Don't let your retirement get cooked

(MoneyWatch) My last post discussed a study conducted by The National Institute on Retirement Security (NIRS) that reported the inadequate level of retirement savings among most working-age Americans, including those age 55 to 64 who are nearing retirement. I ended that post by stating that it's likely our government and employers won't do any more than they're currently doing to solve our retirement problems and that we're on our own to secure our future. This post covers the steps we'll need to take to have any type of retirement security.

The image that's stuck in my mind about the state of our retirement readiness is that metaphor about the frog in the pot of boiling water. According to the story, when you put a frog in a pot of cold water and slowly increase the temperature, the frog doesn't notice the gradual increase in water temperature -- it stays put and eventually cooks to death.

Similarly, many workers are meeting their day-to-day living expenses, so they think they're doing fine, though they're not putting nearly enough away for retirement. They don't consider that eventually, they'll reach their retirement years without much in retirement savings and then they'll be in a tough spot.

So what can you do to avoid "cooking" your retirement? There isn't any one magic bullet that will secure your retirement. Instead, you'll need to take one or more of these steps to make a difference in your future:

None of these steps are likely to be easy or desirable, but they certainly beat the alternative -- an impoverished retirement, in which you have to rely on your kids or society to support you.

You can blame the government or employers for not doing more, or you can blame an advertising-based culture that persuasively tells you to spend all your money. And you may be right, but so what? All you have to show for it is a heap of blame, and you're still in the same situation. I'd rather take responsibility for myself, and adopt steps to improve my own circumstances, even if they're difficult.

If you're counting on simply working longer to make your retirement work, that's not really a plan; it's just a hope -- unless you actively take steps to keep your skills and contacts up to date and are willing and able to find new work if you're laid off or lose your job. And make sure you stay healthy, so you're physically able to work.

Even if you plan or hope to work longer, I'd also look for ways today to trim your living expenses so you can increase your retirement savings. I've got a few ideas. Can you:

  • Cut your housing expenses by downsizing?
  • Dramatically reduce your living expenses by sharing housing with others?
  • Own just one car and take public transportation when necessary
  • Move to a
  • Send your kids to public colleges instead of expensive private universities
  • Manage to get by without the latest computer or smartphone?
  • Reduce or eliminate your cable TV bill?
  • Buy healthy food at the grocery store and reduce your meals out?
  • Cut your insurance costs by increasing deductibles?
  • Reduce your utility bills by turning down your heater, air conditioner, water heater and refrigerator?
  • Buy "just enough" to meet your living expenses and only what truly makes you happy?

While none of these steps might be enjoyable, are they possible? For many people, the answer is probably yes. According to recent Retirement Confidence Surveys conducted by the Employee Benefit Research Institute, a majority of respondents say they could afford to save an extra $25 per week and reduce their spending accordingly. The most common way to cut spending was to reduce eating out, followed by cutting back on entertainment and clothing, and curbing impulse spending.

Any of the steps mentioned above will be good practice for retirement, since reducing living expenses is the most common method that retirees report they use to make ends meet. Most of the surveys on retirement readiness, including the NIRS study, assume that retirees need enough savings to maintain the standard of living throughout retirement that they enjoyed in their working years. Yet most retirees learn to live on less money than they had when they were working, and this requires less retirement savings -- good news for retirees.

I find inspiration in the truth about the boiling frog experiment. Scientists who have actually conducted this experiment say the frog does notice the unsafe water temperature and will jump out of the pan to save itself. I hope Americans do the same by taking the necessary steps to secure their future.

  • Steve Vernon On Twitter»

    For more than 35 years, consulting actuary Steve Vernon helped large employers design and manage their retirement programs. Now he's a Research Scholar for the Stanford Center on Longevity, where he helps collect, direct, and disseminate research that will improve the financial security of seniors. He also delivers retirement planning workshops and has authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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