
Retirees Might Run Out of Money 10 Years Before They Die - whack
https://www.bloomberg.com/news/articles/2019-06-13/world-s-retirees-risk-running-out-of-money-a-decade-before-death
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obblekk
This study is very poorly interpreted. It specifically excludes government and
corporate pensions (including social security) from its calculation.

Consider:

1\. Avg income (all ages) in the US is ~50k/yr

2\. Avg social security is ~25k/yr (mostly untaxed)

So including social security in the calculation HALVES the annual burn rate,
more than doubling your runway because of greater interest compounding on
savings.

Additionally, many baby boomers retiring today have some kind of additional
corporate pension from their early careers in the 70s and 80s and these are
all government guaranteed, even if the issuing firm goes bankrupt. That
probably adds another 5-10k/yr per person on avg.

And finally, most retirees today own houses that have massively appreciated
since purchase. Given very favorable laws on cap gains from primary residence
sales + low interest rates on borrowing against a home, most retirees probably
have a nice additional cushion to draw from.

Overall, this article is FUD. Unless there's a massive economic
recession/depression in the near future, most retirees will be absolutely
fine. The poorest will struggle, but probably no more than they have since
Reaganomics kicked in 40years ago.

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BeetleB
>This study is very poorly interpreted. It specifically excludes government
and corporate pensions (including social security) from its calculation.

It excludes corporate _defined benefits_ pensions. I suspect the people on
corporate defined benefits is fairly low at this point.

Source of the social security number? I have a salary above average, and the
SS web site estimates a $24K/year for me (today's dollars). Lower income folks
should get less.

~~~
Retric
Social security benefits are extremely non-linear using from 90% down to 15%
of income in each range. It also only considers a limited set of your highest
years earnings, which can mess with early estimates.

The minimum benefit for someone who worked 30 years making minimum wage is
$872.50 per month, 10.5k/year The maximum benefit is $2,861 per month or
35k/year, for someone who made 140+k for 35 years.

~~~
mbbutler
The benefit is linear but the distribution of people getting it is not evenly
distributed around the middle of the benefit range. Therefore the average
benefit is not just the mean of the min and max SS benefits.

~~~
Retric
The existence of bend points in the formula means it’s non linear.
[https://www.ssa.gov/oact/cola/bendpoints.html](https://www.ssa.gov/oact/cola/bendpoints.html)

 _PIA formula For an individual who first becomes eligible for old-age
insurance benefits or disability insurance benefits in 2019, or who dies in
2019 before becoming eligible for benefits, his /her PIA will be the sum of:
(a) 90 percent of the first $926 of his/her average indexed monthly earnings,
plus (b) 32 percent of his/her average indexed monthly earnings over $926 and
through $5,583, plus (c) 15 percent of his/her average indexed monthly
earnings over $5,583._

Note the c is capped 11,075 US$ per month as income above that is not taxed.

~~~
mbbutler
Oh, I'm sorry. I misread your first claim. I thought you said the benefit WAS
linear.

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jakozaur
I believe situation for long-term investing like retierement is getting worse.
After all quantitive easing and low level of interests rate, the capital gains
on safe assets are minimal accounting for inflation. As an aftermatch capital
gains on everything else are getting lower. Years of 10% gains over long-time
are over, even 8% looks over-optimistic over long term for huge amount of
people.

Maybe our capital system couldn’t effieciently store so much savings while
keeping reasonsble economic growth with ageging population.

At this point AGI and universal basic income may be the best hope for the
bottom 90% of population.

~~~
nugget
Pension funds assume 6-8% real returns in their actuarial calculations (and
even then, most are painfully underfunded). If real returns come in much lower
than that, then many of the State, local, and private pensions will be
destabilized. Social security and Federal pensions should be fine no matter
what.

~~~
akeck
Interestingly optimistic. I've been doing my recent retirement calculations
with 5% nominal returns. I suppose it's because I'd rather be pleasantly
surprised in retirement than starve.

~~~
lowdest
5% nominal returns, then ~2% inflation and income taxes on withdrawal. That's
going to require a high savings rate.

~~~
akeck
Yes, unfortunately.

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theunixbeard
“The forum assumed retirees would need enough income to cover 70% of their
pre-retirement pay, and didn’t include Social Security or other government
welfare payments in the total.”

The above caveat is pretty huge...

~~~
symplee
Exactly. If that number were arbitrarily changed to 60% and _did_ include
Social Security, well, there goes the news article.

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ChuckMcM
I agree with the comments that the methodology is flawed and the conclusion
overly alarmist. One of the things my grandfather would say was "You don't
have to worry about running out of money if you're living off the interest."
He had lived through the depression and would tell stories of people who were
spending savings to "keep up appearances" and it cost them everything.

~~~
NTDF9
But one can't live off the interest any more because we've manipulated the
system to close to zero interest rates. To be able to earn 20k, single person
survival income, that individual needs $1M in savings.

Times from our grandparents times have changed. The problem is very clear.
Higher interest rates boost savers, at the expense of risk takers (some good,
some bad). Instead, we've goosed the economy for so long with low interest
rates that savers got bit by inflation and speculation has become a way of
life.

~~~
ChuckMcM
Apparently you need $715,000 in an SPX index fund in 2000 to reliably pull
$24K/year ($2K/month) out of it. I made a toy model for that :
[https://docs.google.com/spreadsheets/d/1pBoa2mikeKQ4zPHOHu6L...](https://docs.google.com/spreadsheets/d/1pBoa2mikeKQ4zPHOHu6La_PA5Uk-
lr8Srkcx9oaMGlM/edit?usp=sharing)

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RickJWagner
Financial education is a _must_.

Even workers who earn very little can easily be assured of a safe retirement
if they save and invest prudently from a young age. (That's the key-- a young
age.)

This is all very well proven. It should be taugnt from the earliest grades.
Yet it isn't. Totally frustrating.

~~~
FabHK
It's not that simple. It depends crucially on real rates.

When rates are close to zero, as now, you'd basically have to save half of
your after-tax income. And that won't allow you to cover big medical bills or
health insurance. Some government help is required.

Financial education alone is not enough.

~~~
RickJWagner
That's a question of asset allocation. A well-diversified portfolio should
have assets that produce income even when stock-trading isn't. (i.e. bonds,
dividend-producing stocks.)

It's also crucial to understand that it takes time. Stocks are still doing
well, were absolutely roaring for the past 10 years. This is a blip in a
single investor's timeframe. You need to invest a percentage year in, year
out. Through high markets and lows. Keep plowing that percentage in. Every
great investor from Buffet to Bogle to Dalio will tell you this is a known
formula for success. The 'current time' is irrelevant.

In every timeframe (even times of rising inflation, crashing stocks, etc.)
there are assets that are appropriate. That's where education becomes
important-- understanding what your levels of risk and comfort should play in
allocating your assets.

Don't believe nobody will make money over any extended time period. Some
people certainly will. Education can help you do well in many environments
(including the current one. Many people are doing very well.)

~~~
FabHK
First, your theory that 'current time' is irrelevant is predicated on the
broad market still producing relatively high real returns. This is by no means
certain, and "secular stagnation" asserts precisely that the high returns are
over for now.

Second, how about some division of labour? Instead of every individual
learning about the optimal allocation of assets and the CAPM and so on, how
about everyone just pays into a central pot while working, and a few
specialists invest it optimally.

(Different risk aversion can easily be incorporated in that framework.)

Just like you and I don't build our own cars, and don't need to know about how
it works and how to repair it to use it.

That's how it should be done in the civilised world: you pay into a pension
pot, and then when you retire you get a pension.

And there's another benefit: instead of everyone having to save to cover their
maximal possible remaining lifetime (with expected waste being maximal
possible total pension minus expected total pension) everyone only needs to
save to cover their expected remaining lifetime (with expected waste being
zero).

~~~
RickJWagner
In short, because every-man-for-himself has a long history of great success.
It simply works.

Ignore it at your peril.

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kache_
In developing countries, the retirees' retirement is often their children. I
think people need to keep in mind how important children can be in terms of
securing your comfort in your old age.

~~~
allthecybers
> I think people need to keep in mind how important children can be in terms
> of securing your comfort in your old age.

As much as I see your point, that is unrealistic for many, many people.
Especially in the US where that is not prominent societal norm.

My parents live thousands of miles away from any of their children. Most of my
siblings don't have the money to save properly for their own retirement let
alone support their parents. And housing situations often do not support two
households living under one roof.

And this applies to families that still talk to each other.

~~~
AdrianB1
Then it is a wrong societal norm. My grandmother retired at about 95 years old
and she lived with us (daughter's house and 2 grandchilds) until she died at
106. She had a tiny government pension (about $100 per month) that she had not
to spend on anything because the family cared for all her needs. When you live
with someone and the marginal cost is just one room and one seat at the table
then this is not a burden for anyone. If you want your separate house and
someone to help, that is not sustainable unless you saved big time.

~~~
balt_s
> Then it is a wrong societal norm.

This is an underrated point, but I hope you can see how prevailing factors in
both the business world (Amazon's two-day shipping springs to mind) and the
culture are seriously stacked against these mores.

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jpalomaki
There might be some trouble ahead, if the the improving technology means the
current life expectancy figures are too pessimistic.

So far the growth seems to have been quite steady. Does anybody know how well
the old predictions have hold up?

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m0llusk
This is just another example of how our society is under pressure to change to
giving basic support to all people in order to handle the chaotic realities of
labor markets and financial vehicles.

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seddin
Does anyone reading this know r/financialindependence ?

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dajohnson89
yes..?

