The starting point for today's post comes from a couple of different articles at the Wall Street Journal. The first one is about the retirement situation in Thailand. If you think the US is in rough shape, Thailand appears to be far worse. The equivalent of Social Security pays $18-$35 per month.
That sounds low but there was no context around those numbers. Grok says a "frugal/basic" lifestyle ranges from $700-$1000/mo. Thailand has essentially no pension-like system at that low dollar amount and the WSJ contends that most people have no savings either. The default assumption seems to be that old people will move in with and be cared for by their children. The few people profiled as caregivers in this context are in their 50's/60's and they are portrayed as themselves being physically worn out.
I don't know how you make a $35 payment (if accurate) work in the context of a $700 lifestyle but this example sheds a little light that maybe things don't have to be as universally dire in the US even if things are plenty challenging here. I'm not in denial about the US' retirement challenges, more like ok, this is the situation, what can we do about it.
A couple grossing $50,000/yr (current median is $65,000) where just one spouse works is taking home $3550/mo. If the one earner retires in 2030 at age 67 still making $50,000, his Social Security would be $1602 in today's dollars and the spousal benefit would be $801 for a total of $2403 so they are short of their working take home pay by $1147/mo. A positive for this situation would be they own a house and their mortgage will be paid at age 67 or sooner. There is the potential for their Medicare premiums to be less than regular health insurance but there some moving parts to that part of the equation. If the mortgage is not paid off, then yes something will have to give, probably some sort of part time work to make up the gap.
The other WSJ article looked at Supersizing Your Retirement Account including contribute the max $70,000 to your 401k (for self employed) and a couple of others that seem financially out of reach for most people. The comments went pretty hard after the $70,000 idea.
As opposed to taking the advice about putting $70,000 away as the only idea, I took the context of the article to be focused on people about 50 with little saved but making pretty good incomes, not killing it. If that is their situation, what can they do about it?
I think a plausible scenario at 50 is a house that had a 15 year mortgage now being free an clear, kids up and out successfully and diverting what has been the mortgage payment into retirement savings. If this worked out to be $25,000/yr, after 20 years of compounding at 7% (not a heroic assumption) they'd have just over $1 million when they are 70. Yes, maybe they don't want to work that long but at 50 with very little saved, something might have to give, will probably have to give.
The backtest considers three different broad, multi-asset funds; GMO Benchmark Free (GBMFX), Permanent Portfolio (PRPFX) and Vanguard Balanced Index (VBIAX). Starting 20 years ago with $2000, putting $2070 per month in and you can see the totals as of today.
If this couple had accumulated $100,000 by the time they were 50 and started on this $2070/mo plan, putting it all into GBMFX would now be worth $1,313.000, PRPFX would be at $1,753,000 and VBIAX would have grown to $1,850,000. A quick note, when I played around with different timeframes, GBMFX compounded much closer to the other two.
The big takeaway is simple. Assess your situation and then figure out what you can do. You can't save $70,000 in one year? Ok, what can you do?
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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