Do You Want to Work Forever?

Do I need to trot out all the gloomy stats?

You know, the ones claiming that more than 40% of workers aren't saving at all for retirement. Or the studies showing that 30% of baby boomers have a net worth below $50,000. Or the graphs plotting the national savings rate's plummet from above 10% in the 1980s to 1% today.

Nah, you know all that stuff. So here's my question: What are the nonsavers thinking?

I know most people want to retire -- or at least have the option. So why are so many people doing so little about it? From my experience as a financial advisor and editor of the Motley Fool Rule Your Retirement newsletter, I've heard many reasons. Here are the most common -- and why they may not be reason enough.

"I will have Social Security and my pension."
If you've put in a couple of decades as a teacher or policeman, or worked for a solid company such as Procter & Gamble (NYSE:PG), Coca-Cola (NYSE:KO), or General Electric (NYSE:GE) then you might be fine -- assuming you need less than your pre-retirement income. (On the other hand, if you work for an old-line automaker, such as Ford (NYSE:F) or GM (NYSE:GM), then it would be prudent from a planning perspective to count on getting less than your full pension.)

Let's say you retired after working 25 years for a company that offered a traditional pension (a.k.a. defined-benefit plan), and your average salary over the past few years was $50,000. Using a common benefit formula, you'd receive $18,750 a year from your pension. Add that to the approximately $15,400 you'd receive from Social Security, and you'd have an annual retirement income of $34,150.

The key here, though, is the years of service. If you worked for that company for 15 years instead of 25, your annual pension benefit would drop to $11,250, resulting in an annual retirement income of $26,650. Could you live on that?

Also keep in mind that most pension payments, unlike Social Security, do not adjust for inflation. So you'd receive the same amount at age 85 as you did at 65, even though your expenses will probably have increased.

Social Security and pensions are reliable sources of income for many retirees. But my guess is, once you calculate how much you'll actually receive, your ideal retirement will require more. That will have to come from savings.

"I'll inherit a lot of money."
You may have heard that the baby boomers are expected to inherit trillions of dollars. Will it happen?

The bear market of 2000 to 2002 has rendered any estimate from the 1990s irrelevant. Furthermore, longer life expectancies and higher health-care costs will mean that much of those inheritances will be spent before they're bequeathed.

Phil Marti, a retired IRS official who answers members' questions on the Rule Your Retirement discussion board, had this advice for someone who was counting on a $300,000 inheritance:

"If it happens, it's found money, but don't count on it. My parents, who died at 89 and 90, got along pretty well until May 2000. My mother died June 2001 and my father May 2002. In between, we spent well over $200,000 on home health care, plus all the other expenses that go along with maintaining a life.

Another Rule Your Retirement member followed up with this: "My parents have long-term care insurance, but my mom needed the care longer than the time covered by the insurance ...."

Basing your retirement on an eventual inheritance is risky business. You'll have to evaluate your future benefactor's net worth and the likelihood that there will be enough left. (And have you actually seen the will?) Heck, even the kids of Berkshire Hathaway Chairman Warren Buffett can't expect much, since he has made it known that most of his wealth will go to charity upon his demise. And it's been said that Microsoft founder Bill Gates will bequeath to each of his kids just $10 million of his billions.

OK, I'll concede that if you know you're going to get $10 million, you needn't worry too much about your IRA. But the rest of us shouldn't pin all of our retirement dreams on our parents' estates.

"I'll save later."
When it comes to saving for retirement, time is money: The less time you spend saving, the less money you'll have. To illustrate, check out how much an investor would have, had he or she begun investing $4,000 a year (the current contribution limit to an IRA) at various ages.

In this hypothetical example, delaying five years can reduce a nest egg by approximately a third. I repeat: Time is money.

"I can't afford to save."
This can be tough, especially if you have kids and/or live in a pricey part of the country. However, I can tell you from personal experience that a thorough examination of expenditures and priorities can reveal ways to cut spending and boost saving.

Just this summer, my family went from two incomes to one as my wife quit her job to open her own business. It'll be a while until she brings home the bacon, so we looked at our monthly bills. Specifically, we cancelled our underutilized gym membership and cable subscription, which together cost $120 a month -- $1,440 a year.

What could saving an extra $120 a month do for a retirement? In 20 years (again assuming 8% annual growth), it could be worth $71,273. In 25 years, it could be more than $100,000. Our cable and gym just weren't worth that much to us.

"I want to work forever."
You're not alone. Many folks bristle at the thought of full-time leisure. Hey, nothing wrong with an enduring work ethic. But you do want the work to be a choice, not a necessity. And you want enough in your portfolio so the job you choose is based on the satisfaction it provides, not the salary.

The Foolish bottom line
If you are saving for your retirement, congrats! The next step is to evaluate whether you're saving enough.

If you aren't saving, examine your reasons. (In fact, I'd love to hear them, especially if you have reasons other than those in this article.) And then ask yourself whether you'll think those reasons were compelling when you reach your 60s and are still working.

This article was originally published Aug. 6, 2004. It has been updated.

Robert Brokamp is the editor of the Motley Fool Rule Your Retirement newsletter service.Click hereto take a free 30-day trial. Coca-Cola is a Motley Fool Inside Value recommendation. The Motley Fool is investors writing for investors.