Don’t let a slow start (or even a non-start) keep you from saving now.
• Set sound investment goals and stick to them. If you got a late start on your savings journey, the tendency might be to take big risks to catch up. That isn’t always the best strategy, in part because the short amount of saving time you have left means you cannot bear as much market risk. Talk to your advisor or retirement plan provider about “catch up” contributions, but don’t panic into an investment strategy that could be counter-productive.
None of those bullet points will solve the impending retirement fund crisis population-wide. But that problem, while significant, doesn’t have to be yours to solve. Focus on your own goals, investments, and savings, and you’ll get to third act in pretty good shape.