It was a simple enough proposition. Michael and Margie Gershtenson had always heard that the Southwest, land of cacti, affordable housing and low taxes, was a great retiree haven. And they knew they needed to set aside a certain amount for life’s next chapter—as those big-broker ads ask, “What’s your number?” So they set up a foolproof plan: Build a nest egg of at least million, and get out of town. Which is exactly what they did, hitting that threshold five years ago and closing down their dental practice in Colorado—Michael had been the dentist, Margie the hygienist. Off they went, to senior-rich Sedona, Ariz., to live out their golden years.
But like millions of others, the Gershtensons ran into trouble—and not just because of the crash of 2008. Arizona may have low taxes, but the couple spent several thousand dollars more than expected each year on out-of-state travel, to visit their former home and escape the state’s miserable summer heat. They faced high insurance costs—about 0 a month—to fill in gaps in their Medicare coverage. And most damaging of all, they’ve seen the income they were counting on from their portfolio slashed by record-low interest rates. The result? The Gershtensons now live on about 20 percent less than they originally planned to. “The golden ages aren’t always golden,” sighs Michael.
These days a lot of silver-haired folks are sharing the same sigh, along with a collective uneasiness that comes from reading those still-shrunken numbers on their financial statements. Indeed, whether they are in, near or just daydreaming about retirement, Americans are discovering that the rules they’ve followed for a decade didn’t make much sense—and still don’t. It all started, of course, with the 2008 crash, when faith in the reliability of buying and holding stocks came tumbling down. Today investors’ faith remains shaken, but the messages many are getting—from retirement planners, brokerage firms and an adviser community the size of a small city—are still bewilderingly upbeat, not to mention out of touch. Worried about stocks? Ride bonds to the top. Wondering how much money you’ll need? Just type a few numbers into a calculator and get your magic number. Nest egg too small? Just move somewhere cheaper—and warmer! “Financial pros have to be confident,” says Punam Keller, a professor of marketing at Dartmouth University’s Tuck School of Business. “But now when people hear these things, they’re much more skeptical.”
Nowhere is the collision of happy illusion and difficult reality more vivid than in the 401(k) world. Late last year retirement giant Vanguard reported that 71 percent of the investors in its 401(k) network had more money in their accounts than they did before the crash. The nonprofit Employee Benefit Research Institute released similar figures for older investors in general. But while some pundits popped the corks on their prosecco, both institutions also highlighted a big caveat: Their numbers included all the investors’ contributions and their company matches to boot—not investing gains, but shovelfuls of new money. So boomers who feel like they haven’t caught up are, in essence, dead right. “Being back to even is great in theory,” says Alan Glickstein, who works with 401(k) plans as a senior consultant at human-resources firm Towers Watson. “But most retirement accounts should have been far further ahead by now—we’ve lost three years.”
To be sure, the unsatisfying state of affairs isn’t just the fault of wrongheaded advice from the finance industry. We investors love to create our own realities—just ask the average boomer how much help he expects to get from Medicare. But comforting stories—myths, if you will—about retirement are hard to dislodge. Here’s our look at five of the biggest, with a few alternatives for the reality-driven investor.
