To retire comfortably, under-40 workers need to seriously bulk up savings

By Jonathan Kern
Special to The Washington Post
Sunday, July 18, 2010

If your junior-high soundtrack was more Bangles or Britney than Beatles, I am going to try to scare some sense into you with three words about life in retirement, based on personal experience: The paychecks stop.

I retired last year after 30 years as a broadcast journalist. Unlike most baby boomers who have retired, I do not receive a pension. This surprises and appalls my fellow early retirees, who are either enjoying income from a spouse who's still working or receiving checks from old employers.

If you're, say, under 40 -- and especially if you're under 30 -- you probably have worked only at firms or agencies that offered 401(k)s or their nonprofit cousin, the 403(b). That means that when you finally do retire 25 or 35 years from now, you will be responsible for providing for your own income. No pension for you!

Much has been written telling you how to prepare for that day -- namely, to save every cent you can.

A recent study shows that most people ignore that advice. In the wake of the recession, the Employment Benefit and Research Institute found that, among other things, fewer workers are saving for retirement, a quarter of those surveyed have nearly no savings (i.e., less than $1,000), most workers don't know how much they'll need to retire and more than half say their total savings is less than $25,000.

Clearly, all those thoughtful lectures about the need to prepare are falling on deaf ears.

So I'll say it again: The paychecks stop. Every day, every week and every month of your retirement, you'll use up some of the money you accumulated while you were working.

Specifically, imagine that every week you have to pay for food with cash from savings. And it's the same with your electricity, cable, phone, gas, credit card and other recurring bills. Because your health care is no longer subsidized by your employer, you write a big check each month to an insurance company as well. If you earn a few bucks on the side, even the taxes have to come out of your savings; no one else withholds federal and state tax from every paycheck.

Sure, if you work until you can collect Social Security, you'll get some money from the government, but it's a fair bet that your No. 1 source for retirement is going to be you. If you are not saving assiduously now, you are going to be much, much poorer in retirement. Restaurants, cable TV, BlackBerry service, travel abroad -- even things like beer, fast food and haircuts -- all will be fond memories of youth.

Retirement does not have to be this way.

I glimpsed my own future more than 20 years ago, when my wife and I worked for the federal government. In 1987, it introduced the Thrift Savings Plan -- basically a 401(k) for government employees. When we left government service, we withdrew our contributions and invested the money ourselves. My next employer offered no pension, only a 403(b).

In other words, although we are both baby boomers -- born in 1946 and 1953, respectively -- we are living the Gen X or Gen Y retirement.

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