My folks are 80, and in decent health. Neither has had a heart attack, and no cancer. I can see them going another 10 years at least, and any money they have will be burned up with elder care. I don’t expect to inherit anything. I have a couple of siblings who are gonna be disappointed.
Nope, he’ll get either his own or half of yours , whichever is more.
Although you’re right that the system was never set up for the benefits that are currently paid- multiple ex-spouses, disability etc.
In the Uk the main thrust has been to raise the age at which you can claim a state pension (provided you have worked enough years to qualify). Women used to be able to claim at 60 (Strange since they generally live longer) and men at 65. By 2020, the age for both will be 66 and no one expects that to remain static for very long.
There has also been a start on giving some basic personal pension schemes some state control. Employers are now obliged to offer a scheme and add their own contribution to it. I have a middle aged nephew who has a part time job with a council. The rest of his time he is a self employed contractor. The council pays a low wage and when he joined they were shocked that he wanted to invest nearly all of it into his pension, a contribution that they are obliged to match.
The big problem here for pensioners with savings is the abysmally low rates of interest that they can earn. My wife and I are lucky in that we both have a salary based, index linked pension as well as my state pension (Mrs Bob is too young to draw hers yet.
Drawing this down at the rate of say $50k a year (if that) is not going to come close to what the 1% do. In any case we’re way into the Baby Boom retirement years already. The market seems to have handled it okay.
The advice I’ve seen is different. Since equities have out-performed bonds in the long term, especially today, the advice is to keep a significant amount in stocks for long term growth. Probably not as aggressive a portfolio as you’d have at 30, but still a reasonable one.
Another thing is that people do not spend the same amount each year of retirement. Possibly more the first few years, but by the time you are 80 most people don’t want to run around Europe. The many cruises I’ve been on had lots of people above retirement age, but few very old.
And while there are plenty of people who need expensive care, not everyone does. My father went from perfect physical health to dead in a day, at 95. (I want to go that way.) My father-in-law is almost 99 and still doing good. They bug him to go into assisted living (more expensive but not bone-crushing) but he refuses because of no internet access.
My financial planner ran a simulation of how much money we would have at various ages, based on expected expenses and date of retirement. It is a good thing to do if you have a financial planner - which implies you have a reasonable amount of money.
My thoughts, for what they’re worth…
- The concept of “retirement” will be reassessed - you won’t so much as retire as, perhaps, slow down but still remain employed. This will likely be the most common solution where people think “why the hell do I want to retire if I have 20+ years of my life left? Hell, how can I retire?” Even those who did save… did they save enough for 20+ years of no earnings?
Pullin says he has 43X the median retirement savings… but given my calculations, for somebody used to earning 3.5X the average wage that means you have enough money to fund 12-15 years of your current standard of living (assuming you don’t decrease that standard of living). And unless you plan on dropping by the age of, say, 83, you’ll still be in a world of hurt.
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Like sBunny said, there are fixes to be made to SS and some of them will come to pass. Raise the age prior to one collecting. Raise the earnings cap. Means testing.
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I will say, a lot of what I’m reading here is the same that I read when the WW2 generation was coming up for retirement. “Oh, they won’t leave. When they do, they’ll be a drag on the economy. SS is going to go bust.” The more things change, the more they stay the same.
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10,000 BB might be retiring every day, but about 500 of them are dying off… and that number will only increase.
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The Millennials, the largest generation in US history, will be hitting prime earning years as the Baby Boomers start drawing the most off the SS fund. Anybody know how this effects things?
The SS?Medicare load isn’t a surprise. It’s what drove some of the changes like my full benefit age changing (twice IIRC) since I was 18. The second and third order effects worry me more. Paying back the the debt to the SS fund from the general fund, possible unplanned increases in other social safety nets, local and state tax bases shifting, medical care demand going up producing market effects, etc seem to be less clearly forecasted.
It’s a legitimate lifestyle choice to to decide to live well before you retire and to live at slightly more than the poverty line after you retire (the average Social Security benefit). Just because you don’t want to live this way, why are you making judgments about other people’s choices?
Pullin is obviously not spending every cent of his paycheck–that’s why he has a decent retirement account. I save nearly 75% of my post-tax income; simple division might indicate that I have less than 10 years of retirement savings but in reality it’s at least 40; perhaps more like 50 when progressive taxes are taken into account.
I’m guessing you are nowhere near 65. Get back to us after you have worked 40+ years. In any case, the economy is better for geezers like me making way for new kids with new degrees, especially in tech fields.
Dr. Strangelove has it right about much of your pre-retirement income going into savings. Not to mention SS itself, which you stop paying and start getting. Plus, few people who are retired are going to be spending at the same rates. The retirement income calculators say 80%, but that seems way high to me.
Second, I assume you are not taking into account income and growth from the retirement investment, which doesn’t stop when you retire. The retirement simulator I mentioned has it about 50% likely that we’ll hit 88 with the same amount of money we went into retirement with. 50% of the cases we wind up worse, 50% even better. They do a Monte Carlo simulation weighted by historical data. Things can be considerably better than you think.
It’s not SS that’s the problem. Like a couple other people mentioned, it’s Medicare. I may wind up moving to another country in about 10 years just to avoid this mess. I’m serious.
Vanguard has a quickie version online here. Enter some basic information and it will give you a probability of making your goal and a nice graph.
I’m getting 95% if I retire now, but I’d like more knobs on the simulator (it caps out at 50 years of retirement but I’d like more…). For instance, I’d like to be resistant to a large, unexpected expense somewhere in the timeline. Say, a $100k medical expense of some kind. I’m tempted to write my own simulator…
True, that. (About Pullin, that is.) 
Of course I didn’t take everything into account in my simple back of the envelope calculations, so I ignored asset growth, increased wages, possible inheritances, housing appreciation(s), etc. OTOH, nor did I assume a general asset crash ala 2008, 2001, 1990, 1973, etc, nor a whole host of negative events that may happen (job loss, disability, etc.)
I’m post boom.
I can’t completely blame the boomers for not saving. They got out of school and stepped into a job that they thought they’d have forever like their parents. Likely, one of the benefits of the job was a pension program. They married, had kids, got a mortgage, and then sometime when their kids were at home the company said “we aren’t going to do pensions anymore, here is a 401k packet and a payout.” The payouts weren’t huge, most people didn’t get time value of money, and as to funding a 401k, where was that money going to come from, they had kids and a mortgage. Then they switched jobs four or five times - they weren’t expecting that when they started out either. Probably went through at least one period of unemployment.
The employment world they thought they’d grow old is is not the one they got - and some of them adapted, and some didn’t.
Another thought on the economy - as the boomers who DID save start to use their money, how much will the stock market drop?
We must be living in the same house. My wife and I feel the same way.
We’ve been savers since we got our first jobs, and have been ever since. We’ve lived frugally, but we are still living. But we view this as a “pay me now or pay me later” kind of world, and we are going to pay ourselves later. It’s surprising to me how many want to be paid now AND later.
We paid off our mortgage a few years ago. When asked where we stood during financial conversations with friends, we were virtually assaulted for doing that. We either shouldn’t have paid it off and invested the money, or we should have moved into a bigger house we were told! We have friends in our 50’s who just moved into and even more expensive house than they have now and are complaining about how long they are going to have to work! No kidding. Sacrifice and discipline aren’t in their lexicon.
We have similar worries, that as this generation retires, there will be an uproar that we can’t let our senior citizens live in poverty. And there will be caps on those that have saved (us) or taxes will go up (us).
I agree it’s a legitimate choice.
But of the people who are going to be living at the poverty line on SS alone, how many of them actually made that choice, versus were simply unaware that their lifestyle decisions in their early earning years were locking them into that eventuality?
IOW, I believe there are lots of folks living middle or upper middle class lifestyles with fairly negligible assets that honestly expect that lifestyle to continue after they retire. And they’re gonna be surprised when reality hits home, whether that’s a few years before retirement when they have an epiphany or it happens a year or two after retirement when the money runs out.
For those surprised folks, their earlier decision can’t really be described as a “legitimate lifestyle choice” IMO.
I’m guessing you can make an argument without an appeal to authority.
I am interested in this topic and would like to read the academic literature. Please cite.
It is a legitimate lifestyle choice. But as larger numbers of Americans are making the choice to “spend now, worry later” there is increasing pressure to up social security, or to at the very least not changing it to make it more solvent. So their choices are affecting me negatively because I’ve going to have to pay for their choices.
My fear is that the frantic search for profits is driving ever-worsening feedback cycles. the 2008 crap mortgage crash was worse than the 200 internet crash, which was worse than the S&L crash, etc. If your fund tanks to 2/3 of its previous value, but you still have to pull $X out just to live, that puts a bigger dent in your fund than if it is still sitting in a corner untouched, growing for future draw-down. A multi-year down cycle like 2008 onward can seriously injure a fund.
the scary part is that when people suddenly realize that they should be saving, it is usually too late. Somewhere between 30 and 40 they start to realize 65 is in striking distance, they’ve lost 10 to 20 years of savings and growth.
So I guess the questions - which I don’t know the answers to - are:
What proportion of the massive assets in the financial system are retirement savings for the average working baby boomer?
Are younger workers saving at sufficient rate to mainly replace those savings in the system?
And the other part people are discussing on this thread - what’s the impact on the prudent boomers and the working stiffs when a large number of the boomers have to stop working, without savings?
My impression is that the answers are “quite a bit”, “no”, and “we’re all screwed with higher taxes and lower government benefits”.
However, in the long run, it is better to have money than not. OTOH, as mentioned, you can’t do that European vacation as easily when you’re 85, so there’s a moderate balance between spending and saving.
I’m hearing a lot of opinions here that seem to be implying that anyone who has good sense could stay out of debt and save for retirement. Let me paint a picture here.
Imagine you grow up in the 1960s, go to college and get a degree (sensible) have to borrow money to pay for college but expect to pay back the student loan with a well-paying job snagged with this shiny diploma (sensible) but find out that such jobs are a lot harder to come by than you thought. You end up getting a lower-paying job in an unrelated field. Each job requires commuting and the choices are: spend 2 hours round trip per day on a bus for $5 per day or buy yourself a Toyota and do it in 40 minutes for only $8 per day… so you get a car loan. You buy a used car instead of a new one, to save money (sensible). You live in a series of small apartments until someone points out that owning a house is a good investment and has tax advantages whereas renting is just throwing money away, so you borrow more money to buy a house (sensible). In between jobs, you sometimes have to buy groceries with a credit card until you get your next paycheck. So at the age of 35 you have student loans, a car payment, a mortgage, and credit cards. Then one day your boss offers to sell you the business and you think WOW this is great! No more working for the man because I’ll be my own boss. I’ll be an entrepreneur! So you get a business loan from the bank, at the best interest rate you can negotiate. (sensible) Now at age 45 your student loans are paid off and you’re keeping up with your mortgage payments but your credit cards have gotten WORSE because every time something goes wrong at the business you now own, you have to dip into your own pocket to pay for it and there’s no money left over to pay down your credit cards. And as for your car loan… not only do you have a loan against your own car, now you have three loans against three company vehicles. You provide health insurance for your employees but you can’t afford any for yourself because money is tight and it’s more important to make sure the business has the tools it needs and you hope things will get better when the business grows. Now you have kids who want to go off to college but you find out that college costs about TEN TIMES what it did when you went. So you convince your kids to go to a local state school (sensible) and choose a major where they learn a good technical skill (sensible). But you still need to borrow money to pay for college, so you get a home equity loan. It’s either that, or your kids will get jobs that pay less money. Then you have some health problems and your doctor bills are outrageous so you pay for them with credit cards and try to sign up for health insurance but they turn you down because now you have “pre-existing conditions”. Your doctor tells you that you need to stop working 12-hour days so you cut back your own hours and pay your assistant manager more money to take up the slack. Now you’re 60 and you own a business which is barely making a profit, plus a medium-sized house which is worth less money than what you owe thanks to the housing bubble, and you try to sell the business but all the offers you get are for about half what you think it’s worth, hardly more than what you still owe to the bank for your business loan. Finally, at age 66, you hire someone else to be the manager of your business and you retire and start living on Social Security plus whatever tiny profit your business makes. You have no savings at all. You keep hoping that some day your business will improve and you’ll be able to pay off your credit cards. And you keep hoping your kids will have better success than you did but so far they’re struggling to make enough money to pay for a used Toyota.
But you got what you deserved because you are lazy and you have no discipline.
Right?