Why Your Retirement Will Stink

Ah, well -- at least most of your life was fun, right? Until your unfortunate retirement, I mean. Now you're hoping to make some money delivering newspapers at age 75, and trying to eat on $40 a week. You're deciding between taking in a boarder or selling your home and moving into a small apartment. You're canceling your cable TV service with tears in your eyes.

What went wrong, you ask? Honestly, what didn't go wrong?

You didn't feed the piggy bank
For starters, you just didn't save enough for retirement. These numbers from the 2009 Retirement Confidence Survey reflect the total savings and investments (not including the value of primary residences and pension plans) of today's workers, by age group:

Retirement Savings

All Workers





Less than $10,000






























$250,000 or more






Source: Retirement Confidence Survey, April 2009.

If you were a typical working American at age 40, there's a good chance that your savings and investments totaled less than $25,000. Here's how your money would have grown if you earned the market's long-term average annual return of 10%:

Age 40: $25,000
Age 50: $64,800
Age 60: $168,200
Age 65: $270,900

That might have seemed like a lot, but it wasn't enough. According to our Rule Your Retirement newsletter service, to make a nest egg last, you should plan to conservatively withdraw about 4% of it per year in retirement (increasing your withdrawal with inflation). A 4% chunk of $270,900 is $10,800 a year, or roughly $900 a month.

Of course, that didn't cover your needs, because you hadn't remembered to plan for health-care costs, travel expenses, and all your early-bird dinners. So you withdrew what you needed, and here you are, at age 75, with ... not much left.

Luckily for you, all is not lost.

It was all a terrible dream!
Odds are, if you're reading this article, you're probably not 75 years old, nor do you have only pennies left in your retirement account.

But you may be thinking that your nest egg still isn't where it needs to be in order to eventually provide you with the retirement you want. Fortunately, you can probably still salvage your retirement.

First and foremost, save and invest more. If you're socking away 8% of your income into a 401(k), raise that to 10%, or even 12%. If you can do 15%, your retirement may be much rosier. Make the most of your 401(k) and your IRA -- Roth IRAs especially can be very powerful. (And don't cash out of your 401(k)!)

In addition, make sure you invest all that additional cash sensibly. A few dividend-paying stocks in your portfolio can provide income in retirement without reducing your precious principal, especially if they grow in value over the years. Your best bets will sport sustainable payout ratios and sturdy track records of revenue, earnings, and dividend growth.

To see just how much income dividend-paying stocks can add to your nest egg, consider what would happen if you divided $100,000 among the following eight dividend-paying stocks. I'm also including what the payouts would be in 10 years, if the dividends grow by 8% annually:


Dividend Yield

Annual Payout

Annual Payout in 10 Years

Bristol-Myers Squibb (NYSE: BMY  )




Intel (Nasdaq: INTC  )




Philip Morris International (NYSE: PM  )




Coca-Cola (NYSE: KO  )




United Parcel Service (NYSE: UPS  )




Verizon (NYSE: VZ  )




Chevron (NYSE: CVX  )








Grand Total




Source: Yahoo! Finance.

You're never too late
Don't buy into stupid retirement myths, such as the idea that it's too early or too late to save for retirement, or that retirement planning is hard. It's surprisingly easy to estimate how big a nest egg you'll ultimately need. If you plan on a 4% withdrawal rate, just take the initial annual payout you want and multiply it by 25. If you'd like to withdraw $50,000 annually, for example, you'll want to amass $1.25 million.

And if you've come right down to the wire, you can still vastly improve your retirement by working just a few more years. You'll make more money that way, even as you delay drawing down your nest egg.

When it comes to your retirement, all is not lost -- provided you're willing to spend a little time planning ahead. We'd love to help with model portfolios and stock and fund recommendations, courtesy of our Rule Your Retirement newsletter. You can try it free for 30 days with no obligation.

Longtime Fool contributor Selena Maranjian owns shares of Coca-Cola. Intel and Coca-Cola are Motley Fool Inside Value choices. Philip Morris International is a Motley Fool Global Gains selection. Coca-Cola and United Parcel Service are Motley Fool Income Investor picks. The Fool has created a covered strangle position on Intel. Motley Fool Options has recommended buying calls on Intel. The Motley Fool is Fools writing for Fools.

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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 March 17, 2010, at 5:28 PM, Cluckster909 wrote:

    It's mind boggling that 40% of Americans have LESS than $10,000 saved. And now, with the economy as weak as it is and getting worse, those figures will become more pronounced.

    Who among you voted for change?

  • Report this Comment On March 17, 2010, at 8:31 PM, jm7700229 wrote:

    It is indeed mind boggling, but I do think most Americans are counting on pensions and social security. Despite the general news that most younger workers are not covered by defined benefit pensions, all of the ones I know who are not self employed, in fact are. Frankly, I would rather have a defined contribution plan, and, when given the opportunity, both my wife and I cashed out our pensions.

    But it does appear that people are relying more on Social Security than they have any business doing. It is, after all, very hard to save when you need a new Infiniti every couple years and a heated swimming pool in your yard. Makes it hard to pay for health care, too, when you need to take vacations to Machu Pichu and the Swiss Alps every year. I don't think Americans are prepared yet to switch from foie gras to oatmeal.

  • Report this Comment On March 17, 2010, at 8:38 PM, jm7700229 wrote:


  • Report this Comment On April 02, 2010, at 10:02 AM, georcole wrote:

    Why did you point out that over 50% of 40 year olds have less than $25,000, yet in your later example you talk about what kind of payout you could get with a $100,000 nest egg to invest? How did these 40 year olds so rapidly save up the other $75,000? If it took them 20 years to accumulate the smaller chunk of change (most of the less than $25,000 actually have less than $10,000), how on earth have these people proven that they can change their savings rates and in the next 15 years, that would make them 55 so that they have (in your example) 10 years before they reach "retirement" age of 65, save the balance of the $100,000?

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