Why you won't have enough money for retirement (and what you can do about it)

Retirement should be something you look forward to – the pot of gold at the end of the long, winding rainbow called life.

Retirement should be your reward for putting in the hours; for the sacrifices; for all the hard work.

Retirement should be easy.

Retirement should be all of those things, but it’s becoming increasingly evident that it won’t be for many members of the Baby Boom and Generation X. For those born between the late 1940s and the mid-1970s there is a good chance that their retirement funds will run out long before they do.

According to a recent study conducted by the Employee Benefit Research Institute (EBRI), approximately 44 percent of baby boomers and Gen X’ers are on track to run out of money during their retirement years.


There are three major areas of concern.

  • Low bond yields. We’re still feeling the fallout from the economic collapse of 2008. The rate of return on savings bonds is very low at the moment. That may change at some point, but the lower the rates the less the return and those reduced returns are having a heavy impact on the amount of funds future retirees will have available in their retirement years.
  • 401(k) plans replacing pensions. Somewhere in the late 1980s companies began shifting from traditional pensions to 401(k) plans. Pensions are known as “defined benefit plans” because they promise a specific monthly benefit upon retirement, which is based on a number of predetermined factors (earnings history, tenure, etc.). A 401(k) plan, on the other hand, is a “defined contribution plan,” which means that only the contribution (by both the employer and employee) is defined, while the benefit paid upon retirement is not defined and could fluctuate dramatically.
  • Social Security uncertainty. Social security reform seems to be a near-constant source of debate in Washington and that seems likely to continue. Meanwhile, the possibility remains that Social Security benefits may someday be cut or dissolved entirely, leaving many retired Americans without a financial safety net.

What can you do about it?

The obvious answer is probably “save more,” but that’s pretty unhelpful. Instead, consider the following:

Pay attention. Where is your money right now? If you’ve been working for any period of time there’s a good chance that you’re already accumulating some sort of retirement savings (even if you didn't know it). Understand where your money is going, how much it’s earning and (most importantly) what it’s projected to provide you with at retirement.

Don’t settle for the default. Look into your options (because chances are good that you have multiple options) and be willing to make changes to your accounts if you don’t feel like you’re on pace for the retirement you envisioned.

Don’t be afraid to ask an expert. Saving and investing can be a complicated subject. It’s okay to not fully understand all of the options available to you. Find a reputable advisor and let them help you make the most of your money.

Save more. Sorry! But it’s true, you know. The more you take the long view now, the better off you’ll be years down the road.

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

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