Unfortunately some of the points that appear to be building blocks to her conclusions are so inside the box (so to speak) as to have no value. It would be nice to think that people of influence would advance the conversation before trying to solve the problem, kind of like a doctor curing the wrong malady because they assume the wrong symptoms.
She notes that "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." I guess my beef here is the extent to which this rule of thumb reinforces people living at or above their means. I would have hoped that thought leaders would advance the conversation to the point where they talk about spending less, saving more, not focusing on replacing income but instead becoming financially literate enough to build a reasonable budgetary framework for a financially suitable lifestyle.
Part of the solution must be orienting to the correct situation. A $100,000 lifestyle has no relevance when the person who has had a $100,000 lifestyle turns 68, wants to retire and only has $700,000. To be clear, that is a decent chunk of money to accumulate but even with a combined $48,000 social security benefit it will not generate $52,000 in a sustainable fashion to get to $100,000.
The other point that stuck in my craw was the point made about it possibly being difficult to work longer as many people like to suggest. It can be difficult for all sorts of people to keep their jobs in this economy not just someone on the verge of retiring who then realizes they need to stay on another year or two or whatever the case may be.
Necessity can be the mother of innovative ideas and for many folks it may need to be. If you would like or need a certain income then what are you willing to do to make it happen. Over the years I have tried to share many anecdotes as I've heard about them to convey the extent to which people have figured out something that was right for them like operating backhoe or teaching hazmat classes.
The point of this post is that chances are you reading this blog and others are probably influential in your various social circles on this sort of thing. I believe that people need education which will hopefully lead to thinking outside of old-line constructs to have a better chance of a successful financial plan and there is a good chance that quite a few people you know will listen to what you think.
4 comments:
I had similar thoughts after reading the Times piece but would more sharply question the premise that replacement of income is the right metric. Surely an examination of a person's expected expenses should be the first step. Then if there is a shortfall various remedies can be examined, like control of costs, freelance/part time work, etc. Such an analysis should be more practical than the writer's conclusion that we are all doomed.
defining a need vs a want is huge in the accumulation phase.
Interesting. Everyone else says you need 12x income. This article says you need 20x.
On a related note, the following article from the Center for Retirement Research at BC may be worth a read. The main point is that while we spend a great deal of time discussing investment strategies for retirees, the harsh reality is that most Americans approaching retirement have less than $100,000 avaiable to invest. Therefore, as Roger has pointed out for some time, alternative strategies such as working longer and reducing spending, and perhaps tapping into home equity via reverse mortgage, may be much more practical and effective.
http://crr.bc.edu/wp-content/uploads/2012/06/IB_12-11-508.pdf
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