Study Highlights the Importance of Saving
FARAI CHIDEYA, host:
Last week, President George W. Bush turned 60. Next month, former president Bill Clinton celebrates that same milestone. And they're only two of the millions of baby boomers fast approaching retirement age. Maybe they won't have to worry about money when they retire, but the rest of us probably will.
A new study from Boston College urges us to start saving up as early as we can. NPR's Karen Grigsby Bates reports.
KAREN GRIGSBY BATES reporting:
Here's the good news, we Americans have longer projected life spans than ever. And we stay active longer than most of our parents did and we're in better health than ever, which means we could be around for decades after retiring.
And now here's the bad news. That longer life span I was just bragging about? That means when we retire, we're going to have to stretch a finite amount of money for what could be a way longer period of time.
Baby boomers and Gen X'ers are the next big retirement wave and a new study from Boston College says, among other things, we need to save at least three percent more of our income, we need to work longer before we retire, we will retire on less Social Security than our parents did and our Medicaid benefits will be taxed, which means less money all around.
Some people recognize it's time to get cracking. At a local sandwich shop, dentist Desiree Tillman Jones(ph) shares her retirement plan.
Ms. DESIREE TILLMAN JONES (Dentist): I would say about 70-80 percent of my money is invested in stocks, bonds, mutual funds, and about 20 percent in real estate. Actually, if the stock market had not done so poorly in the last five or six years, I'd be retired.
BATES: Her delayed target is now 55. Alicia Munnell is director of a center for retirement research. She says Dr. Jones has put more thought into her retirement plan than most of Americans do. According to Munnell, the study's risk index factor warns as much as 43 percent of American households could be in for a struggle after retirement.
Professor ALICIA MUNNELL (Professor of Management Sciences, Boston College; Director, Center for Retirement Research): The purpose of the index is to draw attention to the notion that retirement is going to be difficult and increasingly difficult over time.
BATES: How difficult retirement gets could depend on how early one retires. Many people look at 65 as the average retirement age, but Munnell says working a little longer can make a significant difference in how well you live after you stop working.
Some people, like Genie Bowden(ph), a chef, already recognized this.
(Soundbite from inside Starbucks)
Unidentified Man: Whipped cream on the Mocha Frap?
Unidentified Woman: Yeah, a little bit.
BATES: She explained why while waiting for a Mocha Frappuccino at Starbucks.
Ms. GENIE BOWDEN (Chef): I'm working for my retirement. I have five children so there's been no chance to save.
BATES: So how long does Bowden plan to work before she collects Social Security?
Ms. BOWDEN: Realistically? Probably 70. What they give you at 62 and what they give you at 65 compared to what they give you at 67 or 70 is a wide difference.
BATES: Cutting back on treats now will help Bowden later. Alicia Munnell would probably disapprove of designer coffee drinks as a daily expense. She would definitely approve, though, of Bowden's willingness to work longer.
Munnell says that's something other people will have to be coaxed into doing.
Prof. MUNNELL: A lot of people respond to that, oh my God, I can't work until I'm 90. But basically what we're talking about is working for two more years. So if you plan on working full time until 65 and then plan on some additional work thereafter, you will be in pretty good shape.
BATES: Many of us would want to be in better financial shape but we're paralyzed by the confusing maze of saving options. A number of companies have realized this says Munnell. They are trying to do the deciding for their employees by automatically enrolling them into a 401k.
Prof. MUNNELL: That is when you join a company, you're automatically put in the plan as the default. Now, if for some reason that doesn't suit you, then you have to go to the HR department and opt out.
BATES: If you opt out, you should then create your own mix of saving options. However you do it, Alicia Munnell says, retirees shouldn't plan on Social Security exclusively to get them through their later years since Congress has already announced it will be cutting back on those benefits.
Prof. MUNNELL: This is not speculative. This is not my particular view. This is baked in the cake.
BATES: So unless you want to take the radical approach of artist Diane Gamboa...
Ms. DIANE GAMBOA (Artist): I attempt to probably work until I, you know, drop dead.
BATES: The Boston College study says saving more now and working a couple of extra years might save you from a grim retirement later.
Karen Grigsby Bates, NPR News, Los Angeles.
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CHIDEYA: Thanks for joining us. That's our program for today. To listen to our show, visit npr.org. NEWS AND NOTES was created by NPR News and the African-American Public Radio Consortium.
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