Wednesday, December 6, 2017

Retirement: hype versus reality


I note with distaste another scare-mongering story about how much you need for retirement.  It's only accurate if you're overloaded with debt, haven't saved anything much, and intend to continue a spendthrift lifestyle.

A cool $1 million has long been considered the gold standard of retirement savings. These days, it's only a fraction of what you will really need.

For instance, a 67-year-old baby boomer retiring now with $1 million in the bank will generate $40,000 a year to live on adjusted for inflation and assuming a sustainable withdrawal rate of 4 percent, said Mark Avallone, president of Potomac Wealth Advisors and author of "Countdown to Financial Freedom."

It's worse for a 42-year-old Gen Xer, whose $1 million at retirement will only generate an inflation-adjusted $19,000 a year when all is said and done. And a 32-year-old millennial planning to retire at 67 with $1 million would live below the poverty line.

That's what Avallone, a certified financial planner, calls "million-dollar poverty."

There's more at the link.

The picture painted above is warped and twisted by the out-of-touch-with-reality expectations of so many people.  If you're prepared to be sensible in your spending, not expect undue luxury, and live within your means, prospects are nowhere near so bleak.  As Aaron Clarey points out in his book "Poor Richard's Retirement" (which we've noted in these pages before), common sense is a big help.  Here's an excerpt.

The simplest and most compelling argument against today’s retirement system is that it just isn’t working.  We can argue all day about what people “should be doing” or what they “shoulda done,” but we don’t live in “Shoulda Land.”  We live in the real world.  And conventional retirement planning is failing the majority of people.

Statistics vary widely, but of the 75 million Baby Boomers half do not even have a paltry $100,000 in their retirement accounts.  Over a third have less than $50,000.  And half the Baby Boomers admit they are going to have to work past 65.  Only a mere 15% of Baby Boomers have the required standard of $500,000 needed for a successful retirement, and that assumes a lot of rosy assumptions.

. . .

... it’s painfully obvious Americans simply aren’t saving enough for retirement.  Admittedly, most of this was self-inflicted - borrowing more than they could pay back, buying things they don’t need, partying when they should have been saving, taking on student loans for incomprehensibly stupid degrees.  We can enumerate a long list of financial sins.  But again, the larger philosophical point is not one of morality or lecturing.  It’s one of accepting reality.  If only 15% of the Baby Boomer generation has managed to successfully retire using today’s modern retirement system and... well... pretty much nobody else, we must design a retirement system that is conducive to the majority of Americans’ economic and financial behaviors, not to mention... reality.

. . .

If we can get rid of our desire for “stuff” the whole rotten system will come collapsing down on itself.  Not only will this free us from our slavemasters of materialism, it will do wonders for the American family, their finances, their happiness, not to mention, make retirement a very real possibility for all Americans.  It could also (in theory) usher in a new American golden age with higher economic growth, lower debts, accelerated advancements in technology, and a simply better-off society.  The only problem is overcoming the innate, genetic addiction Americans have to consumption and materialism.

I highly recommend that you read "Poor Richard's Retirement" for yourself.  It's a short book, priced to sell, and well worth the investment of your time and money.  Miss D. and I are following a similar philosophy, and so far, thanks be to God, we're doing OK.  I hope you will, too, if you follow the same path.  Those who don't . . . are likely to have problems.

Peter

10 comments:

Harry Flashman said...

I have been retired now about 5 years, and my wife has been retired 2. We live a modest lifestyle, but we are certainly comfortable and I don't have a million dollars.

I think a lot of that kind of thing comes from financial advisers looking to panic people into putting more money into investments, so the advisers can make more commission off it.

Aesop said...

Let's get serious: after watching entire nest-eggs halved overnight in 1999, and then halved again in 2008, most people stopped shoveling good money after bad and into the Wall Street casino, and pulled out. Many of us needed the scraps remaining to avoid living in our cars during either or both of those major recessions.

We won't even bring up the details of the Social Security Ponzi scheme, except to note anyone not retired now won't see enough of it to matter.

The facts of the situation, for most people, is they're either working towards self-sufficiency, as long as their health holds out in retirement, and/or expecting they'll be working until they drop dead in their 70s because they have to. And those are the lucky ones not in the 93 million who haven't been unemployed for a decade or more, and gave up looking for anything serious long since.

And haven't "saved" anything??
With annual real inflation running at 10-20%, and negative savings interest rates for more than a decade, where in hell would anybody put something they wanted to "save", other than real estate (iffy, and hard to buy groceries with) or PMs (which only hold value, but never actually grow)??
Currently, movies keep trotting out the "robbing banks" plotline; next, it'll become real life.
Check up how that worked in the Great Depression, and check the dates of the heyday of bank robbery, and see how they correlate.

And the next generation wants to blame the boomers for doing nothing but living longer, working harder, and paying for the retirements of the last two generations.

My deal still holds: I renounce all my SS payments forever, if the .gov will let go of my SS deductions from now until my retirement (which is likely to be well past 65, 67, or likely not even by age 70. If I can still walk.)

But I see unemployed welfare queens with six kids and Coach purses, and my back is killing me from carrying 30M illegal immigrants, especially their kids, on it for the last 50 years, with no end in sight.

Problems?
We're likely to have a war.

Beware a people this well-armed, with no prospects, and nothing left to lose, except the likelihood of poverty and starvation in their elder years.

That sort of thing unleashed burns down empires in a fortnight.

Pwl47 said...

If you can only be happy in an expensive coastal city, can only wear designer clothing, can only drive expensive imported status symbol vehicles, and would simply die if forced to live in less than 4000 square feet of housing, then retirement is going to be a problem. On the other hand if you live in Texas(for example)have a small but efficient paid for home, a couple of decent but paid off vehicles, a large group of friends and family to do things with, it doesn't require much at all as I can personally attest to. Good health and good friends are far more valuable than any "investment account" that may be wiped out overnight by the crooks on Wall Street.

Javahead said...

We live in an expensive coastal city. But we just sent our last payment on the house this month, and our youngest just finished graduate school and got her first professional-level job. So our monthly expenditures have gone way down.

A few more years to go until retirement, but we were living well under our income level before, and we don't intend to go wild spending the newly-available cash (beyond budgeting in some needed maintenance) - we're already living within our projected retirement income.

Yes, we'd be better off moving to a lower-cost area (and I'd love to move to a lower-tax less "progressive" state), but we don't *have* to do that.

But it's worth noting that we have the highest income and savings but the lowest discretionary spending of all my siblings' families. And I've heard variations of "I can never afford to retire" from their direction for years.

We're just hoping that our kids have learned the appropriate lessons.

Rob said...

The people who wrote that went to the same school as the people who make up the numbers about what it will cost you to raise a kid.

They both have a separate reality from the one I've lived.

Psychokitteh said...

We've lived well within our means for the past 20-25 years, and I forced additional savings and investment. Lost value but regained most of it after the two recessions, so the nest eggs have held on. The trick was living within our means, which meant that savings and building retirement accounts came well before "fun stuff." If we stay fairly healthy, I can retire soon and we can live quietly and within our means (again) on savings and income proceeds.

My wife was able to retire, but noticed that many of her friends and co-workers were will have to work into their 70s and have no clue where the money went. I could tell them in about three sentences. Our house is almost paid off, cars paid for, and credit cards are paid off monthly. Like many of readers, I'm keeping an eye on the unhappy grasshoppers. It was hard work being an ant, and no I'm not about to share.

Gorges Smythe said...

Yeah, but there's so much MONEY to be made manipulating people!

The Old Man said...

Javahead said it best. The key to retirement is to be debt-free when you bail out of work with as much cash as you can save while living as if you only made 85% of your take-home pay for the last 15 years or so.
Then you will retire sans worries. Or at least I did....

deborah harvey said...

we are in debt, mostly medical expenses, which don't look like they will lessen any time soon.

the alarmists are the same ones, no doubt, who give ridiculously high $$ numbers for raising a child. absolute, outright lies.

we watched a pbs program in which the guest speaker said we all could do better financially.
one of the first things he said was that everybody has $500 dollars to invest!
well, there went the grocery money and part of the utilities!

these financial advisors don't seem to have much contact with the real world.

Pwl47 said...

I have been reading Charles Hugh Smith's new book "Money and Work Unchained". It might be of interest along this same vein. It is none political and well thought out. The first chapter is free on his "oftwominds" blog site. It cuts through the conventional platitudes of what it means to not work and speaks of how devastating it can be to people. It may be that not being able to retire just because you have reached a certain age is not the worst thing that can happen.