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March 18th, 2009
12:00 PM ET

What everyone is afraid to talk about: Retirement

From Gerri Willis – CNN Personal Finance Editor

Say the word “retirement” and you either get a lot of eye-rolling or looks of pained fear. But whether or not most of us can afford to retire is an open question these days. The median 401k balance is just $15,000, according to Congressional testimony from John Bogle, the mutual fund pioneer who started Vanguard mutual funds. Consider that the typical 401k saver is in their early 40s, the number is especially troubling. With a couple of decades until retirement, that $15,000 will grow to just $100,000 to $150,000 – not enough by most experts’ estimates to sustain them over the two decades or so they are likely to spend in retirement.

Experts who study 401ks say the time for reform of the retirement system is now. Among their suggestions: Curbing excessive fees that many savers don’t even know they are paying.

In the meantime, however, we have to get serious about saving. The good news is one critical vehicle for buildings savings – the stock market – could be poised for improved returns. According to research from the money management firm Leuthold Group, stocks returned no less than 7.2 percent and as much as 15.6 percent annually in the decade following a long-term decline. Check out cnnmoney.com’s retirement section to find calculators that will help you determine how much you will need to save for retirement and where to put it.

Research is a great place to start, but then you’ll want to avoid some of the bad habits that have become common. Try not to tap your savings before you retire. The costs of using your retirement money before retirement is excessive. If you are less than 59.5 years old, and you take a hardship withdrawal, you will pay a 10 percent penalty plus you’ll pay income tax on what you took out. And, remember, if you take out a loan against your 401(k) , the entire balance becomes due and owing if you are laid off!


Filed under: Economy
soundoff (5 Responses)
  1. LFS

    Did anyone out there think maybe people don't simply retire. My Mother is still working a full time job at 81 and loves it! I have no plans to retire, but even if I did, I could survive. I think a lot of folks look at retirement like an anlimony settlement, "maintain the lifestyle I am accustomed to". Lets be realistic, most people who retire are not like they think they are. But for those who persist in thinking time has stood still, and they are still teenagers, maybe they will need more money to get a doctor for a reality check!

    March 19, 2009 at 5:10 am |
  2. Jordon

    cg,

    You may be correct but just because the Dow Jones index is down 30-50% does not mean that your 401k is down 30-50% unless all of your money was in one of those index stocks such as AIG... If you had all your money in bonds or other more stable investments then you probably haven't been affected as drastically.

    Even if you are "down" 25%, if you stay the course you should come out the other side better.

    All of my friends in the mid to late thirties have not been able to build much in savings and in general have no hope of a comfortable retirement since we are so conditioned to live beyond our means... This recession has taught me a valuable lesson. I hope Obama can change our "bubble and burst" economy since I am sure many American's like myself have wised up.

    Maybe someone at CNN can give us the actual 401K loss amount...

    J

    March 18, 2009 at 7:33 pm |
  3. Ginger

    As a government worker participating in retirement savings for 27 years, I haven't been able to contribute funds for 4.5 years due to cost of living increases, and minimal wage increases.

    I live a very minimal lifestyle, and while the stock market is poised for improvement, I don't anticipate the ability to retire in 10 years, or make additional contributions to my 401K any time soon.

    Given all the bailouts, few of us have a savings account anymore. Excessive fees are not my issue; I suspect they're not the problem with others as well.

    March 18, 2009 at 7:02 pm |
  4. cg

    6K? What world do you live in? Most people I know have lost between 30 -50% of their 401K.

    March 18, 2009 at 3:31 pm |
  5. Jordon

    Retirement give me a break!!! The stock markets will eventually bounce back so for many American far from retirement this is not an issue. If you are close to retirement I heard the statistic that the average 401k lost around 6k. If that broke your retirement then you have bigger problems!!!

    Let's address the elephant in the room – the facade of funding our Medicare program. At this rate my retirement will go straight to paying Medicare!!!

    March 18, 2009 at 12:49 pm |