Will Anyone Have Enough To Retire?

Lending Tree posted a study showing how much people need saved to retire in/near 384 cities in the US. The dollar amount assumed a 4% withdrawal rate from that net egg and combining that with the average Social Security payout for the area. The cheapest are was Johnstown, PA which requires $779,000. There are 147 areas (more accurate word than cities) that require at least $1 million.

Yikes. As a generalization, we collectively have not saved any money. The averages you see from various reports are typically more akin to emergency funds than retirement funds. A brokerage firm study showing the average 401k balance is not really a good indication of the general population. 

The area closest to me in the study is Prescott Valley and the number is $952,000 which will generate $38,000 of portfolio income, added to the average Social Security here of $24,692, less 22% taxes leaves Prescottonians with $51,460 to spend. Hopefully that illustrates the thought process. Even if you discount much of the study, it does provide some color of how much it costs the average person in your area to be retired. One note about their process is the effective tax rate for the Prescott Valley numbers would be well under 22%. Also, the SS average is going to be low because it includes older people, who've been on it for years getting lower payments that what people who today have not yet started taking SS.

I always say with things like this or rules of thumb about salary replacement percentages is to work backwards to figure out  how much you're spending and more importantly how much you're likely to spend when you retire (more? less?) and then maybe pad it by some dollar amount to cover unexpected, one-off, unbudgetable expenses like vet bills or new tires and so on. I might suggest $1000 for this in today's dollars. 

Social Security wants you to know how much you'll be getting, create an account on the website and get familiar with your numbers. The basic equation is simple. Your projected SS payout plus 4% (or some other reasonable number) of your portfolio adds up to $X. Does that look like it would be enough? If yes, what is your margin for error? If no, how far off are your numbers and what can you do about it?

Cue this New York Time article titled What's Passive Income? It's Not What Most Influencers Say It Is.  The article blends together stories of younger people trying to figure out how to create passive income streams as a prompt for people close to retirement to also start working on this. That's not a great description but the best I can come up with. 

First, influencers. If you scroll Twitter (probably Insta and TikTok too) you will see people who boast of making a lot of money selling things. I don't know what they're selling but they're selling a lot of it. There are also people who sell classes and books that people are lining up to buy apparently? Some really do make fortunes this way, check out Miss Excel, and good livings but the conclusions from the article about internet related passive income streams coming up short ring true to me. The article also talks about how difficult in can be owning investment property, especially if you can't cover the mortgage when the property is empty. 

There was one rental property anecdote about people who live 2000 miles from their rental and the challenges the distance poses. Coincidentally, tonight on our community Facebook page there's a post complaining about vacation renters who drove up with a toy trailer, ill-prepared for the icy road conditions, got caught sideways on one of the roads here blocking access for other people. The property owners are not local and didn't warn the renters about the need for snow chains. 

I've long been a believer in creating Multiple Streams of Income (a book by Robert G. Allen). I don't really think in terms of passive versus active. We have our own vacation rental as long time readers probably know, and yeah, it is passive income on our taxes but a lot of work too. We meet every guest at the bottom of our hill and in conditions like we have now, I offer to drive them up when there's ice so there's never an issue like the cattywompus toy trailer. 

A point of differentiation that I stress is that you can't expect to wake up one day and just start an income paying gig, passive or otherwise. Of course anyone might get very lucky doing something, I don't discount that but I personally don't want to rely on getting lucky. For some hippie nonsense though, if you have a genuinely positive outlook, good luck will find you. 

The easy example I've been using for more than 15 years for a potential income stream if I ever need it is from my firefighting. I'm 20 years in, have picked up a decent amount of training and could potentially create an income for a few years. I've also mentioned there might be a path to an income stream from my involvement the Del E Webb Foundation. The common thread is putting in the time. 

Younger people seem to dislike the idea of paying dues, yes that is a generalization, but IMO that is the best path to creating a sustainable income stream. 

I always end these types of posts encouraging people to get to work on this now. Some percentage of us will stumble into something much better than their current situation but everyone can improve their optionality.