A12 From Page One nest egg from A1


spending, downgrade retirement dreams — rather than crossing their fingers and hoping for big- ger returns down the road. “The real advice to individuals


is that they have to be working at something they love because the reality is that they will be working longer,” said Eleanor Blayney, consumer advocate for the Certi- fied Financial Planners Board of Standards, a trade group.


Adding it up The math alone is sobering.


College lender Sallie Mae esti- mates that a public university will cost $175,000 for a child born this year. A private school is even higher, at $365,000. Meanwhile, the group predicted that the aver- age family will have saved only $48,000 for college by the time a child graduates high school. Looming beyond the expense


EZ SU


KLMNO Families lose faith in their ability to save


“I’m trying to do what they say to do, which is keep putting it in there in good times and bad.”


—Justin McNaull, a father of two in Vienna


of college is an even more daunt- ing cost. A family earning theWashing-


ton area’s median household in- come of about $85,000 must earn more than $2.7 million from its investments if it wants to main- tain thesamestandardof living in retirement and not run out of money, according to an analysis conducted by Fidelity at the re- quest of TheWashington Post. To meet that goal, such a family would need to sock away 11 per- cent of its earnings each year, though it should consider saving morein case themarkets perform poorly, Fidelity said. In the 1980s and ’90s, the stock


and real estate markets helped many families amass wealth to prepare for college costs or retire- ment. But now there is mounting concern among economists and business leaders over whether high rates of return will be sus- tainable in this century. Even be- fore the financial crisis, business guruWarren Buffett, in a letter to shareholders in early 2008, com- pared those who swear the stock markets can produce long-term double-digit gains to the delu- sional queen in “Alice inWonder- land.” (Buffett sits on the board of TheWashington Post.) So far, Buffett’s prediction has held true. Stock markets ended


the past 10 years virtually flat. Meanwhile, the real estate crash has wiped out the gains home- owners saw earlier in the decade. Some economists are now dub- bing the era a “lost decade.” “Every time you drink from a


glass, you get poisoned, so why would you ever want to drink from a glass?” said Ric Edelman, whorunsaneponymousfinancial services firm in Fairfax. For his stressed-out clients, Edelman said he employs tough- love advice: “Get a grip.” The fears plaguing modern in-


vestors are driven in part by a generational gap, he said. Many families in their nesting years have not seen the sustained eco- nomic growth that would give them confidence about what’s ahead. And, as guaranteed pen- sion plans become relics of a by- gone era, many families are bear- ing more of the burden of deter- mining their financial future.


NIKKI KAHN/THE WASHINGTON POST


Caleb, 8, plays piano for his grandmother, Willa Sweeney. Justin McNaull hopes time is on his side when it comes to family savings.


Change of plans Matt Queen, 36, of Alexandria


had hoped to bow out of the intense pace of his job in govern- ment relations for a defense con- tractor at age 50. He began sock- ingmoney away into a retirement


accountassoonashebeganwork- ing, resisting the temptation to follow his friends into the dot- com bubble and patting himself on the back after it burst. But his plan hit a wallwhenthe


financial crisis struck. His 401(k) had been growing at 16 percent year over year; that plunged to just 3 percent.Meanwhile, certifi- cates of deposit that had enjoyed a 5 percent return fell to about 1.5 percent — making them only slightly more worthwhile than stuffing money in hismattress. So Queen and his wife, Laura,


are considering pulling the mon- ey out to buy a home in Florida where they could retire, though that day is now unlikely to come at age 50. “It was a too-aggressive


dream,” Queen said. “I think we had a big reality check on it.” Families in their nesting years


still have time for their invest- mentsto turn around, but surveys show Americans have less confi- dence that they will be able to finance life’s landmark events on their own. A recent Gallup survey found


that the percentage of working adults who think their 401(k) plans will be a major source of retirement income dropped from 52 percent in 2007 to 45 percent this spring. Those who believed they would be able to rely on the equity in their home dropped 10 percentage points to 20 percent. “People have been hit with a


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More know-how. More intercepts.


double whammy,” said Jack Reu- temannJr.,whorunsthe personal finance advisory firm Research Financial Strategies in Rockville. “Sometimes I feel we’re running a financial emergency room.” The same poll showed that


those who expect to rely on Social Security in their retirement jumped eight percentage points to 34 percent, despite expecta- tions that the entitlement pro- gramwill run out of money in the coming decades. With so much uncertainty


about where to invest, some are simply sitting tight. Justin McNaull of Vienna de-


posited about $25,000 into a 529 account for his son, Caleb, using the profits from the sale of his home in 2002. Eight years later the balance has barely budged, butMcNaull’s familyhasgrownto include a 5-year-old daughter, Eli- za. Two kids means two college tuitions. “I’mtrying to do what they say


to do, which is keep putting it in there in good times and bad,” McNaull said of his savings plan. McNaull’s savings strategy has remained the same despite the low returns and the financial cri- sis.He still has plenty of equity in his home, he said.His retirement accounts total about $200,000, and there’s also life insurance. Plus, he is hoping that time is on his side. Whoknowswhatcouldhappen


in 30 years? The stock markets could return to glory, Buffett could go bankrupt, or McNaull’s son may not need the nest egg he has dutifully saved up for him. “Whenmy son actually realizes


his NBA dream, then Eliza will have her shot at the money,” he joked.


muiy@washpost.com


By the numbers College tuition


$175,000 Public university


$365,000 Private university


Te estimated college costs for a child born this year.


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$48,000


Te amount an average family will have saved for college by the time a child graduates high school.


Retirement $2.7 million


Amount of investment earnings a family (with the Washington area’s median household income of about $85,000) must earn if it wants to maintain the same standard of living in retirement and not run out of money.


www.lockheedmartin.com/gmd SOURCES: Sallie Mae, Fidelity THE WASHINGTON POST


MONDAY, SEPTEMBER 20, 2010


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