What to Do About Retirement Sticker Shock

Last Updated May 1, 2011 11:42 AM EDT

Did you ever have a price in mind when you went shopping -- only to discover that the item you wanted was going to cost much more than you'd expected? That's exactly what many Americans are experiencing when it comes to retirement.

Run the numbers for the amount of money it takes for a traditional, "not working" retirement, and you'll most likely get numbers that are far higher than the average 401(k) savings of older Americans. For instance, to generate a retirement income of $20,000 per year for the rest of your life, you'll need a retirement nest egg of $400,000 or more. Yet the average 401(k) balance for people in their 50s and 60s has hovered at roughly $100,000 for several years.

So what can you do about retirement sticker shock? First, know your numbers. Find out how much retirement income you'll need to meet your needs and be happy. Then find out how much you'll get from Social Security. Have a pension? How much is it going to be? How much do you already have in savings? Doing this homework will tell you how much retirement savings you'll need in order to generate enough retirement income to meet your financial needs. If you aren't even close, then you've just had a wakeup call to start focusing on realistic solutions to make your retirement exactly what you want it to be.

Why do you want to retire? Is it because you don't like your job? Are you working too many hours? Well, if you don't have enough money to retire any time soon, then retirement is not the answer. Go ahead, get angry, get frustrated, go through the five stages of grief -- it's human nature. Then let's focus on how you can improve your situation to create the life you want. This will involve some combination of (a) finding work you like, (b) working the right number of hours for you, and (c) developing a saving and investing strategy so that you can eventually retire, and (d) reducing your living expenses so you can afford what you truly need to make you happy. I know, easier said than done, but nevertheless those are the answers.

Retirement sticker shock was one of several topics in my recent interview on AARP video Inside E Street. The 12-minute interview covers the topic of retirement sticker shock and more --including the advantages of immediate annuities as a do-it-yourself pension, how to address the threat of long-term care expenses, and how to work with financial advisors.


Want to learn more about coping with retirement sticker shock? Check out my latest creation -- an innovative, online retirement planning guide Money for Life. I've organized a rich collection of more than 150 blog posts, articles, research reports and video clips on the most important retirement planning decisions regarding money, health, and lifestyle.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. 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's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.