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Our number's up: saving for retirement when you can't afford to retire

Posted by BJ Roche  May 11, 2012 12:03 PM

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Remember the first time you heard you'd need to have a million dollars to retire?

I do. I thought: You have got to be kidding me.

Then I thought: How is this going to work? We gajillion baby boomers can't all become millionaires can we?

Of course not.

They were talking about The Number, the title of a book by Lee Eisenberg, and the theory that you had to have enough of an investment portfolio to pull out a certain percentage each year -- ye old conventional wisdom says it should be 4 percent.

The Number varies from individual to individual of course, depending on where and how you want to live in retirement. But the idea is that, once you hit The Number, you can relax; you won't be eating cat food when you're 80, or at least you'll be able to afford the Fancy Feast.

The problem for most of us over the past decade is that, even if you followed all the financial advice: maxed out the 401k, contributed to a Roth IRA, got yourself a diversified portfolio, just when you thought you might get there, 2008 happens. Or Jamie Dimon rolls the dice. What are you supposed to do when your quarterly contribution to your 401K is equal to half of the losses for the same quarter?

We think about this a lot, of course, but New York Times columnist Joe Nocera put the topic into the ether recently with his column entitled, My Faith-Based Retirement. It's gotten a lot of responses online, including this one from Trudy Lieberman, at Columbia Journalism Review.

If a New York Times columnist who's been covering business and finance for decades has a 401k that's "in tatters," what chance do the rest of us have?

And if you think things have been cleaned up on Wall Street, then you haven't been watching Frontline lately.

Much of the investment advice found on the web and in newspapers is laughable, and it doesn't help that the conventional wisdom is often wrong.

Even "playing it safe" is a losing game these days. As this post from the Vanguard blog points out, the low interest rates, which the Fed has promised to keep intact until the end of 2014, are costing us all, particularly the elderly.

One visible cost is the price paid by savers, the proverbial “sacrificial lambs” of ZIRP. Since peaking at $1.4 trillion in August 2008, the annual rate of personal interest income has declined by more than $400 billion*, as the yields on short-term bond funds, money market funds, and bank CDs have plummeted. This translates into a decline of nearly $1,000 in disposable personal income per person, although the lost interest mostly impacts older Americans. The modest economic growth the nation has experienced since 2008 has come, to some extent, at the price of a negative real rate of return for savers — 0% interest rates minus an annual inflation rate of 2% to 3%.

And your million? Guess what, now you need two! A major reason: the cost of health care. Fidelity estimates that the average 65-year-old couple who retired in 2010 will need more than $250,000 to cover health care costs.

A friend noted to me recently that she had no idea how her retirement money was really invested; she just kept putting the money into the 401k. The fact is that, even in the best of times, not too many of us are qualified to manage a six-figure portfolio, and the consequences are beginning to emerge.

Boston College Center for Retirement Research has created the National Retirement Risk Index, which shows that about half of baby boomers don't have enough to maintain their lifestyle in retirement.

My money guy is more optimistic -- he points out that markets go up and markets go down, but over time, you need to stay in stocks. But as we've all heard, past performance does not guarantee future returns, and a pessimist might point out that the next 50 years are shaping up to be very different from the past 50. Where are the investment books on: "How to Invest When Wackos in Congress Hold the Economy Hostage So They Can Take Down the President"? Or: "Tips for a Portfolio that Will Keep Growing When Sea Levels are Rising, Tornadoes are Raging and There's a Hundred Year Flood Everywhere Every Year"?

So what are we supposed to do -- just give up on the Number, or invest in a Bob-o-pedic, stash the money under it, and hope for the best? I wish I knew.

And I think there are a lot of me's out there.

What's your real-world retirement strategy? Share it on the Fiftyshift Facebook page.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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About the author

BJ Roche is a writer and teacher who lives in Western Massachusetts. She’s a senior lecturer in the Journalism Program at UMass Amherst, where she teaches writing, new media and More »

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