5 Keys To Avoiding Retirement Savings Crisis

Experts continue to warn about baby boomers facing a rough retirement. A recent report "The Retirement Savings Crisis: Is it Worse Than We Think?" sponsored by the American Academy of Actuaries called for "national debate" and included specific recommendations such as:

1. Emphasizing financial literacy and education.
2. Refocusing retirement plan design on retirement income needs and
3. Implementing federal retirement policies to support lifetime retirement needs. 

The concerns are warranted. Studies show the median savings for those nearing retirement is $30,000 and that 33% of Americans between the ages of 55 and 64 have saved nothing. 

THERE ARE FIVE KEYS TO AVOIDING YOUR OWN RETIREMENT SAVINGS CRISIS:

1) No matter where you are in life—pay yourself first. Set money aside in savings BEFORE paying the bills whether through a savings account, your 401k or both. I'm always amazed by folks who don't participate in their employer’s savings plan, especially when offered “free money” via an employer match.

2) Don't cannibalize your savings to fund the kids. A friend was recently flipping out about college costs for his son, who had been accepted at Vanderbilt among other schools. I stopped the hyperventilating with two points:

1. There are far worse things in life than having a motivated kid with great grades who has been accepted at prestigious schools.
2. Four years of tuition is not due the first day of Freshman year. There are plenty of ways to pay for college but only one way to retire. 

3) Dash the debt. The nut needed in retirement is reduced exponentially if you are debt free. I once dealt with a retired bank executive who had two homes and savings barely more than his ending salary. He and his wife lived simply, traveling between homes and relying on social security and a small military pension. The X-factor? No mortgages, car payments or credit cards. Trying to retire with debt is akin to sharing a bathtub with a polar bear. 

4) Own cattle instead of big hats. Have you read The Millionaire Next Door? A favorite passage is when a Texas business owner, who drove a ten-year old car and lived in a modest house says, "I don't own big hats, but I have a lot of cattle." Yes it's a cliché, but you need to live within your means.

5) Do some planning. Don't run away and hide when faced with a rocky retirement.  I once worked with a family whose numbers "didn't add up" in terms of high income but minimal net worth. It was only after digging into the numbers and cutting expenses like Sinatra (the horse) that we were able to right the ship. Let's face it—financial plans are like diets. At the end of the process each solution is about spending (eating) less or saving (exercising) more.  

How are you dealing with saving for retirement? I would enjoy hearing from you in the comments section, via email at wlg@trustcoil.com or by phone at 630-545-3653.