> The IRA won’t make anyone rich. A calculator on the site estimates that if you’re 22 years old and making $14 an hour–saving around $120 a month–you could end up with around $230,000 by the time you’re 65
1. $14 / hour? The median household (yes, I know, household, but wait) income is the highest it's been since at least 1985 [1] at $59k/year. So $14 is definitely a bit lower than "normal".
2. Saving $120/month on that salary is saving just 5%! Nobody is suggesting saving 5% is appropriate. 10% is the bare minimum anyone recommends. Doing that, an IRA at 65 would be worth > $763,000, enough to spend $30k each year for the rest of their lives.
Standard statement I feel like I always need to make: this is in no way a defense of our economic system. We absolutely need to raise taxes on the highest earners. We probably need a wealth tax as well. But we middle classers need to cool it with the defeatist attitudes. The poor have it hard. We, for the most part, do not. We spend too much and save too little. If you've got a car loan, eat anything but rice and beans, drink anything but water, have cable tv, a > $30/month cell phone bill, and complain about being broke, you've got some very obvious improvements you can make to get out of that dilemma.
I think FastCompany and Forbes run a variant on this article every year. I guess that it is a way to scare more people into saving more.
For me, the question anyone should ask is this, "If I needed $2,500 right now, could I get my hands on it quickly and reliably?" That number has gone up a bit but it is the 'emergency cash' number of old which would cover "a major car repair", "bailing out of jail", "the entire medical deductible in one payment" etc. It is the equivalent of "If life throws you a curve ball can you catch it or are you going to get knocked on your butt by it." [1]
If you can't answer yes to that question then it is important to recognize that you are operating without safeguards which puts you at risk of cascading financial difficulties. And if you can't answer yes to that question to have to ask things like "am I paying for Netflix? More than a bar budget phone? Do I eat out? Do I eat pre-prepared foods rather than making my own? Am I getting the most use/wear out of the things I buy like clothes, vehicles, etc?" Basically assess each thing you spend money on and look for ways to reduce that expense or eliminate it. As a fun anecdote I talked with a young adult who felt it was too much to ask to give up Netflix/Amazon Prime (for the streaming), I showed them they could buy a DVD player for $35 and check out movies and old television shows for free from the public library. It wasn't something they had opened their mind up to. But once they looked hard at things they found a bunch of stuff that they could change and that helped them get finances into a much better order.
I like the Mr Money Mustache site for ideas on ways to cut down your 'burn rate' as well.
[1] This can also be covered by a credit card, if you don't have any credit card debt, which is to say you have a credit card with a $2,500 credit limit but it (and no other card you have) carry a balance. Basically if you pull the trigger you'll add a monthy expense for the next 'n' months to get back out of the hole you just made.
> 1. $14 / hour? The median household (yes, I know, household, but wait) income is the highest it's been since at least 1985 [1] at $59k/year. So $14 is definitely a bit lower than "normal".
If we take that household income to mean it's two earners, they're each earning $14.75/hr ...
(assuming a standard 2000 work year), which is 40 hrs/wk for 50 weeks
As far as the amount to save, I've always figured that about 7.6% will get you the same pre-tax income at retirement assuming net growth of 7% (after 45 years of work -- age 20 - 65) minus FICA (since you don't pay FICA on 401k withdrawals or investment interest income). You can also probably get by with less in retirement, if you have a house paid for by then and don't drive as much. But you will have to pay some amount a month for medicare, so that should be factored back in.
If you assume 5% growth, then you will need to save about 14% of your income. Here, I'm using the average returns of the stock market minus inflation should get you 7%.
> The IRA won’t make anyone rich. A calculator on the site estimates that if you’re 22 years old and making $14 an hour–saving around $120 a month–you could end up with around $230,000 by the time you’re 65
So no room for 2 years of education or a drop year for health issues or layoffs or travel or starting a risky business?
Look, it's just math. Of course there's room for these things. Learning to consume just a little less than you currently do grants you a ton of flexibility.
It's staggering that this is the top voted comment.
> car loan
most of America doesn't have any way of getting to jobs without one
> eat anything but rice and beans
most people need fundamental nutrients from vegetables just to be able to survive, these vegetables tend to be more expensive than less healthy things
> a >$30 month cell phone bill
internet access gates opportunity in American and for many people their cell phone (which they cannot afford to pay for up front and therefore must lease) and its data plan is there only gateway to the rest of the world
> drink anything but water, have cable tv (or assuming Netflix)
any right to a Gatorade after shooting hoops at your dilapidated public park on a hot day, any right to 30 mins of entertainment after working your mind numbing job that drains of you all life
> You've got obvious improvements you can make to get out of that dilemma.
Why?
Why is the right to a just life gated by the requirement to surrender basic humanity? Who is this we?
A toss off link to a Wikipedia article?
The Census Bureau itself says American household income is the same since 1987 [1] while cost of housing, education and healthcare goes 2x-3x in the last decade alone [2]
> most of America doesn't have any way of getting to jobs without one
Two things:
1. That's patently false. Most trips in vehicles are between 1 and 10 miles in distance. Anyone without serious health problems can do that on a bicycle quite easily.
2. You don't need a car loan to own a car.
> most people need fundamental nutrients from vegetables just to be able to survive, these vegetables tend to be more expensive than less healthy things
My statement was about people who were broke and/or in debt. And it's not a 100% meal plan, but rice and beans is a good cheap staple food. You can add in cheap produce, too. The crux of the point is: if you're in debt and spending more than ~$1 per meal, you've got an easy way to cut costs.
> internet access gates opportunity in American and for many people their cell phone (which they cannot afford to pay for up front and therefore must lease) and its data plan is there only gateway to the rest of the world
Libraries have free internet and computers. And for cell service, using an MVNO, you can spend ~$30 and get 1GB of data, 100 mins of talk time, 100 text messages. (see Ting.com for example)
>any right to a Gatorade after shooting hoops at your dilapidated public park on a hot day, any right to 30 mins of entertainment after working your mind numbing job that drains of you all life
Are you serious? Getting out of debt is infinitely more important than having a Gatorade or watching Netflix. Especially when there are obvious free alternatives. Streaming Netflix hasn't been around a decade, and it's now "surrendering basic humanity" to go without? That's a pretty fragile position to take.
This idea that having a car and eating more than beans and water means you’re spending too much comes from those (slightly fanatical) Money Mustache followers. I agree that we should not advocate for a world where we have to sacrifice a middle class lifestyle in order to retire middle class.
Some historical perspective: My understanding is that when Social Security was created, the average life expectancy was 67. So offering it for people age 65 was intended as providing for people in extreme old age who had probably worked physically hard their entire lives and were pretty beat up.
I'm not saying we don't have genuine problems here, but this article is bellyaching about, basically, a golden era when the world was relatively briefly unusually comfortable and acting like that was the norm throughout all of history. The reality is that money per se only became common place something like 300 years or so ago. So the very concept of retirement and saving for retirement is relatively new.
This makes it a little hard for me to take this article seriously, so I confess to not reading it in full. Some of the things it gets right: Pensions are going out of style precisely because people are living longer, so pensions wind up being financially unsustainable.
Given that people are living a whole lot longer and are generally in better health at 70 these days than 65 used to be, it isn't really some huge hand-wringing drama that older Americans need to continue working. Instead, it is evidence of how successful we have been in some sense.
This is a good problem to have. We need to make adjustments to the system, but people living longer and this requiring cultural adjustments isn't some giant tragedy.
Retirement for, say, two decades or whatever is hardly some historical and long standing human norm. It's really rather out of touch with reality to act like it ever was.
Some historical perspective: My understanding is that when Social Security was created, the average life expectancy was 67.
While this is true, I think it's a misleading statistic. The relevant figure, it seems to me, is not life expectancy at birth, but life expectancy at age 65 (because the latter determines social security outlay). In the 1930s, a 65 year old could expect to live for about 12 more years, while in 2010, life expectancy was about 18 years. That's a considerably smaller increase than life expectancy at birth during that time.
Yes, but a lot more working-age adults today make it to 65 than 100 years ago, which is a relevant statistic. Previously you could count on a bigger portion of workers dying before reaching retirement, so you had a smaller pool of retirees to take care of. Today practically every worker makes it to retirement age.
I will note that my framing comes directly from something I saw somewhere. So my understanding is that it was intended a certain way.
There's a great book called How to lie with statistics. It makes a lot of excellent points about how framing the same data differently can support different conclusions.
So, some thoughts:
Law makers who passed it may not have realized the average 65 year old would live another 12 years. They may have only known average life expectancy was 67.
Six years longer may not sound like much, but it's 50 percent longer. That can have significant repercussions.
This is not emphasized enough: prior to the last 100 years, the concept of retirement as currently visualized simply did not exist. You had kids, and the kids took care of you in your old age (or you just had a terrible old age).
A very small number of people had the resource base to survive growing old gracefully: Social Security was an attempt to extend that to all on a consistent basis. That's not to say some form of it can't be made to work, but as much as we may love the core concept of retirement we may need to accept that it isn't broadly economically viable without a meaningful, direct index against increasing life expectancy (with the usual caveats for infirmity, disease, etc).
It is (in my opinion) a well meaning, long term social experiment that might be coming to an end. I am quite curious to see what (and how) we get to the other side of that.
> A very small number of people had the resource base to survive growing old gracefully: Social Security was an attempt to extend that to all on a consistent basis.
It was designed as a safety net for lower/middle income, disabled workers, and benefactors to workers; not a primary source of retirement income. It's becoming more and more apparent that it's the former, not the latter.
I’m curious too. What’s the solution? Life expectancy keeps going up, but the age at which our bodies can no longer work has stayed relatively flat. People are living long past when they can no longer work. Fact. Society needs to solve this or we risk letting the elderly starve on the street.
Once you're old, you've kinda "made it" as far as life expectancy numbers go. I think someone who is 70 in 1935 would be considered just as "old aged" as someone 70 today. In fact someone who made it to 70 in the early 1900's may be considered healthier due to obesity/diabetes epidemic numbers alone...
The article you linked to doesn't seem to fit with your claims and I don't believe your claim is accurate. Everything I have seen indicates we are seeing a lot more people live into their 80s and beyond.
I'm not going to try to prove that. My understanding is that is common knowledge.
My Vanguard 401k home page has this helpful notice in the dead center of the page:
"We think you need $7,840 more per month."
Sure... That makes two of us. I guess it's extrapolating my current salary out and how much I'll need to save to live with the same income after I retire. That's not going to happen.
According to the article you linked, based on your age (I'm in the same cohort), the average 401k is worth $91,000. Are you not contributing at all to your 401k? Did you get a late start, or have some hardship that required you to break into the 401k (divorce in my case)?
I've never heard the 3x annual salary in savings, but that also seems super extreme. Assume a salary of $100K per year... No one I know has ~ $300K in their savings. Maybe they have equity in their house, or other equity assets that get them to that sort of number on paper, but I've never heard of someone in our age group (40-50) just having $300K liquid in a bank account.
The 3x the article states means total retirement savings. 401k included. I really hope you know more than a few people with 300k in 401k if they earn 100k/year.
Yep, I had some financial missteps, including divorce, a year with an income, etc. That said, I do have the "average" 401k by now, but Vanguard is still telling me I need to save a lot more...
You can either see this as "I can't afford to retire" or as "I've let my spending get out of control, and need to course-correct".
If you ever hope to retire, you must reign in your lifestyle creep versus your real post-savings available income. If you're not saving enough, you are living above your means. This is fixable, but it will hurt.
That said, most retirement calculators overestimate your retirement expenses. Estimate what your expenses will be and plan for that. (And treat interest as inflation-adjusted so you don't end up down that rabbit-hole)
There's no way that number is correct. You're only allowed to save $18,500 in your 401(k) for 2018. You'd hit that number in less than 3 months.
I'm guessing that you must be closer to retirement age right now and probably haven't saved enough or had investments with low returns (no personal judgement here, shit happens). Thus the system is predicting how much "catching up" you need to do and not taking various parameters such as your age and the laws in to account.
I wonder if it is saying that he should be maxing it out each year, and maybe he hasn't contributed this year, meaning he would need to contribute that much in the next two to three months in order to meet the goal for 2018? I dunno. Like you said, that seems like it can't be right.
If you'd like someone to look at your budget to see if there's some fat you can cut, head on over to forum.mrmoneymustache.com and submit something to the case study forum. People are often surprised by how much they can save without significantly impacting their well-being.
(BTW that calculator is awful because it assumes you need to spend a specified fraction of your income during retirement. That's not how this works at all! By that standard, almost anyone is going to be behind the curve.)
Investment companies make money off of your investments, so naturally they have every incentive to convince you to invest as much as possible.
That doesn’t discount the reality that most people don’t invest nearly enough, but still the “recommended” contributions they give are definitely over-estimated in many cases.
It's interesting that while people claim they can't afford to retire, more than half of the population begins collecting Social Security in the US at age 62 (https://www.marketwatch.com/story/why-people-who-claim-socia...) when those on disability are included.
I have no facts at my disposal, but I'm left to ponder how many of those early collectors do so because they are under-employed, unable to find work, suffer disabilities, perhaps are no longer physically able to do the work for which they were trained, or other causes such that it is a practical decision on their part, recognizing that they have no other form of stable income.
We really need to include suggestions for adding programs and laws for encouraging saving, removing predatory lending, and incentivizing responsible spending in articles like these. There is too much focus on consumer spending and not enough on household stability and having money in the bank for emergencies.
In Australia the official retirement age when you can start to receive a pension (or access your own retirement money without penalties) was recently moved up to 67.
The new Prime Minister just announced he won't raise it to 70, which was on the table. I think it's clear that's just a sign of things to come.
I find it completely ridiculous and totally regressive that you have to live in Australia to receive your state pension. It’s like a final FU to the workers who have spent all their life contributing to it.
Aside from the economic physical reality (that is to say all pensions need to be financed from current stock of capital/labor), in Australia the government pension is generally funded through general revenue as a (kind of) means tested general social safety net.
It is not the same system as social security in other countries. You don't notionally "pay into" your account with variations on how much you will then be able to draw out.
We also have other employee pensions (though far fewer these days), and now the superannuation system (roughly 9.5% of full time earnings go into a compulsory tax effective defined contribution investment scheme)
What is lost in the discussion of retirement ages being bumped is that life expectancy has grown by two decades since the retirement age was introduced in the USA in 1935 [0][1][2]. The retirement age was originally past the point where most people died.
I don't personally understand the expectation that average people be economically sustainable while jobless for two decades+. It makes sense to me to slowly increase the retirement age.
I know several people (i.e. 3 of my grandparents) who lived jobless that long or longer. At least half of their retirement years, they were physically and mentally incapable of holding their previous jobs, or even the most menial unskilled jobs.
One had half his body paralyzed by a stroke, and you couldn't really tell how much understanding he had of the world around him when he was alert. The other two had forms of alzheimer's that, eventually, left them occasionally speaking czech instead of english (they moved to the USA as children) and not recognizing their own children. The first sign they needed full-time care was when we caught one of them overdosing on ibuprofin- get a headache, take some, forget, take more, repeat. That, and leaving the gas stove on for hours.
I fully agree that the retirement age should start increasing, but there's definitely a point of diminishing returns. We may be living longer as a whole, but our physiology hasn't caught up enough to trust that those extra years can be spent making economically valuable contributions to society.
Except what happens when you increase the same retirement age for farmers, construction workers, software developers, and teachers? The software developers and the teachers work more with their minds than with their bodies. The farmers and construction workers (putting aside the possibility that their age makes them less productive in physical labor and less likely to find jobs in their fields) would be at much higher risk for onsite injury, and who’s going to pay for that?
I'd buy that if not for the massive increase in year-over-year productivity that we as a society get from better technology. If that's not going toward spending less time working, where is it going? And is that where it should go?
I’m fully expecting that to rise to 75 before I am able to retire. Feels like everything I get old enough to enjoy gets pushed out every time I get there.
What annoys me is that those making the decisions claim it’s for the betterment of the country which is fine but are totally unaffected by it.
When I was born in Australia in 1982 my life expectancy was 72. I realize it doesn't work like that.. but I feel a lot like the big old Clydesdale horse in Animal Farm, working until you drop.
you can, you just pay a 10% penalty. If you really need it, it's not the end of the world. A decent employer match would probably subsidize the penalty for most people.
Work hasn't failed us. Consumerism has. Stop buying brands. Stop buying Starbucks. Stop eating out. Stop buying the newest phone. Don't buy a fancy Macbook if you don't have a use case for one. Stop buying too much car. Stop trading resources for lifestyle.
A 25 year old who only puts $300 into a reasonable retirement fund each month will have over $1M at retirement age.
I'm mid 20s and am putting just over $1000 a month into retirement, split between a private and workplace pension. I intend to do this for as long as possible!
Varies - how much will you spend in retirement and what do you expect for a return? You need to factor in inflation, since $1 today buys more today than it will when you retire.
https://www.nerdwallet.com/investing/retirement-calculator is a good calculator for this. (though I'm not a fan of its spending assumptions - if in retirement you have paid for houses and cars you definitely will be spending far less than today)
Readit News
> The IRA won’t make anyone rich. A calculator on the site estimates that if you’re 22 years old and making $14 an hour–saving around $120 a month–you could end up with around $230,000 by the time you’re 65
1. $14 / hour? The median household (yes, I know, household, but wait) income is the highest it's been since at least 1985 [1] at $59k/year. So $14 is definitely a bit lower than "normal".
2. Saving $120/month on that salary is saving just 5%! Nobody is suggesting saving 5% is appropriate. 10% is the bare minimum anyone recommends. Doing that, an IRA at 65 would be worth > $763,000, enough to spend $30k each year for the rest of their lives.
Standard statement I feel like I always need to make: this is in no way a defense of our economic system. We absolutely need to raise taxes on the highest earners. We probably need a wealth tax as well. But we middle classers need to cool it with the defeatist attitudes. The poor have it hard. We, for the most part, do not. We spend too much and save too little. If you've got a car loan, eat anything but rice and beans, drink anything but water, have cable tv, a > $30/month cell phone bill, and complain about being broke, you've got some very obvious improvements you can make to get out of that dilemma.
[1] https://en.wikipedia.org/wiki/Household_income_in_the_United...
For me, the question anyone should ask is this, "If I needed $2,500 right now, could I get my hands on it quickly and reliably?" That number has gone up a bit but it is the 'emergency cash' number of old which would cover "a major car repair", "bailing out of jail", "the entire medical deductible in one payment" etc. It is the equivalent of "If life throws you a curve ball can you catch it or are you going to get knocked on your butt by it." [1]
If you can't answer yes to that question then it is important to recognize that you are operating without safeguards which puts you at risk of cascading financial difficulties. And if you can't answer yes to that question to have to ask things like "am I paying for Netflix? More than a bar budget phone? Do I eat out? Do I eat pre-prepared foods rather than making my own? Am I getting the most use/wear out of the things I buy like clothes, vehicles, etc?" Basically assess each thing you spend money on and look for ways to reduce that expense or eliminate it. As a fun anecdote I talked with a young adult who felt it was too much to ask to give up Netflix/Amazon Prime (for the streaming), I showed them they could buy a DVD player for $35 and check out movies and old television shows for free from the public library. It wasn't something they had opened their mind up to. But once they looked hard at things they found a bunch of stuff that they could change and that helped them get finances into a much better order.
I like the Mr Money Mustache site for ideas on ways to cut down your 'burn rate' as well.
[1] This can also be covered by a credit card, if you don't have any credit card debt, which is to say you have a credit card with a $2,500 credit limit but it (and no other card you have) carry a balance. Basically if you pull the trigger you'll add a monthy expense for the next 'n' months to get back out of the hole you just made.
If we take that household income to mean it's two earners, they're each earning $14.75/hr ...
(assuming a standard 2000 work year), which is 40 hrs/wk for 50 weeks
And to convince people to spending so much.
The new iPhones will be announced next week. How many will buy a $1000 phone yet not have $1000 saved for any kind of emergency?
Dead Comment
If you assume 5% growth, then you will need to save about 14% of your income. Here, I'm using the average returns of the stock market minus inflation should get you 7%.
This reads like a descent into satire.
https://saver.oregonsaves.com/home/educational-tools/simple-...
"The assumed investment rate of return before you retire is set at 4%, compounded annually."
The S&P500 has an average rate of real return of 7%, which makes an enormous difference.
So no room for 2 years of education or a drop year for health issues or layoffs or travel or starting a risky business?
> car loan
most of America doesn't have any way of getting to jobs without one
> eat anything but rice and beans
most people need fundamental nutrients from vegetables just to be able to survive, these vegetables tend to be more expensive than less healthy things
> a >$30 month cell phone bill
internet access gates opportunity in American and for many people their cell phone (which they cannot afford to pay for up front and therefore must lease) and its data plan is there only gateway to the rest of the world
> drink anything but water, have cable tv (or assuming Netflix)
any right to a Gatorade after shooting hoops at your dilapidated public park on a hot day, any right to 30 mins of entertainment after working your mind numbing job that drains of you all life
> You've got obvious improvements you can make to get out of that dilemma.
Why?
Why is the right to a just life gated by the requirement to surrender basic humanity? Who is this we?
A toss off link to a Wikipedia article?
The Census Bureau itself says American household income is the same since 1987 [1] while cost of housing, education and healthcare goes 2x-3x in the last decade alone [2]
How does a world view like this even get formed?
[1] https://img.washingtonpost.com/wp-apps/imrs.php?src=https://...)
[2] http://slatestarcodex.com/2017/02/09/considerations-on-cost-...
This place baffles me sometimes.
Two things:
1. That's patently false. Most trips in vehicles are between 1 and 10 miles in distance. Anyone without serious health problems can do that on a bicycle quite easily.
2. You don't need a car loan to own a car.
> most people need fundamental nutrients from vegetables just to be able to survive, these vegetables tend to be more expensive than less healthy things
My statement was about people who were broke and/or in debt. And it's not a 100% meal plan, but rice and beans is a good cheap staple food. You can add in cheap produce, too. The crux of the point is: if you're in debt and spending more than ~$1 per meal, you've got an easy way to cut costs.
> internet access gates opportunity in American and for many people their cell phone (which they cannot afford to pay for up front and therefore must lease) and its data plan is there only gateway to the rest of the world
Libraries have free internet and computers. And for cell service, using an MVNO, you can spend ~$30 and get 1GB of data, 100 mins of talk time, 100 text messages. (see Ting.com for example)
>any right to a Gatorade after shooting hoops at your dilapidated public park on a hot day, any right to 30 mins of entertainment after working your mind numbing job that drains of you all life
Are you serious? Getting out of debt is infinitely more important than having a Gatorade or watching Netflix. Especially when there are obvious free alternatives. Streaming Netflix hasn't been around a decade, and it's now "surrendering basic humanity" to go without? That's a pretty fragile position to take.
Some historical perspective: My understanding is that when Social Security was created, the average life expectancy was 67. So offering it for people age 65 was intended as providing for people in extreme old age who had probably worked physically hard their entire lives and were pretty beat up.
I'm not saying we don't have genuine problems here, but this article is bellyaching about, basically, a golden era when the world was relatively briefly unusually comfortable and acting like that was the norm throughout all of history. The reality is that money per se only became common place something like 300 years or so ago. So the very concept of retirement and saving for retirement is relatively new.
This makes it a little hard for me to take this article seriously, so I confess to not reading it in full. Some of the things it gets right: Pensions are going out of style precisely because people are living longer, so pensions wind up being financially unsustainable.
Given that people are living a whole lot longer and are generally in better health at 70 these days than 65 used to be, it isn't really some huge hand-wringing drama that older Americans need to continue working. Instead, it is evidence of how successful we have been in some sense.
This is a good problem to have. We need to make adjustments to the system, but people living longer and this requiring cultural adjustments isn't some giant tragedy.
Retirement for, say, two decades or whatever is hardly some historical and long standing human norm. It's really rather out of touch with reality to act like it ever was.
While this is true, I think it's a misleading statistic. The relevant figure, it seems to me, is not life expectancy at birth, but life expectancy at age 65 (because the latter determines social security outlay). In the 1930s, a 65 year old could expect to live for about 12 more years, while in 2010, life expectancy was about 18 years. That's a considerably smaller increase than life expectancy at birth during that time.
https://www.ssa.gov/oact/NOTES/as116/as116_V.html
There's a great book called How to lie with statistics. It makes a lot of excellent points about how framing the same data differently can support different conclusions.
So, some thoughts:
Law makers who passed it may not have realized the average 65 year old would live another 12 years. They may have only known average life expectancy was 67.
Six years longer may not sound like much, but it's 50 percent longer. That can have significant repercussions.
A very small number of people had the resource base to survive growing old gracefully: Social Security was an attempt to extend that to all on a consistent basis. That's not to say some form of it can't be made to work, but as much as we may love the core concept of retirement we may need to accept that it isn't broadly economically viable without a meaningful, direct index against increasing life expectancy (with the usual caveats for infirmity, disease, etc).
It is (in my opinion) a well meaning, long term social experiment that might be coming to an end. I am quite curious to see what (and how) we get to the other side of that.
It was designed as a safety net for lower/middle income, disabled workers, and benefactors to workers; not a primary source of retirement income. It's becoming more and more apparent that it's the former, not the latter.
Once you're old, you've kinda "made it" as far as life expectancy numbers go. I think someone who is 70 in 1935 would be considered just as "old aged" as someone 70 today. In fact someone who made it to 70 in the early 1900's may be considered healthier due to obesity/diabetes epidemic numbers alone...
I'm not going to try to prove that. My understanding is that is common knowledge.
"We think you need $7,840 more per month."
Sure... That makes two of us. I guess it's extrapolating my current salary out and how much I'll need to save to live with the same income after I retire. That's not going to happen.
Here's a helpful article to see how far behind you are in your retirement: https://smartasset.com/retirement/average-401k-balance-by-ag...
I'm 46, so I should have about 3x my annual salary in savings (I don't) and be putting in 8% of my salary into a 401k.
I'm going to go back to not thinking about this now like I usually do, as there's little I can do about it.
I've never heard the 3x annual salary in savings, but that also seems super extreme. Assume a salary of $100K per year... No one I know has ~ $300K in their savings. Maybe they have equity in their house, or other equity assets that get them to that sort of number on paper, but I've never heard of someone in our age group (40-50) just having $300K liquid in a bank account.
If you ever hope to retire, you must reign in your lifestyle creep versus your real post-savings available income. If you're not saving enough, you are living above your means. This is fixable, but it will hurt.
That said, most retirement calculators overestimate your retirement expenses. Estimate what your expenses will be and plan for that. (And treat interest as inflation-adjusted so you don't end up down that rabbit-hole)
I'm guessing that you must be closer to retirement age right now and probably haven't saved enough or had investments with low returns (no personal judgement here, shit happens). Thus the system is predicting how much "catching up" you need to do and not taking various parameters such as your age and the laws in to account.
(BTW that calculator is awful because it assumes you need to spend a specified fraction of your income during retirement. That's not how this works at all! By that standard, almost anyone is going to be behind the curve.)
That doesn’t discount the reality that most people don’t invest nearly enough, but still the “recommended” contributions they give are definitely over-estimated in many cases.
We really need to include suggestions for adding programs and laws for encouraging saving, removing predatory lending, and incentivizing responsible spending in articles like these. There is too much focus on consumer spending and not enough on household stability and having money in the bank for emergencies.
Dead Comment
The new Prime Minister just announced he won't raise it to 70, which was on the table. I think it's clear that's just a sign of things to come.
It is not the same system as social security in other countries. You don't notionally "pay into" your account with variations on how much you will then be able to draw out.
We also have other employee pensions (though far fewer these days), and now the superannuation system (roughly 9.5% of full time earnings go into a compulsory tax effective defined contribution investment scheme)
[0]: https://www.theatlantic.com/business/archive/2014/10/how-ret...
[1]: http://www.demog.berkeley.edu/~andrew/1918/figure2.html
[2]: https://fred.stlouisfed.org/series/SPDYNLE00INUSA
I don't personally understand the expectation that average people be economically sustainable while jobless for two decades+. It makes sense to me to slowly increase the retirement age.
One had half his body paralyzed by a stroke, and you couldn't really tell how much understanding he had of the world around him when he was alert. The other two had forms of alzheimer's that, eventually, left them occasionally speaking czech instead of english (they moved to the USA as children) and not recognizing their own children. The first sign they needed full-time care was when we caught one of them overdosing on ibuprofin- get a headache, take some, forget, take more, repeat. That, and leaving the gas stove on for hours.
I fully agree that the retirement age should start increasing, but there's definitely a point of diminishing returns. We may be living longer as a whole, but our physiology hasn't caught up enough to trust that those extra years can be spent making economically valuable contributions to society.
What annoys me is that those making the decisions claim it’s for the betterment of the country which is fine but are totally unaffected by it.
My own?! Holy crap, and I'm bitchin' here in the U. S. because I can't touch the 401K until 59.5.
- Nimbys—scarce expensive housing
- Higher-education costs skyrocketing.
- Negative wage growth for positions without degree requirements.
- Article mentions no more pensions.
Article subject not entirely unexpected. :-/
A 25 year old who only puts $300 into a reasonable retirement fund each month will have over $1M at retirement age.
Disclaimer: I don't live or work in the U.S
https://www.nerdwallet.com/investing/retirement-calculator is a good calculator for this. (though I'm not a fan of its spending assumptions - if in retirement you have paid for houses and cars you definitely will be spending far less than today)