Thriving in a Time of Great Resignation

Thriving in a Time of Great Resignation

Americans are quitting their jobs at record rates, and we discuss how to thrive amid this existential labor crisis. Motley Fool retirement expert Robert Brokamp explains the work-to-retirement ratio for saving enough and we answer a question about building up cash in a frothy market.

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This video was recorded on Oct. 5, 2021.

Alison Southwick: This is Motley Fool Answers. I’m Alison Southwick, joined as always by Robert Brokamp, Personal Finance expert, here at the Motley Fool. Hi, Bro.

Robert Brokamp: Greetings to one and all.

Alison Southwick: In this week’s episode, we’re going to learn how to thrive at work amid the great resignation. Bro, explains how the work-to-retirement ratio determines how much you need to save, and we’ll answer a list of your questions about building up cash amid a frothy market. All that and, actually, that sounds like plenty, on this week’s episode of Motley Fool Answers.

Robert Brokamp: You may have heard that many Americans haven’t saved enough for retirement. Well, here are some recent evidence. Northwestern Mutual surveyed more than 2,000 Americans for the firm’s 2021 planning and progress study, and here are the average amount of retirement savings according to generations: the Millennials, $63,000, Gen-X, about $99,000, and the Boomers, the people who are close to or in retirement, $139,000. Now many factors explained this lack of savings, but one is our declining work-to-retirement ratio. It’s a concept described in a few articles by Alex Pollock, who’s a resident fellow at the R Street Institute who has also worked at the Treasury Department, the American Enterprises Institute, and the Federal Reserve. As Pollock explained in a handful of articles dating back as far as 2005, the work-to-retirement ratio is essentially how many years someone works for each year of retirement.

To understand how much it’s changed, you have to know a few things about the history of retirement. Let’s start in 1889 when Otto von Bismarck, the Chancellor of Imperial Germany, created the very first government pension program, and the retirement age was set at 70. Here in America, one of the earliest corporate pension systems was created by the Pennsylvania Railroad in 1900, and their retirement age was also 70, as was the case with many early state pension. Now back then, if you reached age 50, your life expectancy was 72. If a typical worker began a full-time career at age 16, works for 54 years to fund two years of retirement, you divide that 54 by two and you get a work-to-retirement ratio of 27. Essentially, someone worked 27 years to fund each year of retirement. Now by the 1950s, according to Pollock, people typically entered the workforce later at age 20, retired sooner at 67, and lived longer, dying at around age 79. They worked 47 years to fund 12 years of retirement, and now we’re down to our work-to-retirement ratio below four. Fast-forward to today when a college graduate begins to work at age 22, retires at 63, and lives to 85, that’s 22 years of retirement funded by only 41 years of work. The work-to-retirement ratio of less than two.

Basically, just working two years for every one year of retirement. Now according to Pollock’s calculations, that ratio can almost work if you save more than 14 percent a year over year career, and that’s in line with the general guidance from some of our recent guests, such as Wade Pfau from last week, and Roger Young of T. Rowe Price from our September 7th episode. The good news is that many workers are close to this target. According to Fidelity, the average total contribution rate the 401k is held at the firm, including the employer match was 13.9 percent as of June. The bad news is that this is an all-time high, which means that most […]

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