What Retirement with Less Than $1M Looks Like in America
wsj.com
wsj.com
I get the feeling that financial advisors push high savings / low spending for retirement so hard because they get a 1%+ cut of assets under management, and there's nobody complaining when their client dies with a pile of money. It's one thing to be responsible, but it's easy to over do it.
Plus some of us would like something to leave for our kids/grand-kids, although I get that's not a priority for everyone. Personally my family on both sides came up from hooverville levels of poverty in the depression to middle class post WWII, to my parents being the first in their families to get advanced degrees and making it into the upper middle class. I'm a recipient of inheritance from both of said generations which has seriously improved my quality of life, it's my duty to at least maintain that status for my immediate family, and given that the lower rungs of the socioeconomic ladder are fewer and further between than they used to be, that means leaving substantial amounts to my kids/grandkids. Maybe in another generation or two we'll have enough familial wealth to live off the interest if we want. Sooner if I'm lucky.
It was raised in the 1980s, so no riots...
Most people retiring today were born before 1960, and you can draw SS as early as 62. The math still works out anyway. A 67 year old living to 87 isn't as uncommon as it used to be.
Social security is meant to give you a baseline of living expenses. I'd argue it pays enough to live a dignified life in retirement, but maybe not a rich one. As I said, I know a lot of older folks living off social security in my home town, and it is doable, but it's not lavish.
I view it as a very good inflation indexed annuity to help insure against longevity risk, but I personally won't need it and won't really be that affected if it's cut by 30% as they're threatening.
(I recently got an Economist subscription and it’s way better than expected, but I would have never known has I not bit the bullet…)
So just make it so you can Apple Pay your way to a day's access to the current news for a buck.
Once someone has done it two or three times, offer a subscription to them.
I rarely subscribe as, between work and a new son, rarely have time to keep up to date on a particular site, and the background stress of paying for something I'm not using is frustrating.
Except an issue of the economist is like 8 bucks
So he missed out on one of the best stock market rallies in history out of ignorance and fear. Ouch.
Bad move.
not alone though...every VC who poured $30 million into a cashflow-negative startup eight years ago has also missed out on turning it into $100 million with the click of a mouse
(He does still do some angel investing but only in a small number of companies he feels particularly strongly about.)
I can't believe what some people pay for cable and cellphone service. I pay $23/mo for cellphone service and cut the cable cord many years ago.
Personally, I dropped cable a few years ago but I just don't watch live TV now. If you're going to get something like YouTubeTV you're not saving that much over cable TV. (And I assume the person is also paying for Internet.) And the fact is that someone like my dad is not messing around with streaming TV.
The interface for YoutubeTV looks an awful lot like the interface for a cable guide. There's a small learning curve but it can't take more than 15 minutes to understand 90% of what you'd ever want to do.
$73 a month all in is a heck of a lot less than the $90 plus taxes and fees + cable box rental fees (per tv) plus sport network and local network carriage fees, DVR fees, etc. Last time I looked, I couldn't get 2 TVs with an equivalent package for less than $140 from my cable company and that included a contract and the need to renegotiate every 12-24 months.
These aren't really the "sob stories" I would be looking for.
It's not a pass/fail exam, and amount saved is useful (and the biggest one is reducing or removing your housing expense through ownership; though once you're old enough it may be worth considering how many years of renting you could buy for the price of the house, and what that would include).
"The Millionaire Next Door" was published in 1996. $1M then has the purchasing power of ~$1.92M today.
last time I checked known stats on Gen X retirement savings, the national average was under $100k...Gen X is the first generation that is almost entirely dependent on 401k
for bonus points, Gen Xers in large cities are more likely renters than owners, so they won't even be able to sell a property to prop up the low 401k balance
the Gen X retirement bailout is probably already unavoidable and will be in the trillions
everyone says its fine because they love what they do and will do it forever...do they really think there will be a hot market for 67 year old React devs?
You don’t need a hot market. You just need a market.
State governments are going to get huge bailouts too. Most state pension funds are way underfunded. The my state's DOT pension is <60% funded, and that's assuming 7+% average returns.
If the fed gets in the way of the fiscal policy makers and their spending, they will obliterate it - it only exists because of a law passed by congress anyway.
Here’s a taste: https://www.rickscott.senate.gov/2023/3/sens-rick-scott-and-...
Edit:
That SAID, anything can happen. These breakthroughs with AI could very likely change all of that.
"The enemy of my enemy is my ally"
-Rand Paul, probably.
EDIT: Would be fun to see Rand Paul crusading for the Fed in defense of spending cuts.
I think the best bet is to do what everyone else is doing. They can't fuck everyone and keep their heads and keep their jobs. What do Millenials and Gen Z's retirement contributions look like? How's the picture gonna change as the Boomers die? Gen Z?
You don't wanna be the minority with a 401k when everybody else has a Roth and you don't wanna be the minority with a Roth when everyone else has a 401k. When push comes to shove the political minority will get fucked first. Alternatively, you can do something so off the wall and uncommon that you're a "small fish" and they don't care to tax you.
The fiat currency numbers are not a fundamental, immutable feature of reality. The obsession with loss of hallucinated values is a bit unsettling. As if entirely ephemeral fiat economics has latched onto the same biological nature as religious conviction in gods.
Better to legislate the fake money as needed than let hundreds of millions get disenfranchised, especially in the country of 3 guns per adult.
To be fair, if you're in this industry and not constantly revising your skillset to learn new things, that's on you.
1. Eliminating income tax on 401k distributions
2. Eliminating tax on social security income
3. Increasing social security benefits
None of these will happen.
2. Giant tax cut, inflationary
3. Without corresponding tax increase or cuts elsewhere, inflationary
Taxes are the last reason people don't have enough in retirement. If you only have 100k saved up in a traditional 401k, and say you're doing pretty well in the 22% income tax bracket overall so that over time gets taxed down to 78k, over the course of a 20 year retirement that's just $1100.00/year in taxes. That's what, a few weeks' groceries? Taking those taxes away by contrast will be extremely inflationary and lead to people losing more money to inflation than they saved in taxes.
Let's say the government wastes all the tax revenue building a next-generation aircraft carrier that's so incompetently constructed it collapses in drydock before it can ever set sail.
That won't cause the price of everything to go through the roof, except perhaps locally where the money is spent.
And actually, the government can often put the money to better use than individuals. Is there incompetence, corruption, and wasteful government spending? Of course. But two things can be true at the same time. I'd like to see an individual try to build a bridge, repair a road, or open a public school off of their tax savings.
So (3) would definitely help that group (as sibling mentions, it's also inflationary). Bernie Sanders and others have proposed raising benefits for current retirees recently, even while Social Security needs to be shored up. With the Republican House it can be argued this is mostly political theater (disclaimer: I vote for Democrats and am usually a Bernie fan.) tl;dr like you mention this probably won't happen.
(2) Social Security is 50% taxable between $30-45k and 85% taxable above $45k. IIUC, couples over 65 get a slightly raised standard deduction of $29,200, so if they only have social security they're paying 0 and half-tax up to $74,200, which if my math is right will be an effective tax rate of around 3-4%.
Some states may tax retirement benefits; due to the above these can be higher than the Federal taxes.
(1) There's Roth for this, though I recognize not everyone has the means or planning. But I mention this in the context of +1'ing Trad 401(k) taxes not going away... Roth lets the government pull future revenue into the present to be spent now. Also, Dems would probably bring up a fairness angle as to which groups contributed to 401(k)s and how this would be more regressive than an across-the-board cut.
But regardless of whether it's 401(k) or other income, the Federal tax rates can be quite progressive. The 2023 12% bracket for couples goes all the way up to $89,500, so adding the standard deduction a couple can make $118,000 and still be in the 12% bracket (effective federal tax will be around 8-9%). Though the more that they make under this point, the more it pushes their social security into taxable ranges...
If the couple has long-term gains from a taxable investment account, there is a 0% LTCG bracket up to $89k as well, meaning so long as they have no other income, a couple can realize six figures of gains every year and pay no federal tax on them.