Finance news is for rich people and this article proves it, talking like it's a choice whether you retire with $1 million or not. If you're thinking you're not rich but still interested in finance, then you're probably rich! ;)
The article breezes past that the median retirement saving is actually $164,000, which makes sense as the median salary is ~$60,000.
> The article breezes past that the median retirement saving is actually $164,000, which makes sense as the median salary is ~$60,000.
Anyone who tells you that the middle class should expect a meager retirement is an ignoramus who should be ignored at all costs.
The median household income is ~75K/year. If this household started saving (from zero!) at age 35, saved 10% per year and got a 6% return for 30 years, they would have ~$600K saved for retirement by 65.
The simple truth is almost everyone can retire in reasonable comfort and with peace of mind if they follow a few simple rules:
- Avoid high-interest debt like the plague.
- Get in the habit of saving 10% as early as possible
- Have an emergency fund in cash, but don't keep more than ~3 months expenses in cash. Invest!
- Use tax-advantaged vehicles like 401K/IRA
- Invest in broad-based funds with low fees (ex: VO, VOO)
- Don't pick individual company stocks. If you must, never invest more than 5% of your portfolio. If you do, know that you're not "investing", you're gambling!
- Don't try to time the market. Dollar cost average. Buy and hold.
- When you hit 100K, meet with a financial advisor who is a fiduciary and who charges by the hour. Not a stock salesman, not a portfolio manager, an advisor. Heed their advice. Check in every 5 years.
Who exactly is projecting 6% returns? Vanguard is projecting 10 year returns of 5.2% U.S. returns before inflation and 8.1% international stocks before inflation. At 2% inflation that's 4.56% real returns if you assume 2% inflation and went 50/ 50 on U.S. and international stock. (Non inflation adjusted returns tell you nothing about readiness for retirement so should be avoided).
And that's at 100% stock, which isn't recommended before retirement.
6% is the average inflation-adjusted annual return of the US market over the last 150 years.
The specific rate of return will of course vary, year to year and decade to decade but the fact remains that cushy nest eggs aren't only for the rich. Middle class folks can retire in relative comfort and without making drastic sacrifices in the short term.
which would suggest 3% inflation adjusted returns. This isn't a serious prediction, just an observation that it takes a lot of optimism to tell people they'll get 6% returns because of their preferred data point.
A McDonald’s worker who starts today aged 18 who makes $15/hr and joins the McDonald’s 401k plan and contributes 4% of their income to it and works at McDonald’s for 50 years never receiving a raise should expect to have very close to $1 million by the age of 68.
That was just a silly little example of how if someone saves $24 per week over the course of a lifetime it can expand into great sums of money through the miracle of matching and compound interest.
And that was at 7% returns. Over the last 50 years the market has averaged 11% so if half a century ago (let's pretend 401ks are that old they're only 46 years old) an 18-year-old entry level worker emptied trash cans at an amusement park that had a 401k with employer match for 50 years they would have a vast sum of money today.
There are some people who cannot afford to save 4% of their income.
There are so few people who can genuinely not afford to save 4% of their (pre-tax) income that they are irrelevant to discussions about retirement saving.
Speaking as someone who's not there but can also see it (I recently learned that I'm in the "mass affluent" - those with $100K to $1M in net worth), I don't think it's "a" choice, but many of them. I've never made anything like some of the developer salaries I see bandied about on this site, but I do OK and live modestly; small house, beater car, only eat out on special occasions, etc... But I think the biggest thing is not having children. The estimates of their costs sans college is already in Lambo territory just for one. I often wonder how much that sort of thing has to do with the decline in fertility.
That number is retirement age and I gave the mid-late career median for salary.
> The Federal Reserve data shows that 65 to 74-year-olds have a median of $164,000 in their retirement accounts while those 75 and older have $83,000 saved for retirement.
Retirement age is not a fixed number. Quick search says about 10-19% of over 65s are still working. Some through choice, others not.
I have always heard you should have 10x your salary (starting salary or ending salary, I am not sure).
This makes the average retirement "426,000 for those aged 65 to 74" seem less bleak, but the median(164,000) makes it sound pretty bad.
There is so much conflicting advice on this topic. It makes it difficult to plan. Are we getting Social Security? Will it be reduced? Is the safe withdraw rate of 4% a safe assumption? The article uses 7% for rate of return, is this inflation adjusted? Do These calculators make assumptions, like your house will be paid off, or you have reduction in spending from kids moving out?
I am assuming if you pay SS tax and put 15% of you income into the S&P for 30 years, you should be able to retire at 65. Hopefully it works out!
There is a ton of poorly thought advice on this subject online. I recommend looking at some of what more reputable authors have published, such as Wade Pfau.
Even among experts there is not going to be a complete agreement on what is the best strategy, but there is broad agreement on some key points. I will briefly mention the two most important ones in my opinion.
First, realize that since investments compound, the (random) returns you get for the first few years of your retirement will have a disproportionate effect on whether you will have enough long-term. This is called the sequence of returns risk, and there are some things you can do to reduce that risk somewhat.
Second, and as a consequence of the (random) variability of the value of your investments over time, it is very beneficial to be able and willing to cut down on your expenses when your investments have lost value, particularly if it happens during those crucial first years.
Lastly, consider the possibility of purchasing an annuity. It provides you with some insurance in the event that you live longer than you expected.
It is VERY worth talking to a professional about this. It's possible to build your savings in a manner they will produce income via dividends, bonds and other methods that give you a pretty great tax advantage and you don't have to sell as many assets during retirement. This is a huge advantage overall, especially in the years the market is bad.
I am not a financial professional but rely on one to guide me.
Where does one find or learn about how to find a good person to work with US on this. I always worry its the finance professional's wallet first then maybe us.
Look for a fiduciary or a for fee planner (not a commission based one). They don't have a stake in selling you specific things, they just charge a flat rate. Whether they're any good or not is a different story, but they aren't in the business to sell you anything other than their services.
The title is misleading, they are referring to "Retirement Savings" just counting 401k and IRA dollars only. Personally my "retirement savings" are over 60% in non-IRA or 401k dollars, and I'm retired.
Later in the article they begin to talk about overall net worth including regular savings and investments and the numbers are better but could still be problematic:
>> In terms of the average retiree’s net worth, the Federal Reserve data puts it at approximately $1.2 million for those aged 65 to 74. The average net worth drops to $958,000 for those aged 75 and older.
In the context of finance, any number starting with average is meaningless more often than not. It neither characterizes the situation of most people living well below average nor of the few people living well above average.
I think the tricky part about basing it off overall net worth is that for the average retiree their house is a big part of their net worth. Many could downsize to get some cash out of it, but people do still need to live somewhere.
For those in the US trying to do retirement planning I highly recommend trying: https://projectionlab.com/
I first saw it shared on HN and I've been a happy customer for the past year and the ability to compare the impact of different scenarios has helped me make a few big financial decisions. Good community around it for asking questions too.
Gave this a try and have to say, these visualizations are super useful and for me. Opened my eyes quite a bit to a concept that seems obvious: $1k spent now isn't just $1k spent, it's $1k not invested and growing over the rest of your life.
Far too much of my own money has been squandered on living in the now, and tools like this help give me the tools to grasp what it really means to tweak the balance of spending and saving when viewed over the long run.
Thanks for this link. Super valuable! I'm not clear on how it's considering 529s (for you, or for kid[s]?). I wish the "about you" allowed you to add kids and their projected college years into the financial plan.
That is in the Plans section. Are you in the phase of building a 529 or withdrawing from one? Either way, the app supports it and both of them are in the Plans section. In it, you can prioritize your cash outflow to build a 529 or include it as part of your inflow if you are withdrawing from one.
I'm building 529 balances for two kids, and I have future "school" dates for both, along with expenses for both starting at those future dates. I guess I'm not understanding how it's working in the plan & cashflow, since I'm seeing the cash outflow for the expenses, but I'm not seeing the cash inflow from the 529s (since they're the owners of them)?
The Cash Flow tab is the result of the inputs in Plan, so no inputs needed there. In the Plan tab, lower right, you will see the 'Cash Flow Priorities'. There you enter the details (time span, amount, etc.) of the build up phase. In the 'Income' section you can enter the withdrawal phase on your "school" dates, as cash inflow. You can add each kid their own entries for different withdrawal date span. Under the 'Expenses' tab is where you put the details of the outflow (ie. expenses) during the "school" dates.
Question must be - how does one retire on $1M? What kind of passive income one could hope for reliably considering one doesn't have a right for mistake when they are 65+ because there's no way to start over, so "rent some servers with Solana stake" is not a viable strategy.
$1M in investments, drawing down at a moderate rate of 4% per year, gives you $40k/year income. Not poverty level in the USA (unless you’re in a high COL city), but not fabulously comfortable either. And only 10% of retirees have even that? Ouch.
Back in the ‘80s, “retiring a millionaire” was awesome: you won. Not so much, today. People are living longer now, too. $1M is not going to stretch as far as many would believe. I’m planning to significantly dial down my lifestyle when I retire—most of us will have to.
It's also based on having the money continually invested in the stock market, which becomes more nerve-wracking in retirement I'd imagine since you can't easily weather the storm of a half-decade downturn.
Yea, I don’t think 4% is all that conservative, either. Unless you have some reliable insider knowledge about when you’re going to die, you kind of have to plan for indefinite withdrawal, or at least until age 120 or something. Ideally, we are at exactly zero when we kick the bucket. Having money left over when you die is fine and let’s you leave a little bit to kin. Running out before you die is kind of catastrophic, no?
Then you leech off kin if you have any? We invented old people long before we discovered pensions and tax-advantaged retirement savings accounts.
The range of plausible return rates is hilariously wide, so nearly any withdrawal scheme that can provide a reasonable baseline standard of living with a low chance of going bust is extremely likely to grow faster than you spend it down and leave you with large amounts of money left over. Portfolio survival rate is a very artificial metric that does not accord with how people actually concretely plan their retirements outside a particular band of upper-middles who are weirdly allergic to the fact that they have social ties (and rich enough to avoid them).
Most of the increased average life expectancy during the 20th century came from lower mortality rates for kids. Life expectancies for the over-20 crowd hardly budged (and might even be decreasing in the US).
If you want you income to increase with inflation you can't spend the entire rate of return. So If you are using a 5% return you should really only spend 2%, if you go with the current inflation rate.
Sure but that too is to die with a million inflation adjusted, not to draw down. Are you saying retirees should need to be able to live only on ongoing gains?
If you have accurate records for several ancestors who died of natural causes then you can put a reasonable upper bound on your lifespan. Do you have anyone in the previous few generations who lived to near 100? Lifespans haven't increased much for people who make it to adulthood.
The article breezes past that the median retirement saving is actually $164,000, which makes sense as the median salary is ~$60,000.