Yet another piece from Yahoo Finance about the jackpot that Gen-X is in when it comes to being able to retire. Some points in the article to address as well as some group think from the comments (always read the comments).
The article started with a rehash of the latest numbers we mentioned the other day that Gen-X on aggregate expects to be $439,000 short of what they think they need, $661,000 versus $1.1 million. That gap certainly creates some challenges but assuming 4% it means portfolio income of $26,000 versus $44,000.
Someone who is today 50 making $75,000 (I saw that as an average salary in some article recently), wanting to retire at 67 in 2040 can expect to get $26,596 ($2133/mo) from Social Security in today's dollars. If the spouse takes the spousal benefit, add another $12,798 ($1066/mo) also in today's dollars. All in, that's just over $65,000/yr (portfolio income plus SS). That might be less than they want and might require seriously cutting back on discretionary spending but if the mortgage is paid off, there's a pretty good chance these people can pay the bills and have a little fun even if they don't go to Paris every year.
A lot of people have nothing saved, so says the article and if that is correct, then yes it will be very difficult and they will have to figure a lot of things out but even the oldest in the cohort have quite a bit of time to get to work on a solution.
The article looked at mistakes that people make in their retirement planning including making a "big Social Security mistake" by not waiting until 70. That most people should wait until 70 is a very unhelpful generalization. In every discussion on this, I say there are plenty of valid reasons and ideologies for taking it early. There is not necessarily a wrong answer to this. Some circumstances, people should wait, yes but there are plenty where they shouldn't wait.
The only mistake really is taking it early without understanding how the numbers work and taking some time to analyze what is best for you. I've been clear here that my preference is to wait until 70 because my wife who is six years younger would get a bigger payout if I die young. A lesser reason is I do plan to keep on working and the taxation on SS below your FRA is not very friendly. I don't see holding off until my wife is 67 to take her spousal benefit.
Onto the comments. One theme that I saw in a couple of comments was to blame the switch from pensions to 401k's. With pensions, the company does everything for the worker other than earn the vesting. With a 401k, the employee does all the work other than matching the contribution. I think there's something to this. We are supposedly financially illiterate. I doubt we were more literate before 401ks so believing there should be more financial education now that it is on us makes a lot of sense. But whether it is a failure of the 401k concept or not, that doesn't do anything for how much we have saved. It is our retirement, it is up to us to make sure it works out the way we want.
There was blame for both major political parties. You won't get much argument from me on that. But that doesn't do anything for how much we have saved. It is our retirement, it is up to us to make sure it works out the way we want.
There were comments about retiring overseas. We've talked about that quite a few times here. My suggestion on how to do this is to not sell your mortgage-free house, rent it out instead and live off the rental income (and maybe some side hustle money if you can figure that out). This allows savings and SS benefits to grow as a younger retiree. You can always sell the house later, but keeping it preserves optionality to come back if you want/need to. The odds of being priced out of the US by selling are very, very high.
I would have liked to have seen more comments about living below your means. A few decades of that works wonders.
A lot of people blamed what they perceived as periods of adverse sequences of returns. Someone born in 1973, about the middle of the Gen-X cohort turned 25 in 1998. If that was when they first started saving money as adults, the S&P 500 is up fourfold since then. If they were able to steadily save, during what they thought were adverse sequences, then they should be sitting on a pile. The psychology is difficult I realize but while you are accumulating money, especially while you are young, you want down markets so that your 10% or whatever percentage buys more shares.
Someone said there is ageism. Ok, maybe so but that doesn't do anything for how much we have saved. It is our retirement, it is up to us to make sure it works out the way we want.
One comment said."There is no reason our retirement should be so dependent on the stock market over which we have little to no control." I don't fully understand what this person means, like what is the alternative or do they not realize pensions invest in the stock market but either way that doesn't do anything for how much we have saved. It is our retirement, it is up to us to make sure it works out the way we want.
Someone talked about personal responsibility, which is obviously a theme throughout this post, but it was in far enough that maybe it didn't get a lot of reaction but the one reply said the "personal responsibility crowd is rich." There is a big divide on this point with real resentment toward the people who believe in personal responsibility. While I could sum up my entire belief with the Joe Moglia quote that "no one will care more about your retirement than you," behind that is the harsh reality that time is going by for all of us, older age is coming regardless and it is naive to think politicians care at all beyond getting reelected. We are statistics, that's it. So we can get to whatever age we perceive as old and have either made the effort with good decisions and probably be at least comfortable or not and probably be struggling and stressed. Anything that looks like waiting for them to fix it goes against everything I believe.
A simple checklist of ideas that we've talked about before
- It is not too late for Gen-X
- Be adaptable, have a Plan B mapped out
- Figure out how to spend less to get below your means
- If you're start saving late go heavy into stocks and gut it out, then later learn about sequence of return risk
- Being mortgage-free with no car payments will make retirement much easier
- Figure out side hustles, bringing in $1500/mo is like having an extra $450,000 in savings ($18k/.04)
- Cutting carbohydrate consumption can save thousands annually on medication
- Building muscle mass (lifting weights) will let you be able-bodied much longer
It is up to us to prevent/solve our own problems.
The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.
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