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Terrie Monaghan would retire tomorrow if she could.
Monaghan, 45, is tired of the stress of her job as a coordinator for the state's Office of Emergency Services. Her lack of retirement savings, however, means that she is destined for many more years spent untangling bureaucratic snarls, punctuated by the nightmarish aftermaths of earthquakes, floods and other disasters. Switching jobs could mean putting off retirement even longer, since she would probably lose her state pension.
Dealing with emergencies "is an adrenaline rush, but you can only crawl under tables and stay up all night for so long," the Pasadena resident said. "I want to do something else."
From mid-career on, American workers learn that it can be more than just mortgage payments, lack of opportunities or ennui that might trap them in their jobs. Not having the financial freedom to retire often dooms them to punching a time clock long beyond the time when they would rather be fishing, launching a second career or traveling the world.
A fat retirement account, on the other hand, can give workers the flexibility to retire earlier, try a new job or simply worry less about losing their current positions.
"Whenever I talk to a young person, I encourage them to save as much as they can in the early years to give themselves freedom," said Anne Fink, a certified financial planner who works as a benefits and planning consultant for UC Irvine. "When they get to age 55 they may want to bail, but if they haven't saved they can't do it."
The retirement trap is most obvious when it affects older workers. Jerry Olsen, 70, is an Irvine engineer who started saving for retirement 10 years ago. He figures he needs five more years of saving--and strong stock market returns--before it makes financial sense for him to quit.
But younger workers can feel the pinch too. Those who job-hopped through their 20s and 30s may find they are decades away from qualifying for the company pension--presuming their company even offers one.
Job-hopping can even hurt people who save in 401(k)s, a retirement account that often can be rolled over from job to job. The culprit: 401(k) waiting periods, which prevent workers from contributing to the plans for up to a year.
Rosemead software developer Tim Chau, 29, figures he lost tens of thousands of potential retirement dollars at his last job, which required him to wait a year before contributing to the 401(k). His current job--his fifth in five years--required him to wait three months.
"At my next job, I'm going to demand no waiting period," Chau said.
Workers who in their youths ignored the self-funding options--401(k)s, 403(b)s and individual retirement accounts--may have to frantically shovel money into their savings during their 50s and 60s to try to make up the gap.
And the gap can be huge. A 25-year-old could put aside $2,000 a year starting today and, assuming an 8% average annual return, wind up with a nest egg of more than $500,000 at age 65. A 45-year-old starting today would have to invest more than $11,000 a year to obtain the same result, and a 55-year-old would be forced to find nearly $36,000 a year.
The total workers need in order to fund retirement is also growing, financial experts say. Americans are living longer and staying healthier, which means they will need bigger nest eggs to last them through longer and more active retirements.
Traditionally, financial planners have assumed the average worker would need 60% to 80% of his or her pre-retirement income. Today, some financial planners say their clients will need 100% or more of their working incomes in the years immediately after they retire. Although work-related expenses will drop, these clients will want to travel and indulge in other expensive hobbies that can quickly consume an inadequate retirement fund.
Meanwhile, traditional retirement options appear to be dwindling. The number of workers covered by company pensions--40 million--remains static, even as self-funding options such as 401(k)s are growing. Social Security is rumbling toward bankruptcy, leading many to presume that only meager benefits will be available when they retire.
Even those with good pensions can find themselves in a peculiar pickle. Teachers and government workers like Monaghan, for example, have plans that replace 60% or more of their incomes after they put in 30 years. But lacking other retirement savings, they can feel chained to those jobs.
Monaghan, for example, could theoretically retire at age 50, but she would get only 27% of her salary in pension benefits if she did so. Staying just five more years could bump the percentage to 40%; if she retires at age 60, she could get more than 65%. Furthermore, the longer she stays, the higher her final salary, which is used to determine her monthly pension amount. Even if her salary rises just 3% a year, her pension benefit at 60 would equal more than she is making now.
If she left state employment, her retirement would probably be far less secure. The private sector technology jobs Monaghan dreams about rarely offer pensions, so she could find herself working well into her 60s or even 70s before amassing enough to retire.
Monaghan knows she will be better off than seniors who are forced to flip hamburgers to supplement Social Security. But she wishes she had planned for her retirement years earlier.
Monaghan, 45, is tired of the stress of her job as a coordinator for the state's Office of Emergency Services. Her lack of retirement savings, however, means that she is destined for many more years spent untangling bureaucratic snarls, punctuated by the nightmarish aftermaths of earthquakes, floods and other disasters. Switching jobs could mean putting off retirement even longer, since she would probably lose her state pension.
Dealing with emergencies "is an adrenaline rush, but you can only crawl under tables and stay up all night for so long," the Pasadena resident said. "I want to do something else."
From mid-career on, American workers learn that it can be more than just mortgage payments, lack of opportunities or ennui that might trap them in their jobs. Not having the financial freedom to retire often dooms them to punching a time clock long beyond the time when they would rather be fishing, launching a second career or traveling the world.
A fat retirement account, on the other hand, can give workers the flexibility to retire earlier, try a new job or simply worry less about losing their current positions.
"Whenever I talk to a young person, I encourage them to save as much as they can in the early years to give themselves freedom," said Anne Fink, a certified financial planner who works as a benefits and planning consultant for UC Irvine. "When they get to age 55 they may want to bail, but if they haven't saved they can't do it."
The retirement trap is most obvious when it affects older workers. Jerry Olsen, 70, is an Irvine engineer who started saving for retirement 10 years ago. He figures he needs five more years of saving--and strong stock market returns--before it makes financial sense for him to quit.
But younger workers can feel the pinch too. Those who job-hopped through their 20s and 30s may find they are decades away from qualifying for the company pension--presuming their company even offers one.
Job-hopping can even hurt people who save in 401(k)s, a retirement account that often can be rolled over from job to job. The culprit: 401(k) waiting periods, which prevent workers from contributing to the plans for up to a year.
Rosemead software developer Tim Chau, 29, figures he lost tens of thousands of potential retirement dollars at his last job, which required him to wait a year before contributing to the 401(k). His current job--his fifth in five years--required him to wait three months.
"At my next job, I'm going to demand no waiting period," Chau said.
Workers who in their youths ignored the self-funding options--401(k)s, 403(b)s and individual retirement accounts--may have to frantically shovel money into their savings during their 50s and 60s to try to make up the gap.
And the gap can be huge. A 25-year-old could put aside $2,000 a year starting today and, assuming an 8% average annual return, wind up with a nest egg of more than $500,000 at age 65. A 45-year-old starting today would have to invest more than $11,000 a year to obtain the same result, and a 55-year-old would be forced to find nearly $36,000 a year.
The total workers need in order to fund retirement is also growing, financial experts say. Americans are living longer and staying healthier, which means they will need bigger nest eggs to last them through longer and more active retirements.
Traditionally, financial planners have assumed the average worker would need 60% to 80% of his or her pre-retirement income. Today, some financial planners say their clients will need 100% or more of their working incomes in the years immediately after they retire. Although work-related expenses will drop, these clients will want to travel and indulge in other expensive hobbies that can quickly consume an inadequate retirement fund.
Meanwhile, traditional retirement options appear to be dwindling. The number of workers covered by company pensions--40 million--remains static, even as self-funding options such as 401(k)s are growing. Social Security is rumbling toward bankruptcy, leading many to presume that only meager benefits will be available when they retire.
Even those with good pensions can find themselves in a peculiar pickle. Teachers and government workers like Monaghan, for example, have plans that replace 60% or more of their incomes after they put in 30 years. But lacking other retirement savings, they can feel chained to those jobs.
Monaghan, for example, could theoretically retire at age 50, but she would get only 27% of her salary in pension benefits if she did so. Staying just five more years could bump the percentage to 40%; if she retires at age 60, she could get more than 65%. Furthermore, the longer she stays, the higher her final salary, which is used to determine her monthly pension amount. Even if her salary rises just 3% a year, her pension benefit at 60 would equal more than she is making now.
If she left state employment, her retirement would probably be far less secure. The private sector technology jobs Monaghan dreams about rarely offer pensions, so she could find herself working well into her 60s or even 70s before amassing enough to retire.
Monaghan knows she will be better off than seniors who are forced to flip hamburgers to supplement Social Security. But she wishes she had planned for her retirement years earlier.
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