There was one brutal statistic in there that I'm not sure if it can be correct but 1/3 of people 55 or older have less than $10,000 saved? True or not most people do not spend a lot of time managing their savings and probably do not know how the math of withdrawals work or the enormity of the entitlement math.
If you are interested enough in the topic to read investment blogs then the ominousness of the math is probably not lost on you but it can be truly unkind. It would be reasonable to conclude that a 60 year old who has accumulated $700,000 or $800,000 (without benefit of a bubble) is in good shape but that may not be true. Chances are this person was somewhat successful professionally and has been making good, not pro athlete, money.
You know where I'm headed, right? Using the 4% rule of thumb for withdrawals the above example should safely generate $28,000-$32,000. I would note that anytime I post this sort of thing one reader always comments that 4% is too much. Anyone agreeing with him would obviously would need to adjust the $28,000-$32,000 down. Maybe I am wrong but I'm thinking the typical guy who socked away that much money has a lifestyle, even if relatively modest, that requires more than $2500 a month.If social security is still around for this guy and he is married he might collect $3000 per month from that and so obviously be in much better shape but still there might be some cutting back needed. I doubt social security will disappear for someone who is 60 today but I don't see how it can be there for anyone under 50 today. I don't know where the line between yes you get it but you do not will be and frankly since I can't imagine getting a payout I am not spending any time trying to figure out who the last ones in will be.
This brings up a point that will be familiar to long time readers in this regard which is something will have to give. For most of us anyway. Successfully figuring out what has to give is a personal thing. One person might be glad to work longer, someone else might be willing to drive an older car or down size their home or anything else.I've been writing about this sort of thing for a while because it is interesting and also obvious and it is good to see the concept gaining more traction. This is a challenge to be solved, at least that is my attitude. The idea of my financial fate (assuming no extreme outlying event) being beyond my control is something I am very motivated to prevent.
We can control (to a point) how much we spend, how much we save, where we live and other consumption habits. We cannot control the performance of our investments (although I think we can put some of the odds in our favor) and we cannot control whether social security will last long enough for us. As a matter of personal philosophy I tend to focus more what can be controlled which might sound odd given what I do for a living but if markets across the globe all go down 25% over the next ten years (not my prediction) then getting a positive result in a portfolio would be a long shot.
As far as working some sort of part time job (hopefully one you've planned for and that you really want to do for the fun); it doesn't take a lot of hours for the income to be meaningful if you don't have a mortgage and two $600 car payments.
Did you see the short track relay last night? Wow, I did not remember how chaotic it is. That was nutty.
18 comments:
If you mean that Social Security benefits for people under 50 are likely to be different than current benefits, that is entirely possible, although not, I think, certain.
If you mean that there will be no Social Security benefits for people under 50 at all, that is very unlikely to happen, and there is no reason for it to happen; the fiscal balance of Social Security isn't that bad.
The real question is what kind of health care will be available in retirement. Medicare is a real problem, unlike Social Security, and people can easily overlook how much money their employer is spending for insurance on their behalf, not to mention how much insurance would cost when they are over 65 if Medicare didn't exist.
Just to clarify, 4% is to large for the next 5 to 10 years (possibly a little longer) as the coming decade does not look good.
I totally agree with you that 4% is a reasonable number for younger people and most time frames. But last decade and the coming decade 4% will not be advised IMO.
I still believe we have turned Japanese. Volker plan could help this.
SEG
Matthew, have you read Bruce Krasting? Income was less than outgo in 2009. This wasn't supposed to happen until 2016.
For anyone wanting a fresh perspective on retirement finances, I recommend Unveiling the Retirement Myth by Jim Otar. He approaches retirement from an engineering perspective by analyzing a factor of safety if you will. I'm sure many will find what he has to say sobering. You can visit his website here:
http://retirementoptimizer.com/
But, Roger. SS has all those special bonds that are better than cash; they are drawing interest. All SS recipients have to do is cash them in.
I don't know about the 1/3 number, but it's certainly possible. Pensions are MUCH more common for that generation.
Anon 7:31 When those bonds are cashed who pays the money?
OK, so today's article on Yahoo Finance is "10 Ways Baby Boomers Will Reinvent Retirement." http://bit.ly/9OUVDo One of them is part-time jobs, which you talk about so often here.
To your point about something having to give, the elephant in the room is the bullet they left out: "Survive on a lot less."
Then again, I think the second-to-last item, "Retire with debt," is code for "Die without paying all of your bills." No one is going to be on the hook for that, right?
Oh, well, I'm a cynical GenXer who knows not to expect to see any of the money I've dumped into SS.
I completely agree with the "live on a lot less" but I'm not so sure it's a doomsday scenario; I gotta think most of them will be done with the mortgage by retirement, for instance.
SD your point about mortgages is less true than it should be based on my anecdotal experience.
SD your point about mortgages is less true than it should be based on my anecdotal experience.
I am 35. My Dad is 70 and my Mom is 67. My Dad is retired but is working part-time. My Mom has not worked in decades.
They are currently building a new home substantially more expensive then the one they currently live in and will soon be putting up for sale. They will be taking on a mortgage payment for this new home along with taking a substantial withdrawal from my Dad's 401(k) rollover to help with new home expenses.
In my view, this is absolutely insane, but my Mom wants her "dream home", and my Dad doesn't have what is necessary to put his foot down and say NO. I have advised against this, and got my head bit off. Parents won't listen to their children. Furthermore, I believe my Mom's expectations on what the current house will sell for are completely unrealistic given current housing market conditions. The next door neighbor had to come down about 75K to sell their house from the initial listing price.
I'm not sure what if anything to do at this point, other then remind them both I will ABSOLUTELY NOT BE CLEANING UP ANYONE ELSE'S FINANCIAL MESS and that I've got my own life to get on track. I'm trying to save massive dough so I can quit the full-time job and go full-time with my RIA business.
I figure if they can't afford the new house, they'll just have to sell it for whatever they can get even if that is way below the price paid to build and move to a 1-bedroom apartment in the lowest cost city in this area. You make your bed, you lie in it.
Parents don't listen? Yeah many people can not see the forest on this issue.
Mike C
Parents don't listen
children don't listen
siblings don't listen
etc.
All you can do is warn and let them make their own mistakes.
SEG
Rhianni32, this is Anon 7:31. Your comment was what my cynical comment was all about. The SS special bonds are nothing more than a future liability for future tax payers; so much for Al Gore's "lock box" or so many other promises made by politicians. For the record, I agree with the sentiment that future SS benefits will be reduced and future tax rates will increase. What is happening right now is generational theft, and I suspect that the future standard of living will be less than that which we enjoy today. To end on a hopeful note, however, I agree with a comment made by another poster (I think it was RW) that it is possible that growth may resolve the problem without such dire consequences as I outlined above. One can hope!
I am aware of the 2009 balance, but one buzzard doesn't make a graveyard. It is absolutely true that if if nothing changes, under reasonable demographic assumptions eventually Social Security payments will have to be reduced, either in duration or amount. But they don't have to be reduced that much,and under some assumptions they don't have to be reduced at all.
Even if you ignore the trust fund entirely the existing dedicated tax stream should be able to fund about 70% of the currently expected payments indefinitely.
In any case, my main point is that both Social Security and Medicare are funded by payroll taxes, but as things stand, Social Security costs will rise much more slowly than Medicare costs, so I reiterate that if you think people under 50 need to do their financial planning with the assumption that they will receive no Social Security payments, they really need to be planning for how they are going to pay for the health care they aren't going to be getting from Medicare.
i have heard for my entire life that "socialism doesn't fit with human nature." i would suggest capitalism as it has evolved over the past three decades in the U.S. -- with the consumer / individual assuming more and more of the risk of health insurance, education, and of course retirement -- has not worked either. of course, some people, those like readers of this blog who spend a great deal of time on the matter, have mastered (ha ha) the intricacies of retirement, but for the great vast masses, they do not have a clue. the younger, the more clueless. i would suggest for most people, those who you know like drinking beer, hanging with friends, and just sort of living rather than analyzing the structure of EWS, the social security program and a defined pension is just dandy.
Roger, I agree with Matthew. I'm using the same assumptions on social security. I don't remember if it was a CBO estimate or what, but I'm 43 and planning for 62.5% of my estimated S.S benefits worst case, and 75% best case. I'd love not to rely on S.S. at all, & think it possible but for the medical costs... I figure I need $3M to replace my income (a bit iffy w/o S.S. but possible), assuming 3% inflation annually... and at least an extra $1M in savings to cover medical(!) I'm already saving over 15% of my income, and with two kids and looming college costs, I think I'm going to need S.S. to pay for medical costs. One can always downsize or try to get new revenue streams, but nobody wants to do the former unless they have to, and the latter is often speculative until it's really happening. I'd happily pay more in taxes now to avoid worrying about healthcare costs in my old age.
I went through SS projections and my best guess is that benefits may wind up being reduced by a third. Health care is in disarray, so there's no way to tell whether Medicare will be around or whether it will be worth anything. I'm prepared to live off a small amount of money because I've always lived way below my means. My big expenditures are insurance and taxes, which consume more than half my income. I save half of what's left after the government and the insurance companies are paid. I'll still pay through the nose for insurance, but once my income goes down the government will get much less than they do now.
Post a Comment