After talking with retirement plan participants over the past 30 years, I believe most have the following retirement expectations:
- No reduction in standard of living. Everyone is expecting to retire and live in the same house, go out to dinner just as often, enjoy vacations with the same frequency, etc.
- More leisure time with the financial resources available to underwrite hobbies, travel, lifestyle, etc.
- An income replacement ratio of 100% or more of pre-retirement income.
Are these realistic retirement expectations? For some people, who are really good savers, yes. For most of us, probably not. Most of us are not contributing near enough to our 401k retirement plans over the course of our careers to fund an adequate retirement – and far less than is necessary to fund the sort of retirement expectations outlined above.
Most experts believe that we must average 15% in total contributions (employer plus employee) over our careers to fund an adequate retirement. An adequate retirement as one where we are replacing roughly 75% of our pre-retirement income. Sadly, most of us are not on track to fund an adequate retirement for ourselves. What can we do to get on a path to realize our retirement expectations?
Resetting Retirement Expectations
Begin saving more as soon as possible
Remember, the essence of saving is choosing a lower standard of living now to finance a higher standard of living in the future (a sacrifice we baby boomers are not eager to make).
Become better investors
I have heard many 401k plan participants say that they want their money to work as hard as they do. Becoming a better investor doesn’t necessarily mean taking on more risk. What it does mean is understanding ourselves, the markets and the economy better so we can assume an appropriate level of risk, manage our portfolio’s effectively through volatile markets and still sleep at night.
Work longer before retirement
Many of us won’t have a choice since our full Social Security benefits are not available until sometime after age 65.
Work during retirement
It appears that most of us are probably destined to work during our retirement. Part-time work of some sort may be in our future.
Change our lifestyles at retirement
Previous generations didn’t expect to live in the same house when they retired, they knew they couldn’t afford it. Many of us may need to sell our homes and tap that equity to finance living expenses.
All of these choices are painful and require some work. Keep in mind that delaying making a change will only make the pain worse!
Robert C. Lawton, AIF, CRPS is the founder and President of Lawton Retirement Plan Consultants, LLC. Mr. Lawton has over 30 years of retirement plan consulting and administration experience and has provided consulting services to many Fortune 500 companies including: Aon Hewitt, Apple Inc., AT&T, First Interstate Bank, Florida Power & Light, General Dynamics, Houghton Mifflin Harcourt, IBM, John Deere, Mazda Motor Car Company, Northwestern Mutual, Northern Trust Company, Trek Bikes, Tribune Company, Underwriters Labs and many others. Mr. Lawton may be contacted at (414) 828-4015 or firstname.lastname@example.org.
Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Advisory (RIA) firm providing investment advisory, fiduciary compliance, employee education, vendor management and plan design services to 401(k) plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or email@example.com or visit the firm’s website at: http://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.