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You Don't Deserve Retirement

I have some news for you, folks: You are not entitled to a retirement. It's not in the Constitution. It's not in the Bill of Rights. It's not in the Bible (except for that one time in Numbers 8:25, and that was only for the Levites). Retirement is something you earn.

You have earned your Social Security benefits, but good luck retiring on those. This year, the average benefit is about $13,000 a year -- and let's not even get into whether future benefits will be paid in full.

Not only are you not entitled to a retirement -- you don't deserve a retirement. By "you," I mean the average American -- which could mean you specifically, if you're doing an average job of planning for your retirement. Here are three reasons why you should work for the rest of your life.

1. You don't save enough.
According to the Federal Reserve, the savings rate in this country hasn't exceeded 5% since 1995; that's down from approximately 12.5% in early 1981. There's plenty of debate about whether the savings rate accurately reflects how much people are actually saving, but there's no doubt that the average American isn't saving enough.

Hey, it's a free country. You earned your money, you should spend it however you like. But if you're spending every dime you make throughout your career, don't complain when your 60s roll around and you're still a slave to the alarm clock.

2. You don't know how much you need to save.
What's one of the best ways to get someone to save more for retirement? Get them to do a retirement savings calculation. According to the Employee Benefit Research Institute, crunching the numbers is particularly effective at getting people to make a change to their retirement plan. Unfortunately, less than half of workers even bother trying to estimate if they're saving enough.

On our Rule Your Retirement website, we have a host of calculators to help you analyze several financial decisions, including a retirement calculator that can handle all kinds of variables -- Social Security, pensions (and whether they adjust for inflation), different levels of spending in retirement, and Roth and traditional retirement accounts, to name a few. Your broker or IRA provider might also provide a retirement calculator; just make sure it can handle all the moving parts.

But whatever calculator you use, you'll at least have some idea of what you need to do -- especially if you're in your 40s or 50s and are way behind.

3. You have a lousy portfolio.
As we've seen over the past several months (and past several years), U.S. stocks don't always go up. Which means your portfolio hasn't done so much if your portfolio -- like those of most other Americans -- is dominated by the stocks of large American companies, thrown together with no rhyme or reason.

However, there's a whole world of other investments out there, and holding a little bit of different types really paid off over the past decade. Consider that a $100,000 investment in an S&P 500 index fund in the beginning of 1998 was worth $177,546 by the end of 2007, a 5.9% annualized gain. However, what if that one hundred grand was instead invested in the following portfolio and annually rebalanced?

Asset Category (25% in each)

Typical Stocks*

U.S. large-cap stocks

Microsoft (Nasdaq: MSFT  ) , AT&T (NYSE: T  )

U.S. small-cap stocks

Edwards Lifesciences (NYSE: EW  ) , SAIC (NYSE: SAI  )

International stocks

Telefonica (NYSE: TEF  ) , Honda (NYSE: HMC  )

Real Estate Investment Trusts

Boston Properties (NYSE: BXP  )

Source: Large caps and small caps from Ibbotson Associates; REITs from NAREIT index; international from Europe, Australasia, and Far East Index.
*Typical Stocks taken from respective Vanguard index funds.

That portfolio turned $100,000 into $251,463, for an annualized return of 9.7%. Plus, it has held up much better so far during this painful year. Finally, if you're within 10 years of retirement, or already retired, you should own bonds, with a heavy dose of inflation-protected securities.

Begin earning your retirement
You won't be able to retire until you have a plan -- a plan for how much you'll save now, a plan for how you'll invest those savings, and a plan for the best ways to spend it if and when you actually can retire. In my Rule Your Retirement service, we cover those topics each and every month -- along with model portfolios and the best ways to maximize your Social Security, pension, and retirement accounts -- with some cool tools thrown into the deal. You can check it out with a free 30-day trial by clicking here.

With a lot of planning now and a little maintenance planning along the way, you'll get the retirement you deserve.

This article was first published July 11, 2008. It has been updated.

Robert Brokamp would like to stay, but he has to see a horse about a man. He owns none of the stocks mentioned in this article. SAIC and Microsoft are Inside Value recommendations. The Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 18, 2008, at 5:04 PM, robjbrown99 wrote:

    You Don't Deserve Retirement

    Thanks for your kind words. I hope that Mr. Brokamp feels better now. This article has some truth in it but it is too all encompassing.

    Many of us hard working Americans do save and are still not able to save "enough". I didn't buy the house that cost 3 times what I could afford and now it seems that many who did will be rewarded with a more affordable mortgage. We don't deserve much of anything if the truth be told. What we would like, however, is to have some since of "expectation" that our money was being invested wisely by those to whom we loaned it. Because of the greed of a few the many will suffer.

  • Report this Comment On November 19, 2008, at 1:12 AM, MIDD85 wrote:

    If you are going to update an article you might at least update the value of the example portfolio which has likely dropped dramatically this past year. REITs down 49% YTD (but still 8% annual over 10 yr), Small Cap down 42% YTD (5% annual over 10 years), International down 50% YTD (2.5% annual over 10 years), Large Cap down 41% YTD (only 0.32% annual over 10 years). These numbers are taken from vanguard index funds of these types; blended return 4% annual over 10 years. Apply that rate to the 100k start and you now have 149,000 dollars not the 251,000 noted in this article. Granted the current crash skews the numbers but the article was supposedly updated today. However, I have hopes that future 10 year returns starting now will be shifted upwards.


  • Report this Comment On November 19, 2008, at 1:54 AM, TimothyVR wrote:

    No - the tough love routine won't make me click on your link. There are plenty of other posts here on the same topic that are more civil and more interesting. I gave myself a kick a few years ago, and have worked hard to build up my 401K. I am already in my 40s, and I may indeed work beyond what I would like but the world won't end, but as you say: I don't deserve to retire anyway...

  • Report this Comment On November 19, 2008, at 6:45 AM, guest12345 wrote:

    Insulting your audience is not the best way to sell your product. I, for one, have just crossed off "Rule Your Retirement" from my list of services to consider. You should probably reconsider your approach if you'd like to sell subscriptions.

  • Report this Comment On November 19, 2008, at 8:08 AM, TNGoat wrote:

    Your stock picks are not realistic. SAIC was not a publicly traded stock until a couple of years ago. Before that the only way to own stock was to be an employee (which I was).

    Tough love is hard to swallow. Too many people think they are entitled to the lifestyle their parents/neighbors/friends have but aren't willing to put in the work to get it. What's the easiest way to retire with a comfortable lifestyle: save lots of money. What's the easiest way to save lots of money: make lots of money. What's the easiest way to make lots of money: get a job that pays lots of money. What's the easiest way to get a good paying job: have lots of education. What's the easiest way to get lots of education: work hard and study hard.

    On average, our society values people with intelligence. Get an education, work hard and get rewarded.

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