Vickroy: Retirement savings, dreams down the drain
BY DONNA VICKROY firstname.lastname@example.org Twitter: @dvickroy January 25, 2013 5:20PM
Karen Gleason stands near her mailbox where the bills keep coming in front of her home in Tinley Park, Illinois, Thursday, January 17, 2013. With savings gone and their 401(k)s nearly tapped out, this middle-aged couple is the face of the new American nightmare. Her husband lost his job a few years ago and now works for half the pay. Their last resort will be to sell the home they've lived in for 24 years. | Joseph P. Meier~Sun-Times Media
Updated: February 28, 2013 6:15AM
Karen Gleason could be the poster child for the American dream turned nightmare.
Then again, so could millions of other American workers.
Five years ago, Gleason and her husband, Mike, were living well.
Their Tinley Park house was valued at nearly $300,000. Mike had a good-paying job as a manager at an Elmhurst Caterpillar dealership. They had grand plans for retiring in a less-expensive area of Tennessee, a place where their home’s equity and their $50,000 retirement nest egg would go far.
“Life was good,” Gleason said.
And then the bottom dropped out.
One day in 2010, Mike went into work and was handed four pink slips.
“He was torn up about having to lay people off,” Karen said. But he did what he had to do.
When he got to the last slip he noticed there was no name on it. He asked about it and was told the final layoff notice was for him.
Mike was just shy of 50 at the time. He’d worked for Cat most of his adult life. It was like a second family, Karen Gleason said. Losing his job was like losing a piece of himself.
Gleason watched as her husband spent nearly a month dealing with it.
“He was a mess,” she said.
“After three weeks I told him, ‘Enough.’ He’d used up his three weeks vacation and now it was time to get back to work,” she said.
But the only work Mike could find came more than a year later when he landed a position hauling 100-pound tires for half the pay.
It was a blow to his self-esteem and to the Gleasons’ finances. To make matters worse, the real estate market tanked. Today, their mortgaged bilevel home is worth $185,000.
With nowhere else to turn, they began tapping their nest egg.
“We’re down to $3,000 from $50,000,” said Gleason, who works part time at Zettlmeier’s Bakerei in Tinley Park. “When that runs out, we won’t have a choice but to sell the house.”
The couple have gone from making plans to making it through the day.
“We worry constantly,” Gleason said. “We don’t go out to eat, we don’t go to movies. We still want to retire. We deserve to retire. We’ve worked our butts off all these years to be able to retire. But how are we supposed to do that?”
A good question and one asked all too frequently these days.
As sad as the Gleasons’ story is, Debra Baker has heard it many times. She knows households in which both wage earners have lost their jobs. She has clients whose adult children have moved back in with them.
The Orland Park certified financial planner said recently released statistics revealing that 1 in 4 American households have tapped their retirement funds bear out the desperate situation too many Americans find themselves in.
“People are using their 401(k)s to pay everyday expenses,” said Baker, who is second vice president/financial adviser for The Moran Group, part of Morgan Stanley Wealth Management. “A lot of people found themselves in dire straits during the past five years.”
She said the withdrawals are understandable in many cases.
“You have to feed the family, you have to keep the heat on,” she said. “But some people are tapping their savings for things like vacations and big-screen TVs.”
Whatever the motivation, Baker said, the trend does not bode well for those nearing retirement or for the younger generation who may end up supporting them.
“If a couple gets to age 65 with no heart disease and no cancer, there’s a 50 percent chance one of them will live to be 90,” Baker said. “Many people are living longer in retirement than they did in the work force.”
The average amount that most people have put away — $25,000 to $75,000, Baker said — is way below the amount they’ll need, especially if they live well into their golden years or if they fall ill along the way.
“Many think they’ll just work longer, to 67 or even 70,” Baker said. “But there are no guarantees your health or your employer will allow you to do that.”
So what is an already desperate person to do? Gleason asks. Expenses, particularly property tax bills, continue to climb, yet income does not.
Baker suggests people nearing retirement “start planning again as soon as possible. Look at every little way you can save. That $3 Starbucks can add up over a year’s time.”
Evaluate your lifestyle, she said. Do you really need new phones, cable, new clothes?
Consider putting any extra cash, even if it’s just $25 a month, into a Roth IRA or Roth 401(k), which is taxed at the time of contribution instead of later, when the money is withdrawn.
In addition, she said, if you find yourself short of cash for your kid’s college tuition or for living expenses, first tap your savings, then your home equity. Retirement money should be the last resort, she said.
“You can borrow to pay tuition, but you can’t borrow to fund your retirement,” she said.
“Don’t lose hope,” she said, though she admits the key to successful retirement saving is to start young.
“It doesn’t take massive wealth to accumulate a nest egg but it does take time,” she said.
“If you want to retire at the same standard of living you’re at now, you should be putting away 10 percent of your income a year. But you need to start doing that early,” she said. The government now allows workers to pack away $17,500 a year into a 401(k), tax-free for the year the contribution is made. Those over 50 can add $5,500 to that.
The magic “number,” or total savings needed at retirement, varies with the individual, she said.
Think about all of the sources of revenue you’ll have when you retire, including savings, pension and Social Security. Any additional money you’ll need to pay for your housing, living expenses and health care will need to come from your retirement account.
Be aware that it’s estimated a 65-year-old couple will need an estimated $240,000 for health care from that point in their lives forward.
Gleason, who has two grown children, one of whom still lives at home and pays rent, said lawmakers in Springfield and Washington “have no idea what we’re going through. They bail out the banks, they bail out Wall Street — they’re the ones who caused this mess,” she said.
“And what have they done for us, the workers?” she asked. “What will become of us?”