Career Risk Can Derail Your Retirement Plans
As I get close to turning 45 I’m finding that my Apple newsfeed is increasingly filled with stories about retirement and how to deal with getting older. I’ve even received mail from AARP asking me to join their group. All I can say is to Apple and AARP is – “I got a lot of good years left before I’m ready to retire!”
But I saw a news story recently that is relevant for any of you in your 20’s, 30’s or 40’s. The story talks about job loss and loss of income for people over the age of 50. Surprisingly, the study found that over 50% of people over the age of 50 experience an unexpected job loss or loss of income-producing power.
If you’re a Millennial, Gen Y, or a fellow Gen X’er, please pay attention! The lesson in this story is important to your financial future.
Life is rarely a straight line moving upward
You’re in the early stages of your career and income potential when you’re in your 20’s or 30’s. If that’s you, take a moment to visualize your future income potential. Does it look something like this?
This exactly the vision I had for my own life 10-20 years ago. If you had asked me at Age 30 what my future income would look like through Age 65 I would have pointed to a chart like this.
But here’s what I’d like you to consider: Your income potential might not move up in a straight line until retirement. There will be zig and zags. Some unexpected positive surprises (promotions, new job opportunities)…some negative surprises.
This article focuses on one common “negative surprise” that I’d like you to be aware of. If your retirement savings plan includes the idea that “I’ll be able to catch up when I’m making more in my 40’s and 50’s” I’d like you to take a step back and reconsider that idea.
Mid-career Income Interruption is Real
The crux of the article is that a lot of people over the Age of 50 involuntarily lose a job or lose their income-earning potential. These people had planned to keep working their same job until age 65. They planned to keep making good money until they retired. But the company they worked for didn’t share those same plans.
Age discrimination is illegal in the U.S. but that doesn’t mean it doesn’t happen. It’s often subtle and unspoken.
I’ve seen this happen to friends, family, and acquaintances. Their employers went out of business or had a series of cutbacks and they were let go.
Here’s what typically happens: As employers look to cut costs, they prefer to cut their most expensive workers. Since older workers tend to make more money than younger workers, guess who’s first on the chopping block?
By cutting more expensive workers, the company doesn’t need to cut as many people. Fewer people cut = less disruption within the company.
Companies do the simple math: “If we can hire a 20-something that can do 70% of the job that Bill is currently doing for half his salary, that’s what we’re going to do.” This happens all the time!
Do you know anyone in their 50’s that used to have a great, high-paying corporate job and is now struggling to find a similar position? I do. Next time you’re at Target, Home Depot, or some other big box store take a look around. You may see a worker or two there that used to have a nice corporate gig. But now they’re working there as they couldn’t find the same type of job they did before. (Nothing against working at a Big Box…I’m simply sharing what I’ve seen happen to people I care about.)
While they still have a job, it’s not the same job for the same pay they had before.
Career Interruption and Retirement Planning
I bring this to your attention so that you’re aware of risks that may face you in the future. The risk of job loss after Age 50 can lead to an unpleasant retirement situation if you’re not careful.
Have you ever thought…
- “I’m only in my 20’s/30’s…I have plenty of time to save for retirement later…”
- “It’ll be easier for me to catch up with my retirement saving when I’m older and making more money…”
Waiting to save for retirement is never a good idea. You lose the ability to have your investments “work” for you over a longer period of time.
It’s an even riskier strategy to delay saving for retirement with the idea that you’ll make up for it later. Let me be blunt: If you wait until your 40’s and 50’s to save for retirement you’re running a huge risk. Not only will you have to save more, but you run the risk that your future income won’t be sufficient to do so.
A simple example will show this. Pretend you want $1,000,000 at age 65. Let’s also assume a hypothetical 8% investment return on your investments. Here is how much you’d have to save each year depending on the age you start:
Age 25: $3,860 per year
Age 35: $8,827 per year
Age 45: $21,852 per year
It’s pretty clear that there’s a steep price to pay waiting to save for retirement. If you’re fortunate, you’ll continue to have a high-paying job as your career advances and you can “catch up” on retirement saving later. (Although I would never recommend that approach).
But what if you’re not so lucky? What if you’re one of
Be Smart. Start Saving Now.
I write about this risk for the benefit of my Millennial, Gen Y, and Gen X friends. If you’re not saving for retirement right now, please start doing so. You’ll give your money more time to grow. But more importantly, saving now helps you avoid the risk of playing catch-up later. Risks to your job/income increase as you age, so don’t delay.
If you’re already in your 40’s and 50’s and haven’t saved enough for retirement, don’t despair. It’s not too late. But it’s important you get a PLAN right now. You still have time to design a retirement plan for you and your spouse.
Retirement planning is just one of the aspects of your financial life that I can help you with. Contact me, and I can help you weave a new retirement plan into your family’s other important life goals. All you have to do is book a free, no-obligation consultation with me and you can see if we’re a good fit to work together.
Get Your FREE Financial Fitness Checklist
FREE FINANCIAL FITNESS CHECKLIST
Get organized with your finances so you can have peace of mind you're not missing anything super important.
Would you like me to keep you informed of deeper dives into these important financial topics?
431 North Hough Street, Suite 100 in Barrington, IL
(Office Hours by Appointment Only)
Serving clients in local communities, such as Arlington Heights, Barrington, Buffalo Grove, Lake Zurich, Libertyville, and the Greater Chicagoland Area. We also provide virtual services to clients nationwide.