Stacy Rapacon at Kiplinger put up a post about the realities that many of us Generation X and Y folks face in retirement. The younger you are, the more harsh the reality. In my case, being born in 1971, I know my Social Security benefits will most likely be reduced and delayed compared to what I have been expecting in the past.
So far, I’m actually pretty lucky. I am still accruing additional benefits in my company’s pension plan as well as getting a 75% match up to 8% of my income in my 401k. The reality is that the pension is probably not long for this world. I fully expect my company to discontinue the pension in the next few years but I’m happily watching it grow in the meantime.
Unfortunately, both of these things (Social Security and my pension) mean one thing for me. I need to save like mad! We’re currently saving roughly 20% of our gross income. If we stay the course on this, we should be able to support ourselves on investments alone (assuming we don’t lose it all in the market and have no debt in retirement) and the pension and social security will just be a bonus.
In the old days I used to calculate full pensions, social security and then add them to an estimated 4% withdrawal rate of our anticipated investments at age 60. Lately I’ve just been looking at our investments and leaving both Social Security and the pension out of the equation. Of course, it won’t be quite that bad for us because I do have some earned pension benefits (and am vested) and I know I’ll get some sort of social security payment at some point but I think it’s a more conservative approach to just forget about both of those and focus on living off of our investments alone. Anything that motivates us to save more can’t be a bad thing!
I work only with Generation X and Generation Y clients in my company oXYGen Financial. I can tell you that People born in the 1965 to 1979 age range need to make sure they don’t live in a home too large (500k plus) which eats up expenses.
I am in violent agreement around the 20% number, and most Generation X and Y people should use that number as the pay yourself first rule. What most of Gen X and Y savers don’t understand is that the years they have better income they should save more (like in the 30% range). You won’t may hay forever, so you have to bank extra in the good years.
Ted Jenin
I agree, the younger you are, the more you can earn leading up to retirement. I have three daughters whose ages range from 22 to 34 years old. I encourage them to study investing, think about what kind of life they want to have as the go through life, and retirement. They will be graduating from college soon, and will be starting their careers. I encourage them to look into retirement programs and investment options, and take advantage of employer retirement programs, so that they can have a early start in preparing for their future. It is good that a lot of young people are realizing the seriousness of this. It will help them tremendously in those later years, when they need to enjoy the fruit of their early planning.