Email question: Retirement planning is unfair, how do I get ahead?

Pete,

I read your article in Indy Sunday star. How lucky to retire at 52 with the choice of $52,000 or $500,000 and most likely never had to save a dime. The question is more real to the normal population. What do you tell a hard working 35 yr. old man with a good job and no pension. I have a house and car mortgage and 2 kids to feed. Wife makes a few bucks but she watches our kids. My question is I want to save for retire but where do we put our money. The company has 401K plan but how do I trust the stock market? I really don't want to invest my hard earned money and wake up some morning to something that may fail. The stock exchange could care less if I jumped off a tall building. Look forward to your reply.

Doug

Eesh Doug, you're a little salty huh? I knew writing the column you are referring to, where I discussed options for someone with a pension, would only apply to a small percentage of readers, but I was answering a specific question. Just like I'm going to answer your question, even though not everyone feels the same way you do. Or maybe they do. Who knows?

Here's the thing Doug, I also don't have a pension, so I sort of understand where you are coming from. On the surface it seems unfair, but if we dig a little deeper I think you'll agree it is actually quite fair.

Only 15% of the private sector has a pension. I am not in that 15% and neither are you. But your accusation that those with a pension didn't have to save a dime is unfounded though. The thing with people who have a pension is it was a part of their initial contract and benefits package. It's called deferred compensation. They work hard for their pension. You may be frustrated because you don't have one, but don't take it out on people who do.

I am also in my mid-thirties with 2 kids, so I understand your frustration about saving for retirement, but there's something you and about 99.99% of people get mixed up about retirement planning. Everyone is too focused on accumulation. I wrote an entire book on this subject (Mock Retirement), which if you want more information than I can give you in this post, is a great resource. Retirement planning really should be about breaking your dependence on your income, and secondarily, accumulation. Most people live on 100% of their income. If they get a raise, they absorb it and continue to live on 100% of their income. But let's say you are saving 20% of your income each paycheck. You're probably saving 20% to accumulate money, but the real impact of this saving is not the money itself but the fact that you are now living on 80% of your income. You've broken your dependence on 20% of your income. This is what retirement planning needs to be about. Work towards cutting your dependence on your income each year, increasingly more so as you get closer to retirement. This will not only help you accumulate money but also prepare you for the inevitable pay-cut in retirement.

To address your stock market concerns all I can say is I won't convince you to invest. It's not my business to force your risk tolerance one way or the other. All I can do is provide you with a few facts and you can do with them what you will. Since 1970, the S&P 500 has only been down 9 times. Nine times in 44 years. And, all of those 9 times the market has recovered within 5 years. And you're right, the market doesn't care about you, but neither does your car or your desk because they are inanimate. The stock market is just a tool. A tool you can use to your benefit. I actually did a Monte Carlo simulation a few years back that proved 100% cash retirement savings is actually more risky than a mix of 60% stock and 40% bonds. Why? Because the real danger isn't losing your shirt in the market, it's running out of money. Your retirement, more than anything else, is threatened by you using all your funds before you die.

So there you go Doug. That's a pretty long-winded response, but I want to reiterate, being angry at the stock market and people with pensions really isn't going to do you any good. Keep working hard, start breaking your dependence on your income, and you'll be good-to-go.

I also answered your question on The Pete the Planner Radio Show on 93 WIBC this week. Listen to it here: