My retirement hypothesis …

I’ve said it before, and I’ll say it again, I think that personal finance in America is broken.

I say it’s broken because advice is being doled out without any qualification: work hard, be frugal, save hard and …

… and, what?

If you start after college, you’ll work 20+ (probably, 40+) years, and you will aim to retire on what kind of income?

Let’s take a quick look at Bristol’s case again; he is 23 years old yet: he already has a stable job; he invests in his 401k up to his company’s match%; he has $20k (split evenly between a savings account and some blue chip stocks).

He has run a few numbers through the CNN retirement calculator and realizes that, by age 55, he would need $5.9 mill. ($2.2 mill. in todays dollars) to “spend retirement happily”.

After some discussion, and more analysis, Bristol came to the conclusion that this is impossible on an 8% assumed after tax return.

Now, one of Bristol’s assumptions – and, one that I am guilty of supporting – is that he would need a minimum of $90k annual salary (today’s dollars) in retirement.

But, is that the case?

I can’t speak for Bristol – I don’t know how he came up with the $90k p.a. figure (hence, the $2.2 mill. today’s dollars nest egg requirement). And, maybe my view is skewed because we – and almost everybody that we know – need a LOT more than $90k a year in retirement (we’re budgeting for our current run rate of $250k – $350k per year to continue)?

So, do you think it’s acceptable to work for 20 to 40 years, be frugal, save hard, yet aim for less (keeping in mind the need to help support an adult family, partner, lifestyle, health … without any guarantees of government handouts and safety nets still being in place by then)?

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14 thoughts on “My retirement hypothesis …

  1. I think the real problem is that people think that retirement is a given, or even desirable.

    If you enjoy your work, there is no need to ever retire – except when you are no longer physically able, which is certainly much later than 60 for most people.

    I don’t ever plan to “retire”. I will have side businesses, real estate investments, etc my whole life.

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  3. I’m not sure where these numbers come from but I work with plenty of people who got good educations, worked for good companies, and have excellent retirements. They have nice homes, vacation homes etc. They enjoyed life while they worked, raised families and the kids went to good schools. In retirement these people are traveling, eating well and enjoying life. I’m not saying they are Warren Buffett rich but in the important things in life they are definitely rich.
    If Bristol has a good job, knows how to save and handle a credit card and works hard at his job he will do fine. Enjoy life.

  4. I agree with Chris. The thought of having nothing to do but sit in front of the television or the computer all day and waste away would make me jump the window or something after doing it a month, lol. 😉

    Imagine if all the great composers, painters or other masters had just set themselves “out to pasture” at 65 and didn’t create or contribute anything more but sit at home and “retire”. Thank goodness they didn’t and continued to create more masterpieces.

    Recently, I saw the movies “Grand Torino” and realized that Clint Eastwood wrote and directed that movie in addition to being the star of it….and he’s in his mid 80’s….what a great film and i’m really happy Clint didn’t decide to go sit in a chair somewhere the past 20 something years watching the world go by…he’s still out there living the dream, working, creating, doing what he loves and making a killing at it.

    I’m so glad he is too, I will hate to see him go and no longer get to enjoy any new work by him!

  5. @ Chris – Aaah, the optimism of the young …

    Tell me in another 20 years if you still want to be doing what you’re doing today 😉

    Seriously, though, I do the same thing post-retirement that I did in retirement: business + investing … but, I do them very differently (less hands on, more what I want, less concern about what brings the $$$ in).

    Having said that, I’ve really come out of retirement to do 2 property development projects and work hands-on in a new startup. Not sure I’ll repeat those ‘mistakes’ in the future 🙂

    PS Thanks for the mention in your weekly roundup!

    @ Scott – I think Clint is a great example. He’s not retired, and doesn’t pretend to me, doesn’t want to be … but, he doesn’t HAVE to do it, either 😉

  6. Of course it matters quite a bit. The reason you look forward to retirement in the first place is so you don’t have to continue working. Hence the word have to. If you have to(to earn money to pay bills or buy the food) as you said, its not really retirement.
    This is the reason , at least I hope it is, that we are all following you here. Because no one here wants to (have to work) till they drop in order to pay those bills or buy that food, or go on that vacation.

  7. “Hence the word have to”

    @ Steve – Retirement = Life Without ‘Have To’. Nicely said!

  8. While I agree that the work hard for 40 years, save and invest conservatively and then retire at 60+ is sub-optimal, the stark reality is that it represents a significant improvement for most people who simply fail to adequately set themselves up for retirement at any age.

    Aiming low is better than not aiming at all.

  9. hehe, but that’s the very reason why Clint doesn’t “have” to. He chose work that he loved and activily persued it and obviously saved a tremendous amount of the money he earned and built wealth with it so that he continues to not have to do it for money anymore(even though the balance of it is that you make MORE money than you other wise would, because you do enjoy it).

    “We are at our very best, and we are happiest, when we are fully
    engaged in work we enjoy on the journey toward the goal we’ve established for ourselves. It gives meaning to our time off and comfort to our sleep. It makes everything else in life so wonderful, so worthwhile.”

    — Earl Nightingale

  10. Of course I don’t want to be doing what I’m doing right now in 20 years. I’m not a full-fledged Entrepreneur yet. But once I am, then yea – I will want to. Maybe not the exact same thing in the exact same way, but that’s not really the point.

  11. No it is not acceptable! the 20-40 year timeline is a given. the moment I was able to work 16yr old p/t I started to plan for retirement. 90k would be enough somewhere on this planet. Does bristol have the courage to seek that place out?

  12. AJC,

    You kind of hint that it is an American problem. Do you really believe that? You obviously have the experience of Australia…is it the same there?

  13. @ Evan – Nope, just as broken here. I usually write for the (much larger) American audience just so I don’t get my ‘colors’ and ‘colours’ confused 😉

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