Prepare for a Gruesome Retirement

Maybe your plans for retirement including dining in fine restaurants, traveling to the Galapagos Islands to see blue-footed boobies, taking your grandchildren to Hershey, Pa., to eat chocolate to their hearts' content -- and then coming home to your spiffy retirement community.

But judging from startling statistics, you're in danger of a retirement that's quite the opposite. Picture gnawing on Salisbury steak microwave dinners, taking a bus down to the Git 'n' Go for a bag of chips, and bringing your grandchildren to the Salvation Army so you can shop for "new" clothes -- all while living in a relative's moldy basement.

The facts
According to the 2008 Retirement Confidence Survey (RCS), many Americans will have gruesome retirements. In a separate survey, 31% of us said we'd rather scrub a bathroom than plan for retirement.

Rest assured: If you've been putting off planning for your retirement, you're not alone. (I can't speak for the scrubbing thing.)

Check out the numbers from the RCS. They reflect the total savings and investments (not including the value of the primary residence) of today's workers, by age group:

Retirement Savings

All Ages





Less than $10,000






























$250,000 or more






Source: Retirement Confidence Survey, April 2008.

These statistics don't include Social Security payouts. Maybe there's a reason for that. I have at least two decades until retirement, but my latest statement from the Social Security Administration informed me that the amount I can expect to receive at my full retirement age (67) isn't much more than my current mortgage payment.

My 30-year mortgage won't be finished by the time I hit the big 6-7, and my mortgage and tax payments will likely be higher than they are now, because of rising taxes. Making matters worse, it's possible that I -- no, all of us -- can't be entirely sure that in our golden years, Social Security will exist as it does now.

Then there are pensions to consider. In truth, darn few of us have traditional pensions anymore. An Associated Press article highlighted the issue:

In 1985, 89% of Fortune 100 companies offered traditional pension plans, but that had fallen to 51% by 2004, according to Watson Wyatt Worldwide, a human resources consulting firm. Some 11% of the plans in the Fortune 1000 were frozen or terminated for new employees, up from 5% in 2001.

Companies that have frozen all or part of their traditional pension plans (or are slated to do so) include IBM (NYSE: IBM  ) , Sprint Nextel (NYSE: S  ) , and Alcoa (NYSE: AA  ) .

What the facts mean
It's best to rely on factors that are under our control: our savings and investments.

According to the table above, if you're a typical 40-year-old working American, there's a nearly 50% chance that your savings and investments total less than $25,000. Let's be generous and assume that you have $20,000 socked away, and that you have about 25 to 30 years until you retire. How will that money grow for you? Well, here's what happens when we assume that you earn the market's average long-term return of 10%:

  • 2008 (age 40): $20,000
  • 2018 (age 50): $51,875
  • 2028 (age 60): $134,550
  • 2038 (age 70): $349,000

Now, let's use some information from the Fool's Rule Your Retirement newsletter service: To make that nest egg last, you should plan conservatively and withdraw about 4% of it per year in retirement. A 4% chunk of $349,000 is almost $14,000, or roughly $1,200 a month. Will that be enough to live on in 2038?

According to an inflation calculator, what cost $1 three decades ago costs about $3.75 today. Assuming the same rate going forward, your $14,000 in 2038 will buy you what you can get for $3,733 today. That $1,200 a month will feel more like $320. Startling, isn't it?

And inflation just keeps going. So if you're taking out $14,000 in the first year of retirement (and inflation that year is 3%), the next withdrawal will be 1.03 times $14,000, or $14,420. Can you imagine how quickly your money will go? (You can withdraw more each year. If you're taking out 5% annually over 30 years, you have roughly a 75% chance of not running out of money. But that's far from a sure thing.)

If you want to live off the current equivalent of $50,000 per year in 30 years, you can estimate that you'll have to withdraw $150,000 annually. If that's 4% of your nest egg, then that nest egg will need to be $3.75 million! Still startled?

It gets better ... and worse
This is, of course, just one (hypothetical) example. There are plenty of other concerns that can make matters better -- or worse.

For instance, many of us have seen age 40 come and go, and we still have less than $25,000 socked away. Heck, 36% of Americans ages 55 and older are in that camp. To improve that situation, try to put away at least 10% of your income through regular saving and/or investing. (More is better, of course.)

On the plus side, many of us will have home equity to tap in retirement. We'll also receive at least something from Social Security -- and perhaps even a little from a pension.

Then again, bear in mind that the stock market's return over the next 10, 20, and 30 years won't necessarily match the historical average of 10%. It could be higher -- or lower, leaving you with a much smaller nest egg than you expected. The same goes for individual stocks.

Look at information infrastructure giant EMC (NYSE: EMC  ) as an example. Over nearly 20 years, its stock gained more than 11,400%, or 26% on an annual compound average basis. Yet EMC's recent stock price is below where it was some five years ago. Meanwhile, shares of chip giant Advanced Micro Devices (NYSE: AMD  ) are right around where they were 20 years ago, despite many strong ups and downs over the years. This doesn't mean these are bad companies or stocks. It just demonstrates how volatile stocks can be, especially over relatively short time periods, and what can happen if you buy at inflated prices.

Lastly, don't assume that your stash of company stock will save you. Having too much of your financial future resting on the fate of one company is risky. If you'd acquired shares of Ciena (Nasdaq: CIEN  ) at the height of the tech bubble, for example, you probably experienced a very painful loss, with the shares having fallen more than 99%. Many investors in PMC-Sierra (Nasdaq: PMCS  ) from the same period are also very disappointed.

There is hope -- we promise!
But all is not lost. If you take action now, you can set yourself up for a more comfortable retirement. So get going! Forget about scrubbing that bathroom for a while, and tend to your retirement instead. You'll thank yourself later.

For retirement guidance, I refer most often to Robert Brokamp's Rule Your Retirement newsletter service. You can try it for free for a whole 30 days. Doing so will give you access to all past issues, which feature, among other things, a host of "Success Stories" that profile people who retired early and are willing to share their strategies. Robert also offers recommendations of promising stocks and mutual funds.

Here's to avoiding a gruesome retirement -- and securing a great one!

This commentary was originally published March 3, 2006. It has been updated.

Longtime Fool contributor Selena Maranjian was intrigued to learn from her friend Dale Wettlaufer that there are 9.9 billion teeth in the U.S. She owns shares of no company mentioned in this article. Sprint Nextel is a Motley Fool Inside Value recommendation. The Motley Fool is Fools writing for Fools.

Read/Post Comments (6) | Recommend This Article (0)

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 October 30, 2008, at 7:46 PM, js2776 wrote:


    They make me feel like crap and I have 30 more years until retirement. Hence, I can not imagine how horrible these types of articles must make those closer to retirement feel. When you sit down to write these articles do you consider the anxiety, fear, and depression that you cause ? Is this your intent because you surely are not offering any helpful advice - oh wait outside of plugging a newsletter. Sorry, but I have to save my hard earned money, in case I lose my job so no newsletters for me.

    Moreover, after reading this I figure what the hell, why have I bothered trying to be a financial responsible person / investor - why not throw caution to the wind and live it up because seemingly my golden years will be spent scrubbing a crapper.

    It is already ready difficult for many of us to save adequately, including those of us who are financially responsible. Some of us try are best to educate ourselves in regards to managing our portfolios, picking good companies in which to invest etc. Only then we learn that the CEO's of those companies are lying thieving bastards and all the information on which we based our investment decision (including info from those rating agency bastards) is incorrect. So we lose a little bit more.

    Then there are those of us who feel better off entrusting our hard earned money to competent and trustworthy "money managers." Turns out your money was turned over to some kid barely out of college who has not even lived through the 2001 crash. Oh and he is managed by a bunch of greedy morons who over leveraged the entire firm so now the whole damn place has gone under.. taking your money right along with them. FANTASTIC! Lose a little more.

    Only now are the rest of us poor schmucks realizing that the vast majority of our financial system, including the checks and balances put in place to control it, is total fraud. The system stopped working years ago yet we the average Joe's out there were allowed to put in our hard earned money like a bunch of naive idiots. We followed the rules, we contributed to our 401K, we opened IRA's, we watch the financial programs, we monitor the market, we seek out professionals when we need direction yet now many of us have nothing left DESPITE our best efforts. So excuse me if I a feel a bit pissed when I read yet another article like yours Selena reminding me just how stupid I was to follow the rules.

    So, thanks for the article. I'll add it to the other doom and gloom articles that make me wretch only now I'll add "scrubbing toilets" to my future endeavors.

  • Report this Comment On October 31, 2008, at 8:06 AM, SlimNun wrote:

    Our toilets are not the heads that need scrubbing.

  • Report this Comment On October 31, 2008, at 8:40 AM, phileasfogg00 wrote:

    How magnanimous of you to provide all those numbers so we can reflect on our retirement demise, and then come to the rescue with whatever you are selling.

    Just what we need now - more self-absorbed greedy people.

  • Report this Comment On October 31, 2008, at 9:51 AM, Traction12 wrote:

    Thanks you for the article, Ms. Reporter. Unlike many others, I can handle the truth because I'm a big boy now. Furthermore, I wake up every morning and mommy tells me that I have to have a good attitude or I have to go to time-out, where I can share life-hollowing, attitude-flushing rants (explaining how I can't handle accurate information designed to motivate me to smarter money management) with no one but myself. Some days though, mommy puts me in time out because, like an idiot, I read the same bad news every day, despite my obvious distaste for such information and make life miserable for everyone around me. Basically, I have decided to flog myself with articles, just like this one, over and over again, leaving my disposition maimed on the colosseum floor like a psychotic bi-polar schizophrenic, trying to kill the "other" personality. If you could please write another article just like this one, I would greatly appreciate it. May I have another, church lady?

    Now I'm going to take a break from writing for a self-mutilation moment...

  • Report this Comment On October 31, 2008, at 10:15 AM, Blemange wrote:

    Selena, your article is obtuse and dense.

    From your rather self-satisfied bio, I would expect more responsible writing than this. Using phrases like "Gruesome Retirement",

    describing "living in a moldy basement" and "eating "Salisbury Steak" (the horror!) is not particularly professional writing. Are these your own personal fears you are sharing? It is a typical Neurotic habit to attempt to instill personal paranoia and fears into others. Or are you merely a rather callous writer? Or both?

    Selena, this is rather irresponsible writer. It's certainly not what I expect from the Motley Fools, who are usually incisive, not scare-

    mongering and, I'm sorry, rather juvenile in their prose.

    You said you "amused yourself at the Harvard Administration" while you worked there. Why, how quaint. Would you mind going back there and amusing yourself? Amusing yourself by subjecting readers of Motley Fools to your rather questionable prose, is not doing them any favors. You are much to full of yourself in your attitude, and your personality grates.

    Not a good representation for the people you contribute to.

    Please, be a little more professional in your writing. You seem to have a rather high opinion of yourself; how about letting it show in maintaining a higher standard of responsible writing, not the kind of thing The National Enquirer would reject? Thank you.

  • Report this Comment On October 31, 2008, at 11:10 AM, jmt587 wrote:

    Don't get too down on the Fool because of Selena. I think she's their most prolific, and least insightful, writer. Ignore her articles and you'll have a better opinion of the Fool overall.

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Selena Maranjian

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

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