To feel ‘comfortable,’ Americans think they need... nearly $1.3M for retirement

[marko]

This is one of my biggest complaints about our education system and curriculum. Yeah, retirement is a LONG way off for our high school and college aged population but the earlier we make them aware of the importance of saving the better. Enough with a bunch of the other fluff that's seeped into the modern curriculum, spend at least SOME amount of time on practical adulting skills. </Rant>

Agree. In my (non public) grade school we learned about banking, interest, compounding and such. A lady from the local bank would come in and open savings accounts for us and then once a week, would come back and collect our nickles and bank them for us. (Hello Miss McMann!)

In my (private) high school we had a guy come in every few months from an investment house to talk about general investing, market movements and so on. We even had an investing session every other week where we "invested" play money and tracked our wins and losses.

Sadly, I suspect that the public school system has an extreme aversion to discuss anything of a financial nature.

 

[youbet]

Sadly, I suspect that the public school system has an extreme aversion to discuss anything of a financial nature.

I can speak for one public high school here in the Chicago suburbs. My grandson just finished an online course in "consumer economics" over this past summer. He got academic credit. He showed me the curriculum and we discussed a few items. I thought it looked very good. We then looked at his
Schwab brokerage and Roth accounts (online) and went over some things there focusing on concepts he had learned in class. It was fun for both of us.

Back in the early 90's when my son was in high school (a different high school than my grandson attends), he participated in a class and activities involving practical money management and investing. He won an area-wide contest with his portfolio and got to spend a day at the Chicago Board of Trade shadowing some folks there.

You might be painting with too broad a brush in your comments marko. I don't see "an extreme aversion to discuss anything of a financial nature" in our public schools here. But, of course, that doesn't mean it wasn't like that where you were from.

There's hope I think.......

 

[Midpack]

I can speak for one public high school here in the Chicago suburbs. My grandson just finished an online course in "consumer economics" over this past summer. He got academic credit. He showed me the curriculum and we discussed a few items. I thought it looked very good. We then looked at his
Schwab brokerage and Roth accounts (online) and went over some things there focusing on concepts he had learned in class. It was fun for both of us.

You might be painting with too broad a brush in your comments marko.

I hope you’re right, I always thought some personal finance should be required before one graduates HS. I got ZERO personal finance or econ in HS, but I got both in college - invaluable IME.

 

[Qs Laptop]

What sticks out to me is if you need a $233,000 per yr. salary you better have a LOT more than $1.25 million saved in retirement.

Exactly what I was going to say. Let's extrapolate.

If you are making $233K a year now, you were probably making $150K a year back in 2008. And 15 years before that, in 1993, you would likely have been making $100K. That's figuring that you got 3% - 4% annual raises for the past 30 years, very modest. If you saved 15% of your money in a retirement plan and your money doubles every 8 to 10 years (again, very doable), why don't you have $1.3M saved by now?

 

[marko]

.

You might be painting with too broad a brush in your comments marko. I don't see "an extreme aversion to discuss anything of a financial nature" in our public schools here. But, of course, that doesn't mean it wasn't like that where you were from.

You might be right. I'm just going by what I read in the local papers. We had one parent who was upset because "... schools teaching about money made poor kids feel bad...." or something equally ridiculous. I do hope it's different elsewhere.

Regardless, from personal experience, they're sure not teaching them how to make change for a buck at a register!

 

[HI Bill]

Most people can't fathom what $1MM is. The number is just too large. I was like that back in 2004, until I started working on multi-million dollar cost estimates. I once told a coworker I had $66K in my 401(k), and he said "I was set" for retirement. Most folks have no idea what they'll need, and many don't know how much they spend.

$1.3MM would be great to supplement SS, if you live in a low COL area, or have your house paid off, and are older. Most retire with far less.

 

[HI Bill]

They a public survey user has no clue about needing 25x (4% withdrawal rate) for income is quite sad. More of an indictment of how poorly Joe/Suzy Q public are informed/educated about financial planning for future

+1! Almost everyone I talk to about the "4% Rule" have no idea what I'm talking about. And most haven't really given their retirement plans much thought. The new law requiring automatic enrollment for new employees in 401(k)s is a step in the right direction, (albiet a Nanny state), but you can always decline participation if you plan to die young!

 

[youbet]

Regardless, from personal experience, they're sure not teaching them how to make change for a buck at a register!

Now I sure can't debate that!

 

[badatmath]

Anyone else think the two numbers make no sense together? If you think you need $233,000 a year to be comfortable, don't you need WAY more than $1.27 million in retirement savings?

+1

 

[LateToFIRE]

It’s not about actual percentiles.

I am familiar with quite a few that make those 250-450k income. Many of them do not LBYM and live close to paycheck by paycheck.

I suspect those save proportionally to income just as badly as those at 100k or 50k. USA does not LBYM and save

Sadly, you're right about a lot of high income families living paycheck to paycheck. I have a couple of vantage points:

1) Can confirm a VHCOL big-city lifestyle will eat up that kinda paycheck faster than most people can imagine.

I got lucky on three fronts:

(1A) DW was raised by super-frugal savers, is super-intentional with money, and hit me upside the head early in our marriage and I became a real believer in LBYM. Before that I only understood hand to mouth - that's all I saw growing up.

(1B) My earnings could be wildly volatile due to incentive pay (bonus, commission, options, RSU's) and pot'l job loss was ever-present in a perform or out kinda environment, so we were always pessimistic about chances for a bad year and always under-budgeted. As a result, we did not need and could bank the surplus in good (i.e. windfall) years.

(1C) By investing early in income r.e. was able to participate in the upside of skyrocketing housing inflation.

plus,

2) As a landlord, I get to see a lot of people's finances, I'm talkin well-educated, high-income professionals, and ohhh boy, what a scary mess. Often falls to me, when screening potential tenants to tell people "you cannot afford this".

 

[LateToFIRE]

They a public survey user has no clue about needing 25x (4% withdrawal rate) for income is quite sad. More of an indictment of how poorly Joe/Suzy Q public are informed/educated about financial planning for future

Amazing isn't it. We take for granted how much the public understands (i.e. does not understand) this stuff. I've been a manager for a couple decades now, and might be overstepping my boundaries, but with young people always ask "are you contributing the max to your 401K".

So, 100% of the time, I get a proud response like "oh yeh boss dude, I'm contributing right up to the minimum level needed to get the company match" as if they are thinking oh how savvy they are (must be something they all read on Reddit or something).

So, I usually say something like "well, that's nice [not wanting to hurt anybody's feelings and all] but you gotta do more than that".

To which I would get howling protests, like "OMG, no, I won't have enough to live on, the city is so expensive, rent is so high, blah blah blah"

I would then point out that its before tax dollars [this in the pre-Roth 401k era] and after-tax they're not going to notice, and they'll get used to it, and maybe its going to equate to slightly fewer $30 martinis. And we run the math and I show them, to which they will finally nod in agreement.

Started doing this 20-odd years ago - a couple of them have told me how life changing this simple realization of the power of compounding wealth has been for them.

 

[old medic]

"To feel ‘comfortable,’ Americans think they need a $233,000 salary and nearly $1.3 million for retirement."

We grossed barely over 6 digits the last few years before I retired and thought we was high on the hog...

 

[dunkelblau]

What people are commenting is that the two numbers do not make sense as a mathematical reality. What the statistics you quoted about peoples' current situations say is that most people fail to understand that mathematical reality.

Is the mathematical reality you're alluding to Fidelity's "10x final salary" requirement? If so, then yes, the 233k annual income should equate to a 2.33M nest egg, and the 1.3M would be short by almost half.

Perhaps people are assuming that their expenses will shrink dramatically after retirement? Big hitters such as income taxes should be much lower, the mortgage is hopefully paid off, and children are no longer financially dependent. Perhaps a small pension together with social security covers basic living expenses, so an annual 4% SWR on a $1.3M retirement stash is enough to be comfortable?

Anyway I would find the notion that the top decile of American retirees is not meeting the financial threshold of "comfortable" hard to believe.

 

[madatrub]

These were 2 separate surveys, completed at separate times, to separate groups of people.

About the only thing it shows is that 2 separate groups have two entirely different concepts of things...Hence "Feel".

 

[rodi]

I would *feel* very comfortable with income of $233k/year. I never had it - even with two professional incomes (hubby was an architect, I was an engineer.) We live on a lot less than that in retirement. With $233k/year I would be saving at least $100k/year.... so even if I started at zero, I'd have the 1.27M for retirement pretty quickly. (12 years).

I think the 1.27M comes from people who
* assume they will work till at least 65. So a shorter retirement than those of us who early retired.
* haven't investigated how much SS they will get.

Most couples will do fine (comfortable) with 1.27M and SS if they retire after Medicare kicks in and they have a small or no mortgage.

 

[Andre1969]

I thought it was interesting how close the salary and savings numbers were, for these respondents to be "comfortable."

If I had a $233K/yr salary, I'm sure I'd feel VERY comfortable. Maybe rich, even. However, if I only had around $1.3M saved up, I definitely wouldn't feel comfortable about it.

Maybe though, the typical person with a $233K/yr salary tends to live a bit more high on the hog then I do.

Of course, it all depends on your age, lifestyle, where you live, how long you think you need to make that nest egg last, how much SS/pension you're destined to receive when you retire, etc.

 

[5Miler]

I think you have to look at the $1.27M in retirement savings through the lens of the average person. The average salary in the US is around $75K. Taking 4% of the $1.27M that would be $50,800 per year. Average SS income of $1,701 per person or $20,412 per year making an annual income of $71,212. Add in 50% spousal SS of $10,206 to another $20,412 for working spouse SS you are hitting $80K to $90K retirement income.

Those numbers may not work for some on this board but most of my extended family would stomp all over you in their rush to get to that retirement paycheck.

 

[bada bing]

Maybe though, the typical person with a $233K/yr salary tends to live a bit more high on the hog then I do.

If you read statistics reported in the common "retirement crisis" media articles, it appears that the majority have an uncanny knack for matching current consumption to current income. It doesn't appear to matter much whether you're looking at the $250K/year cohort or the $60K/year cohort, most are able to match spending to income pretty closely.

I used to talk to younger co-workers about pretending they made $100K/year when they actually made ~$175K and saving the difference. I'd point out that when combined with their wife's ~$50K, that they'd still be living on twice the national median family income. They'd look at me like I was nuts and say that it would never, ever fly at home.

Getting financially "comfortable" isn't a high priority for many people.

 

[marko]

If you read statistics reported in the common "retirement crisis" media articles, it appears that the majority have an uncanny knack for matching current consumption to current income. It doesn't appear to matter much whether you're looking at the $250K/year cohort or the $60K/year cohort, most are able to match spending to income pretty closely.
.

True, but for most people what choice do they have? More of a survival strategy than a "knack" IMO. Of course, there are those who don't align their spending with income, but eventually reality catches up with them and the forces of nature guide them into compliance.

 

[DrRoy]

I felt comfortable with about 60% of that income, but needed rather more retirement savings for it.

 

[Time2]

It appears that the majority have an uncanny knack for matching current consumption to current income.

That's a great line, I'm stealing it!

True, but for most people what choice do they have?

Not sure I understand that. Most have the choice to LBYMs.
Yes, if household income is $20k saving is difficult, but median household income is over $75k. At least half of households could spend less then they earn.

 

[FindingForward]

We're circling the same ideas - I think you're generously attributing the problem to people's lack of awareness, and I'm somewhat less generously attributing it to avoidance of reality. Somewhere in here this whole thing is wrapped up in structural and societal forces working against people having good knowledge, discipline, and resources.

Personal opinion: no cardboard boxes or overpasses will be necessary for those who failed to plan. The folks who worked hard; LBYM'd responsibly for decades and have amassed healthy savings as a result are ripe for the picking: they'll likely be tapped more and more in the decades ahead to support those who YOLO'd through life.

It'll likely come via new and higher taxes to fund more financial support for food, healthcare, utilities, rent and loan forgiveness. Not getting into politics here: i.e., whether one agrees or not. Just observing that it often happens that way.

 

[Rianne]

I've learned on this forum, AA has everything to do with whether or not $1.3M is enough for ER. In 2023, you start ER with $1.3M, say 50/50. How much is that portfolio going to earn for you? We won't WD from ours until next year, maybe 2025 (I'm using just our VG portfolio as an example). We have iBonds from 2003, and some cash that will hold us over. We reinvest our dividends.

Our VG portfolio has earned YTD (IRR) >$250K with an AA of 45/55. One year IRR >$223. The 2020 balance was $1.6M. Granted, we took the pension buyout which helped but the IRR is how to determine if your money is making money for you.

 

[dunkelblau]

I would *feel* very comfortable with income of $233k/year. I never had it - even with two professional incomes (hubby was an architect, I was an engineer.) We live on a lot less than that in retirement. With $233k/year I would be saving at least $100k/year.... so even if I started at zero, I'd have the 1.27M for retirement pretty quickly. (12 years).

I think the 1.27M comes from people who
* assume they will work till at least 65. So a shorter retirement than those of us who early retired.
* haven't investigated how much SS they will get.

Most couples will do fine (comfortable) with 1.27M and SS if they retire after Medicare kicks in and they have a small or no mortgage.

That would be a sustained gross savings rate of 43% which I suspect is way above the reach of all but the highest-earning households. How about a more typical gross retirement savings rate of 10%? If your final salary is 233k, and assuming your 401k is fully invested in stocks that returned 6% real, and your salary growth averaged 2% above inflation, then your 30-year-old 401k should be worth about $1.3M. You'd expect more if your employer matched your contributions, but I suspect most of these higher-paid jobs also averaged >2%/yr salary growth, so it's a wash.

Based on these numbers I don't see a major disconnect between a 233k final salary and 1.3M in retirement savings where both are quoted in the same dollars.

 

[ejman]

"Feel" is useless for almost anything.

Dunno. some things in life "feel" pretty darn good and it's rather difficult to quantify them. But I agree, when it comes to finances "feel" doesn't generally cut it.