Firstly, we must note that we will not attempt to come at this topic with a cynical angle. Overall, it can be difficult to see any positivity behind a shadow that’s been cast by years of economical struggle. With inflation at an all-time high, the job market taking curves and drops that would put rollercoasters to shame, and a recession looming on the horizon, thinking about retirement can seem both tone-deaf and illogical.
If you can’t afford to live now, how can you afford to live 20-30 years from now?
Side anecdote: just the other day, someone asked me about my retirement fund. And, despite hearing years of warnings from my grandparents and forefathers, I was taken aback. Not only had I forgotten entirely about the idea of retirement, but I had forgotten to even keep the option in my pocket. I was so focused on getting by now, that I hadn’t even thought about getting by in the future.
As noted, we don’t plan on the entirety of this article holding a negative tone, but it’s hard to ignore outright. According to a recent report by the TransAmerica Center for Retirement studies, members of Generation Z have a median of $33,000 across all of their retirement savings accounts. That’s compared to older generations. Baby Boomers have saved $162,000, Gen Xers $87,000, and Millenials $50,000.
Point being: younger professionals are having a harder time putting together retirement change. Though the numbers may seem on par, the realistic aspect is not. For example, I am technically Gen Z. I don’t have a single friend with a significant retirement fund. In fact, most of them don’t have one at all.
So, how much is necessary for a comfortable retirement? Should you be worried about it? Let’s discuss:
Defining Retirement In the Modern Age
Before deep diving into research and socioeconomic criticism, we must fully define retirement. In a world where it’s less possible than normal, retirement has taken on a plethora of shapes and sizes.
Overall, retirement is the act of no longer working. Often averaged as somewhere between 66 years of age, retirement is when you’ve earned your stripes. You’ve worked hard and long enough to stop answering the cog call of modern capitalism. You’re done! Congratulations. Now you get to spend the rest of your days not working.
Nowadays, you see a plethora of retired workers returning to the working world due to a lack of funds or a lack of social engagement. This is considered unretirement (an alarming and increasing trend). Though the worker may technically be retired in that they no longer work full-time, they are no longer retired.
Excerpt from our article, Unretirement – What Is the Trend and Will It Continue in 2023?
Let’s be frank: the term unretirement speaks for itself. It’s the act of coming out of retirement. Furthermore, it happens more often than you’d imagine. On average, 10,000 baby boomers reach the average retirement age every day and around 2 million workers retire each year in the U.S. Despite such high numbers, it’s not uncommon to see people come out of retirement due to boredom or the pressing nature of modern living expenses (we’ll get to that later).
Though coming out of retirement happens every year, we are speaking about a trend that started during the COVID-19 pandemic.
Overall, unretirement is the act of coming out of retirement due to pandemic-related changes in both living costs and employment circumstances.
Ultimately, the pandemic was more than just a resetting point for culture. It was a renaissance for the working world, one that is still being felt to the current day. We will see the impact of the pandemic on employers and employees for years (and years) to come. We saw the Great Resignation where employees found a new sense of purpose and gained the power to make demands. Then, saw quiet quitting where employees began giving up at work but remaining there to survive the economy. Finally, we saw frugality where people began to budget their lives so they could work less.
According to the Washington Post, 2.4 million people decided to retire at the beginning of the pandemic
They saw the trajectory of the world and the uncertainty of more than 8 million layoffs coming from the pandemic and decided it was time to step away from the working world. We were watching something unprecedented occur. If you could afford to retire (and were of the right age), it made perfect sense.
A few months into the pandemic, we saw 1.5 of the aforementioned 2.4 million retired workers return to the workforce. That’s unretirement.
How Do You Want to Live?
The definition of retirement also truly depends on what you want as a retired individual.
In the most simplistic terms, a retirement fund is an amount of money you saved that will carry you through the rest of your life. If you are not working, you are not bringing in new income. There are different ways to go about this, but we will discuss that later. Henceforth, how much you need saved depends on how you plan your lifestyle to be.
Want to live lavishly? You need a higher fund. So on and so forth.
Ultimately, the amount is impossible to calculate without knowing your exact plan. That’s something you (or you and an advisor) need to do. For example, if you want to travel in retirement, you’ll need more than if you planned to live frugally. If you plan on having a post-retirement career in your dream industry, you may not need much at all (though you will eventually retire from all work).
For Example:
On average, the idea for funds is to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67. But, that’s a tough rule of thumb with so many different factors pushing in.
It’s also important to note that the aforementioned algorithm is used to maintain the lifestyle you currently live. If you are comfortable living with your current rate of spending and saving, then the salary saving idea above is a great average point. If you want to live less frugally and want to aim higher, then the above idea isn’t enough.
The concept was created by Fidelity. Regarding the math, they noted, “Our savings factors are based on the assumption that a person saves 15% of their income annually beginning at age 25 (which includes any employer match), invests more than 50% on average of their savings in stocks over their lifetime, retires at age 67, and plans to maintain their preretirement lifestyle in retirement (see footnote 1 for more details).”
Is This Worth Fretting About Now?
Let’s say you’re just 18. A newfound worker with a dream. Should you be worried about potential lump sums and lifestyle choices set to wake 50 years from now?
Well, it depends. It’s almost brutally unfair to place such responsibility on the shoulders of someone with little-to-no life experience. Therefore, we won’t outright say you should start stressing about retirement funds as soon as you begin working, but it should be something that sticks in your mind. For example, the aforementioned idea by Fidelity works by starting saving at 25. That’s a few years out of college, giving you time to work toward securing a decent career or job.
It’s tough. It really is. We understand that. But, it should be something that is pondered upon. It doesn’t necessarily have to be your biggest requirement, for sometimes entry-level jobs won’t offer retirement help. Everyone’s career path is different, and we have to accept that. As soon as you can land a job with retirement help or start putting away some money, do it. It’ll only help in the future.
Is 1 Million Dollars Enough?
Though pointing out the exact amount needed for a successful retirement fund is nearly impossible without knowing the individual and their needs, there is often a number pointed at for reference. Is 1 million dollars, the benchmark for financial success amongst the middle-to-lower class enough to retire comfortably?
The answer isn’t easy, obviously, but it’s most likely not enough. You heard that right: 1 million dollars is probably not enough to retire on in 2023 (and especially beyond).
Let’s say that you are going to require $40,000 per year to cover your basic living expenses once retired. This is fairly modest living, mind you. If this is the case, your $1 million would last for 25 years without inflation. Unfortunately, that’s simply not the case. Inflation has become just as much of a mainstay in the modern world as sunshine and rain. Therefore, if inflation averaged 3% per year, your $1 million would only last for 20 years.
If you retired at 66 years old with only 1 million dollars, you would run out of money by the time you were 86.
Well… It Depends
We won’t just flat-out say no because that would be entirely unfair to those involved. There is a place and path in which you can live comfortably off of 1 million dollars. It may involve some other forms of income or a wait until a bit past the average retirement age, but it is possible, sure. What you have is what you have, and you will have to make it work. Therefore, plans and spending can shift drastically once the time comes.
Another factor is obviously your household income. You may have a partner that makes just as much or more than you. You may be able to put together your money, live frugally, and work out fine. But, if you do not have a partner or your partner has yet to settle into a steady career, then it may be dangerous to use these factors toward your plan. Things always change.
Let’s break down an example provided entirely by Citizens Bank:
You can read the full article and example here.
Monica, age 40, aims to retire at 62 and currently earns a salary of $125,000 per year, of which she consistently sets 15% aside for retirement. As a result of planning for retirement since she began working, she has accumulated $450,000. She estimates that she will spend 90% of her final working year’s salary while retired.
Using assumptions about average annual raises (2%), investment performance before and after retirement (7% and 4%, respectively), inflation (2%), and retirement length (25 years), our retirement calculator estimates that Monica could retire at 62 and — 25 years later — will still have about $581,000 in retirement assets. That means she is likely to have a cushion for her 90s if she is fortunate enough to live that long.
Here’s the depressing part: a salary of $125,000 a year is… Well. It’s not as common as you’d like to imagine.
The median salary is $89,000 per year, meaning that 50% of the USA’s population is earning less than $89,000 per year. For a further example, in our home state of Colorado, the average salary is $57,690 a year.
Remember when we noted that we would try not to be cynical and negative? This is what we were referring to. Overall, it’s near impossible for the average citizen to even think of saving for retirement. In fact, a study by CNBC found 36% of Americans believe they’ll never get to retire. 59% of study respondents said they were aware they would simply have to keep working past the expected retirement age.
A study by Bankrate found that 55% of Americans are behind on their retirement savings. Furthermore, 35% said they were “significantly behind” on their savings, whereas the other 20% felt they were only “somewhat behind.”
Retirement for the middle-to-lower class is now nearly impossible. And if those stats weren’t negative enough, we have 1 more for you. According to The Harris Poll, only 35% of Generation Z say that saving for retirement is a financial priority for them, compared with 48% of millennials and 66% of Generation X.
Long story short: 1 million dollars is most likely not enough to retire comfortably. And, in most cases, 1 million dollars isn’t feasible for most citizens. Therefore, retirement seems all but impossible for most Americans.
What Is Enough?
As we’ve noted multiple times throughout this article, the requirement for a comfortable retirement (62 years old and beyond) depends entirely on your situation. But, there are nifty mathematicians and magicians that have put together thumb-ruling calculations for you.
We aren’t going to pretend we can whip up retirement math as the specialists have. At the end of the day, we are a staffing company, not a retirement planner. Luckily, others have done it for you (and us).
If you want to crunch the numbers and see the eye-opening financial requirements for your retirement future, we recommend that calculator over at Annuity Expert Advice.
Not only does it have a detailed calculator, but it has a plethora of definitions and advice to help you. Check it out (after finishing this article, of course).
What About Social Security?
A citizen over the age of 62 years old is eligible for Social Security payments depending on their work record. And, in 2021, the average monthly Social Security payment was $1,543 per person. That’s around $18,500 a year of exposable income. Obviously, this can be put on top of any retirement fund you already have.
Luckily, there are only a few people that will not be granted Social Security funds. Firstly, those without around 10 years of working experience before retiring won’t receive Social Security (this counts for stay-at-home spouses, too). Secondly, those that work for the Railroad or worked for the government before 1984 receive retirement bonuses from correlating boards, making them ineligible.
These values are all dependent on how much you worked and made prior to retirement. The Social Security Administration has a calculator for it here.
All in all, relying entirely on your Social Security payments isn’t a great way to go about retirement. It should be supplemental to your savings, not the only form of income.
It’s also important to note that there are other things like annuity plans sold by insurance companies and your investment portfolio. We won’t dive into them here, for that’s an entirely different topic and rabbit hole to discuss, but they may be useful for your retirement plans.
In a quick summary: an annuity is a plan sold by insurance companies that acts as a sort of reverse life insurance. You pay them a lump sum and they pay you monthly increments after your retirement. This causes inflation on the sum and a wide array of tax breaks. It can be a great way to bolster your retirement funds, but it’s an entirely different subject.
Should I Look for a Job With a 401k Plan?
Now, Tier2Tek. How are you going to tie all of this into staffing and employment information?
We’re experts. We’ve got this.
Our final question remains true: should you be worried about finding a job with a 401k plan? Should it be a top priority for your ongoing or upcoming job hunt?
The answer, like all other floppy answers we’ve provided here, is dependent on your situation. But, we will try to formulate an answer.
What Is a 401k?
Overall, a 401k is a special account that is used entirely for retirement funding established by the US Government in the Revenue Act of 1978. You can only put up to $18,000 a year into the account, it is less taxable than your other income, and it cannot be accessed until you are past 59 years old. Therefore, placing money into your retirement savings helps you avoid taxes on it, but it isn’t a loophole to avoid taxes due to the restrictions of wait time.
Companies will often offer 401k matching as an employment benefit. They will match a certain amount that you put in your 401k, helping you bolster a significantly-higher amount of retirement savings.
It’s a fantastic gesture to look for, pointing toward companies that care for the long-term well-being of their employees, not just their health while they are on staff. But, should it be a requirement for job seekers?
Should It Be a Priority?
Let’s harken back to the example of age. Let’s say you are young and spry, just leaving college and looking for a foot into your new industry. You may quickly notice that smaller businesses or entry-level positions don’t offer significant 401k matching or benefits. In certain industries, you may have to work your way up to these bonuses over time.
In these cases, you may not have the option to be choosey about your benefit bonuses. You may need to start out small and work your way up to a 401k-matching gig.
If, on the other hand, you are a senior in your field, you shouldn’t have a problem finding available jobs with retirement plans. If you are offered a job with more base salary and no benefits versus a job with a lower salary and 401k matching, you have to decide if the significant pay difference is worth it. Consequently, if you make more, you can put more into your 401k alone.
But What About the Young?
Now we are contradicting ourselves.
We are telling you to start saving early but also telling you not to worry about business matching 401ks until later in your career. How confusing.
Let’s put it this way: if you have just started your career, don’t turn down great opportunities that will get your foot in the door because they don’t offer certain benefits. Don’t take jobs outside of your dream career path just because of 401ks. As long as you are saving something toward retirement, you will be okay.
Don’t take a lower job now to ensure retirement when you can take a starting job, get into your career, and make significantly more in the future. Worry about retirement, sure, but don’t let it dictate your dream career path. Take those chances.
In the aforementioned example, the calculation was based on professionals starting their funds at 25. Even then, they worked out with wiggle room. You’ve got this.
There’s a fine balance between worrying about your future and seizing the present. As long as you begin saving and thinking about your retirement future when feasible, you’ll be okay.
“The joy of retirement comes in those everyday pursuits that embrace the joy of life; to experience daily the freedom to invest one’s life-long knowledge for the betterment of others; and, to allocate time to pursuits that only received, in years of working, a fleeting moment.”
— Byron Pulsifer, Author