Retirement Myths

[REWahoo]

Robert Powell has an article “Separating Fact from Fiction: Ten Retirement Myths and the Facts that Dispel Them” on Marketwatch.com. It's the usual mass-media retirement advice, but I found one item noteworthy:

Myth: Given the trends in retirement income, people will have to work until they drop.

Reality: Working to age 67 -- and not drawing income from Social Security or 401(k)s -- would allow most people to have a secure retirement, says Boston College.

That may be true for half of working Americans. But the other half -- due to some sort of shock -- will not be able to work until they are 67.

Although I’m preaching to the choir, there is a warning here for those who love their jobs and don’t ever want to retire. Better work toward FI even if you don’t plan to RE.

 

[tryan]

Was surprised by:

Myth: It's too hard to save enough for retirement.

Reality: If workers consistently set aside 6% of their paychecks (with a 3% employer match), invest prudently and leave the money alone, they should have enough.

6% saving is lame.

 

[azanon]

If they start in mid 20s and work till 67, that'd be more than enough.   Try compounding 9% of a decent salary for 42 years (67-25) at 9% IRR in a tax free IRA, and see what kind of nest egg you come up with.  I'll tell you right now, it will be a large figure.

Remember, most people do intend to work while they're young.

Now i dont want to work until even 60, so i save more than that.

 

[eyenitnoy]

If they start in mid 20s and work till 67, that'd be more than enough.   Try compounding 9% of a decent salary for 42 years (67-25) at 9% IRR in a tax free IRA, and see what kind of nest egg you come up with.  I'll tell you right now, it will be a large figure.

Remember, most people do intend to work while they're young.

Now i dont want to work until even 60, so i save more than that.   

Hello Azanon:

     First off, I am a new guy here and I should say hello.  It is nice to meet you here in cyberspace and I look forward to participating, to some small degree, here on these boards.  In terms of these nest egg calculations, those of the young saver and the later saver, there is one thing that always kind of bugs me.  When one takes a person, say the 20 year old who starts saving $2,000 per year, or some percent of salary, and plugs in these compound numbers, most of the final nest egg amounts comes from the compounding at the end of the (in this case) 47 years of compounding.  If the last few years of the compounding cycle happen to be down years on one's investments, then a very different and much smaller number is the result.  And it can happen as you are well aware.

     Perhaps I am just nit-picking to a degree.  Of course, starting young is better than starting older when it comes to saving.  Heck, just the fact that someone is saving any money, whatever that percent may be,  makes them different from most people.  My concern from these models, however, is that they can lead the unwary to make a very bad conclusion.  It is one of the "Big Mistakes" that I worry about making in my own financial plan.  This big mistake, in my humble opinion, is that saving a relatively small amount of one's paycheck-and I agree with Tryan that 6% is, well, lame and I don't think 9% is much better-will be enough.  I also shudder at the though of working at the daily grind until I am 67 but that is another matter altogether.  My own thoughts are that the percentage of income saved needs to be much higher and that models using just compound interest are very misleading and dangerous in that they can give false assurance to the unwary that they are saving enough when in fact they are not.  But these are just my thoughts on the matter-I am not trying to rock the boat here or be a "know it all"-and I am by no means an expert. 

     I just thought I would chime in here with a comment.  Again, it is nice to make your aquaintance.  Have a great day.

Best Regards,
eye


edit-Oops, I forgot to mention to REWahoo-nice link. Thanks for the article. Oh, and I sure hope that I am in the half of people shocked into retirement before the age of 67! Take Care.

 

[justin]

6% savings plus 3% company match will do pretty good if done for 42 years (age 25-67). Using Azanon's assumptions and further assuming 3% inflation and 3% growth in wages on a $40,000 salary, one would have $2,214,237 upon retirement at age 67, or $639,824 in 2006 dollars. Using the 4% rule, that would produce $25,592 in annual income in retirement. Add in social security (probably $15000+ per year, and you have an amount greater than the salary while working.

Assuming the person also paid off their house over the course of 42 years (do people do that anymore?), there expenses might be less as well.

Overall, 6% looks like a good savings number IF you don't mind working till age 67.

 

[maddythebeagle]

I thought that was the general guidance....saving 10% towards retirement...to retire at normal retirement age. I know folks here save a lot more (many over 40%) to get out earlier.