A 90% cogent article in The New York Times discusses the utter absence of any contact with reality in most Americans' retirement plans. The numbers do not come close to adding up. The article is here.
Here are the basics. This will help you think through your situation.
Let me begin with the obvious: I am 70 years old. You are reading an article written by a man who is eight years beyond early retirement, as determined by the Social Security Administration.
At age 62, an American who has paid into Social Security can decide to begin receiving checks from Social Security. The monthly check will be below what it would be if he waits until normal retirement age, which can be up to 67 years old. By retiring at 62, the retiree's monthly benefit is reduced by anywhere from 25% to 30%.
In addition to Gary North's Reality Check, a twice-weekly eletter, I have two profit-seeking websites:
Not all of this time is devoted to earning a living. Over half is. The other time is devoted to my calling: writing a detailed book on Christian economics. I will begin that project in one week. This week, I finish the project that I began in March of 1973: writing my economic commentary on the Bible. Volume 31 will complete it. It is scheduled to be posted next Saturday morning on my GaryNorth.com site.
As I have grown older, I have needed less sleep. I have used this extra time to increase work on my lifetime project, which I decided to pursue in 1960: developing an explicitly biblical Christian economics.
I decided at age 17 that I would not retire until I could no longer mentally do the work. So, retirement has not been a goal. I planned to avoid it.
How much money do you need to retire? The New York Times article is a good place to begin. It was written by a professor of economics who specializes in the economics of retirement.
She begins with a grim set of statistics.
Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts. The specter of downward mobility in retirement is a looming reality for both middle- and higher-income workers. Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day.This means that a majority of Americans have not taken seriously the economics of retirement. They have not saved. They have been faithful Keynesians. They have spent. They have borrowed to finance this spending. They have been grasshoppers, not ants.
Why have they been so foolish? I offer these reasons. They are not based on a scientific survey.
All people are present-oriented. They discount the future: benefits and costs.The author of the article sets forth this sensible assessment of what it will cost upper middle class people to retire.
Americans are optimists. They believe that the costs of the future will work out automatically.
Americans are youth-oriented. They ignore old age.
Americans believe that the federal government can solve all economic problems if voters tell it to.
Americans believe that someone else owes them a comfortable retirement.
Americans do not like to look at numbers, especially economic numbers.
Americans prefer not to believe the recommendation of the Social Security Administration: the program will cover 40% of pre-retirement income. We need 70%.
Americans do not believe the federal government will go bankrupt if it does not cut Medicare costs.
To maintain living standards into old age we need roughly 20 times our annual income in financial wealth. If you earn $100,000 at retirement, you need about $2 million beyond what you will receive from Social Security. If you have an income-producing partner and a paid-off house, you need less.Got that? You need 20 times your annual income to survive in comfort. This assumes that you will leave no inheritance to your children. You and your spouse will consume all of your capital.
This number is startling in light of the stone-cold fact that most people aged 50 to 64 have nothing or next to nothing in retirement accounts and thus will rely solely on Social Security.People have not sat down with their spouses and calculated exactly what they will need to live on, beginning the day after they both retire. Why not? Because they have a pretty good idea that what they will find will smash their dreams.
If we manage to accept that our investments will likely not be enough, we usually enter another fantasy world – that of working longer. After all, people hear that 70 is the new 50, and a recent report from Boston College says that if people work until age 70, they will most likely have enough to retire on.