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)?