Piggy banks endangered: Few saving for retirement
Even at age 50, Judith Max admits to not saving for retirement.
“How?” said the South Lake Tahoe real estate agent when faced with the question Thursday morning outside Bank of the West. “I’m overwhelmed by taxes in California. I love California, but there’s no industry here, and Tahoe’s becoming a rich man’s paradise.”
Max says she has no health insurance. When she was looking for it, a pre-existing condition would have jacked the rates up to $700 a month.
She also says she plans to sell her Montgomery Estates home built in 1990 to cash out and move to some place cheaper “and warmer.”
And apparently she’s not alone. Of the Tahoe Daily Tribune’s small sampling, only three out of 10 people ages 18 to 50 said they’re saving for retirement. And just one said she’s saving enough – which puts Tahoe in line with troubling national statistics coming out of the Federal Reserve.
No government bailout
According to testimony by retiring Chairman Alan Greenspan before the Senate Committee on Aging, the federal government has found fewer people save, they save less every year, and when they retire at age 65, they’re competing with more people for Social Security dollars. The Social Security administration estimates the population 65 and older will grow at least 9 percent to 26 percent of adults by 2030.
Cheryl Sillings, a South Shore financial planner for Brookstreet Securities Corp., said the baby boomers are falling short on saving, because they make up the “sandwich generation,” in that “they’re trying to be caregivers and trying to raise kids.” Both of these responsibilities cut into the household budgets.
“I’m guessing we’re going to see some defaults,” she said.
Sillings fears many people in this generation are financing their lifestyles by refinancing their homes, living beyond their means by using their credit cards or waiting to receive an inheritance from their parents in the “traditionalist” generation.
“They were the only ones who saved because they lived through the Depression,” she said. “So many people (outside that generation) use their credit cards and are now paying the price.”
A generational difference
Traditionalists fall into ages 61 to 81; baby boomers, 42 to 60; gen Xers, 25 to 41; and millenials, 4 to 24. The latter may need a lesson on the value of money and paying dues.
In a May 1999 poll conducted by USA Today, those in the youngest generation were asked what they expect to make by age 30. The median result was $75,000. The reality: $27,000.
Dina Cipollaro, 34, understands. The Lake Tahoe Community College work experience and outreach coordinator not only works with many young people on campus, she has also experienced a few hard knocks of her own.
In her 20s, Cipollaro took full advantage of the credit card life once she set foot on Northern Arizona University in Flagstaff. Upon graduating in 1993 with a bachelor’s degree in health promotion, she entered the working world with serious credit card debt. Adding to that, she lost a lot of money in depreciation of a vehicle she leased when traveling between Arizona and Montana where she’s from. She also had heavy moving expenses.
“My lifestyle was $10,000 more than my income,” she said. “I realized when I turned (age) 27 that something had to change. I couldn’t continue to live beyond my means.”
She moved to Tahoe in 1999, where she has been more entertained by hiking in the outdoors than shopping at stores. Although many people complain about the high cost of living here, Cipollaro is convinced “it’s easier to live within my means in Tahoe than the big city.”
Through the challenges, her retirement plan and a dual income have turned out to be her saving grace. Her faith helps.
“My faith has helped me realize what God has given me financially I need to use wisely,” she said. “And I knew I shouldn’t touch my retirement.”
Even when her frugal father told her she “missed the boat” on buying real estate, she said “another boat will come along.” She almost bought a home in Tahoe, but the $2,000 mortgage payments would have quadrupled her shelter expenses.
Most financial advisers recommend people spend a third of their income on shelter, but many are shelling out over half of what they make. Property values, including those in Tahoe, have skyrocketed. On the South Shore, property values have risen from 18 percent to 22 percent – making it tougher and tougher to afford a home.
Mary Beth Taylor is struggling, doling out three-fifths of her net income to her mortgage. She’s overextended and has dipped into savings set aside for emergencies, not retirement.
“I’m in the negative everywhere I look. I can’t afford to save for retirement,” she said.
To Reno financial planner Steve Hill, people like Taylor can’t afford not to save. He said increased life expectancy is making saving more necessary than ever: The number of people who are now age 65 have a 50 percent chance of living another 27 years; one in four could live until age 97, the Census Bureau indicated in a mortality table from its 2000 report. This means fewer people paying into a system that supports more recipients.
“The mind-set is everybody wants to retire, but people are living longer,” he said. The average lifespan for males is 85; 88 for females, according to the Social Security Administration.
Along with longevity, Hill pointed to inflation, a flawed level of risk in investment portfolios, excess spending and rising health care costs as reasons for concern with Americans failing to save. Health care costs are rising at a rate of 8.7 percent per year, according to a 2002 Fidelity study.
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