Retirement Catch Up

I’m heavily influenced by the works of Dave Ramsey.   In the Dave Ramsey Blog  his team, and I say team because i’m not sure how personally connected he is to the posts, go over some finance 101 type stuff from different angles.  This article’s angle happens to be Retirement Catch Up.  That puts the discussion right in the middle of the topic of this blog: The collision between work and life.   

So for new readers, the theory goes that with a defined contribution plan, we work all our lives, save money with tax benefits, and then retire and buy a big blob of an annuity that acts just like an old school pension.  Sadly we know that life happens, that those 401K savings you were supposed to have been saving probably weren’t enough.  Consequently it won’t be enough to cover your needs in retirement.  The government understands this and in the rules we are all allowed to put away extra income into the 401K savings after age 50 to catch up to what we need.  

Ok, common sense moment.  If life kept you from saving enough over the course of your career, will you magically be able to go from a couple hundred bucks a month to $2K / a month or $24,000 a year?  Let’s not forget that the 401K is individual risk and individual reward.  You could put in $24K a year and hit a bear market that doesn’t change for a decade.   

The post talks about other alternatives if you can’t save enough.  One example offered is downsizing in house.  If you look at the insanely increasing costs of childcare, you realize that the older generations are going to have to pick up the slack when the next generation doesn’t have the ability to keep up.  Let me say that again, if you have kids today, you will most likely be helping them financially support your grand kids in a very meaningful way.  Part of that is going to be housing/childcare.  Maybe that extra bedroom isn’t such a bad thing to keep?  So much for selling the house.  

I deeply respect Dave, his teaching got me away from the debt lifestyle and into one that maintains cash reserves.  The advice in his blog’s post is sound in that the pace of retirement savings needs to pick up for everyone.  But it’s not enough.

I’ve written about the three legged stool of retirement and the fallacy of 70%.  The reality is that much more is needed than the 401K, even a well funded 401K.   I am a bit disappointed that this is the only solution he discusses, but right now that makes sense.  It’s the only real solution out there beyond SSI for most people.  

Regardless, this is worth a read if you are even remotely interested in your 401K retirement.  There are some good numbers to be aware of and it’s a great reminder for something to keep on your radar because nobody wants to spend their retirement living off Catsup Ketchup Catch Up sandwiches.

Inspiration and Source:

http://www.daveramsey.com/blog/can-you-really-catch-up-on-retirement-savings