Ater talking with retirement plan participants over the past 25 years, I believe most 401(k) plan participants think their retirements will feature: 

  • No reduction in standard of living.  Everyone is expecting to retire and live in the same house, go out to dinner just as often, enjoy vacations with the same frequency, etc.
  • More leisure time with the financial resources available to underwrite hobbies, travel, lifestyle, etc.
  • An income replacement ratio of 100% or more of pre-retirement income. 

Are these realistic goals?  For some people, who are really good savers, yes.  For most of us, probably not.  As outlined in last week's post, most of us are not contributing near enough to our 401(k) retirement plans over the course of our careers to fund an adequate retirement - and far less than is necessary to fund the sort of retirement outlined above. 
Most experts believe that we must average 15% in total contributions (employer and employee) over our careers to fund an adequate retirement. An adequate retirement being defined as one where we are replacing roughly 75% of our pre-retirement income. Sadly, most of us are not on track to fund an adequate retirement for ourselves. What can we do?

  • Begin saving more as soon as possible.  Remember, the essence of saving is choosing a lower standard of living now to finance a higher standard of living in the future (a sacrifice we baby boomers are not eager to make).
  • Become better investors.  I have heard many 401(k) plan participants say that they want their money to work as hard as they do.  Becoming a better investor doesn't necessarily mean taking on more risk.  What it does mean is understanding ourselves, the markets and the economy better so we can assume an appropriate level of risk, manage our portfolio's effectively through volatile markets and still sleep at night.
  • Work longer before retirement.  Many of us won't have a choice since our full Social Security benefits are not available until sometime after age 65.
  • Work during retirement.  It appears that most of us are probably destined to work during our retirement.  Part-time work of some sort may be in our future.
  • Change our lifestyles at retirement.  Previous generations didn't expect to live in the same house when they retired, they knew they couldn't afford it.  Many of us may need to sell our homes and tap that equity to finance living expenses.

All of these choices are painful and require some work.  Keep in mind that delaying making a change will only make the pain worse!
Contributing Editor Robert C. Lawton is President of Lawton Retirement Plan Consultants, LLC a Registered Investment Advisory firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities.  Mr. Lawton has over 25 years of experience working with corporations on their retirement plans and is a Chartered Retirement Plan Specialist (CRPS) and Accredited Investment Fiduciary (AIF).  He may be contacted at or 414.828.4015.


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