An article from Yahoo Finance asserts that Americans are fooling themselves about they're being on track to retire. Basically, account balances are too low and people either don't understand that their balance is too low or they are in denial about it.
There are some odd assumptions made but according to the article, 41% are likely to fall short of what they need but only 17% are worried about it. There was an interesting concept mentioned but not really explored, wealth illusion. They defined it as having $100,000 saved and thinking that is a lot of money which they stepped on by saying that if that $100,000 was annuitized it would only kick off $617/mo.
Let's throw in some grim numbers from a report by Vanguard about how undersaved we are with an average balance in 401k last year of $112,000. These are misleading in that someone who is 27 might not have much in their 401k, someone who is 60 might have rolled a previous 401k into an IRA and started a new 401k a couple of years ago and not have much in their accounts and countless other reasons. I'm not saying we are not undersaved, just that the numbers on this don't necessarily tell the whole story.
The Yahoo article is hinting about the psychology involved with accumulating money. Denial about being far behind is one behavior and Ben Carlson looks at another as he dissects the positive sentiments wealth can create related to buying stuff, the ego of having a high income and stacking up against others. Note, I don't think these points are actually positive attributes just that people do attach their self worth to these manifestations of net worth.
Ben also pulled some interesting things from the recent Schwab Modern Wealth Survey. Things that stood out from the survey, first was that $2.2 million is the dividing line for being wealthy but in an odd behavioral twist, 48% of Americans feel wealthy but that 48% has an average net worth far below the $2.2 million at $560,000. That seems like a different behavior than the denial about low balances that Yahoo explored.
I also got a kick of how people defined wealth in the Schwab survey.
Well-being which I assume is being healthy and able-bodied and freedom which I assume means owning your time, resonate most with me from the choices offered.
The above table of tradeoff questions addresses something we've been talking about here forever which is to make sure you figure out what is actually important to you. I know "having more money than most people I know" is a real thing but I cannot wrap my head around it. The last one in that graphic is thought provoking. There is a delicate balance to playing the long game and still doing interesting and fun things along the way. This is something we all come to differently.
Personally, I don't think about whether we are wealthy or not, I'm just not wired that way. My thought process is about not having to worry, having a margin of safety if something goes wrong and optionality for things I might want to do or have to do.
Obviously, denial about having enough saved for retirement is bad. The way I come at problems is to try to understand how serious it is or isn't and then figure a path to fixing it. Someone who is 50 with $450,000 saved thus far and thinking they should be at $525,000 might be sweating it out a little as they think about retirement but I don't think that is a dire situation versus this person having less than $100,000. Even then, at 50 and very undersaved, they might only be a couple of simple, even if not easy, big changes away from getting somewhat on track.
Where this can be simple is that whatever amount of money you end up with, that is your reality not some goal or magic number. What is also simple is that the amount you do end up with is a potential income stream that should sustainably kick out 4% per year. 4% of what amount? If 4% of your amount is far less than what you "need" it to be, then you're going to have to figure something out, something will have to give.
A couple of weeks ago I had a quick conversation with someone who is one year older than me and wants to retire at 65. They believe they are behind and their answer if they end up behind is to work longer which is a simple, even if difficult, solution. Planning to spend less is also a simple, even if difficult, solution.
Less simple is creating an income stream or two in addition to portfolio withdrawals and Social Security. Creating income streams requires thought, planning, possibly some sort of learning curve and then execution. This is not the sort of solution where you can wait until after a problem arises. The odds of ever catching up are very low without a long runway of preparation.
For years I've been describing this as a problem solving exercise and invoking Joe Moglia who said no one will care more about your retirement than you.
No comments:
Post a Comment