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Re: Our Ridiculous Approach to Retirement

By: killthecat in ROUND | Recommend this post (0)
Thu, 26 Jul 12 5:58 PM | 33 view(s)
Boardmark this board | De's Test Board 		Msg. 42873 of 45651
(This msg. is a reply to 42869 by Decomposed)
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Thanks De! Tis a grim picture, and getting worse for most Americans. It's almost inconceivable after all the good years baby boomers enjoyed when it was actually difficult to be a complete failure. Then along came Bush, Obama, the Scumbags, and moronic voters. The New Deal changed to Fuck You.

I guess those of us still working into our seventies and on generous pensions haven't seen it closeup.


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The above is a reply to the following message:
Re: Our Ridiculous Approach to Retirement
By: Decomposed in ROUND
Thu, 26 Jul 12 11:54 AM 		Msg. 42869 of 45651

ktc, 

re: "Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts."

and  

re: "Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day."

Here's an article that suggests that those figures are probably about right. 

May 10, 2012
Half Of Americans Are Not Saving For Retirement: Report

"Forty-three percent of all American households are one crisis away from poverty, according to a recent study -- meaning saving for retirement is all but impossible." 

http://www.huffingtonpost.com/2012/05/10/half-of-americans-are-not-saving-for-retirement_n_1507015.html


re: "To maintain living standards into old age we need roughly 20 times our annual income in financial wealth. I know people with far less than 20X who are living quite comfortably on pensions plus social security"

A pension IS financial wealth. And not everyone has one. Retirees who have one should think of it as part of their savings. How do you assign a value to a pension at the time of retirement? What amount of savings could accomplish the same thing as a pension?

The site below provides a financial calculator that will tell us. It determines the amount a person needs to have on hand to produce a desired payment for a given period.

http://www.investopedia.com/calculator/AnnuityPV.aspx#axzz21iDHQ7mB

Let's assume that a person is 60 when retiring. He's married and is planning for another 30 years. That may sound optimistic, but one needs to be optimistic about lifespan (and pessimistic about interest rates) when making retirement plans. It's pretty messed up, after all, to have to go back to work, or live off the children, when you're in your 70s or 80s.

What interest rate should we assume? I think rates will stay low from now on. After all, ZERO PERCENT is the optimal interest rate under Keynesian theory. Keynesians believe the economy as a whole is best off when individuals spend and do not save. I'm going to say 3%.

What does it take "to maintain living standards"? If a household gets by on $100,000 annually at the time of retirement, then that's the living standard.

So, 30 years. 3% interest. $100,000 annually. At the time of retirement, such an annuity is worth... 

$1,960,044.13. 

Almost exactly TWENTY TIMES the spending level (which, I'll grant, is different from the income level.) Which makes the article correct.

Your assumptions might be different. You might figure on 5% interest rates and only 25 years of retirement life. In that case, the value of the pension at the time of retirement is lower. It's just... 

$1,409,394.46. 

Play with the calculator yourself. Plug whatever numbers you think are realistic into it and see what it has to say. Don't get too cheap just to make your point. If retirees think they can get by on $50,000 annually today, that doesn't mean they can do so in twenty years. There IS this annoying little thing called inflation. I believe it will be a greater problem in the future than it was in the past.

In any event, I think it is safe to say that the article's numbers are not "funny," as you put it. Its results depend on the assumptions you make. My 30 year, 3% assumption, validates the article's claim.

More and more, pensions are going the way of the dinosaur, btw. Although your friends are doing well living on theirs, you're mistaken to think of them as typical. An ever growing number of retirees don't have one at all.
 

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