The fallacy of 70% for Retirement
Last week I put together an epic post that strongly advocated for a retirement system that includes three parts to be fully stable: Defined Contribution (401K), Defined Benefit (Pension) and Federal redistribution through Social Security(SSI).
While I was writing it the thought came to my mind to discuss the actual financial needs in retirement, but the article was getting long and I didn’t really want to extend it. That being said the idea of what your retirement target should be is definitely worthy of discussion.
If you look at the numbers in the article, he combined income between social security and 401K (the current retirement program adopted by most professional individual contributors), while lower than the working salary did come close to or exceed the 70% margin that most financial planners say you need in retirement. The theory goes that you use less gas, there is less wear and tear on your vehicle, and kids are out of the house so you need less groceries. Since your not working you don’t need to buy work clothing and there is obviously no more need to invest for retirement because your on the collection side of that equation. The list goes on and on like that.
There is another element that You need more money in retirement because of the continuing degradation of the quality of life. Not for the retiree, but for the rest of the population. Let’s be honest here, the majority of the population has children or wants to have some (only 6% don’t or do not want to have them). These kids are growing up in a world where there is a greater schism between the haves and have nots. Divorce rates are skyrocketing, families are boomeranging, professionals are being killed by student loan debt and who knows how that bubble will burst. Who is picking up this slack? Guess what buddy, that retirement check is not looking so big anymore. Also, good luck downsizing the house if some of the kids have to come back home. Infact if you want some sanity, maybe you have to build something on your property or buy something near by.
Healthcare continues to spiral, including assisted living costs. Who knows when that is going to get realigned? Again, it’s not just about the aging professional, but all this amazing healthcare is buying us parents that are living longer and longer, and someone has to take care of them . Welcome to the sandwich generation.
So our kids are living back at home paying off their own student loans because demand for education is going up as the world gets more complex. Someone has to help pay for the grand kids education because Jr. is too busy paying off his own student loans. Hey Grandpa, you got a good retirement don’t you?
One of the big issues I write about in the book is about how personal time off is basically sucked up by a huge chunk of the percentage of the population having to use that time to reconnect with family that live in different parts of the world. The days of everyone living on the same block or in the same metro area are long gone. We are forced to relocate all over the country and sometimes the world to get jobs. So going back home it’s sucking up our time. If productivity is pulling people away from their homes to move to the cities… then guess what the retired grandma and grandpa want to do… travel. Last time I checked, it’s not inexpensive to travel.
Did you have a bucket list? I do. I want to see the terracotta warriors in China and attend a tea ceremony and see a geisha perform in Kyoto. I want to travel Europe. Then there are all those projects that have been rolling around my head. I want to make a video game, I want to film a movie, and I want a synchronized light show in my backyard (Yes, anyone who knows me will tell you i’m odd). These are mine but most people have some that are just as grand. In theory, retirement is the time to go do these things. The point for this post is that all these bucket list items cost money. You really need to have a good retirement income to achieve your bucket list items let alone taking up the slack for the rest of the challenges facing the former and latter generations.
Retirement, a concept that didn’t exist a little over a century ago was purposefully sold as the ‘golden years’ to meet the needs of the Industrial Age. Nearly every culture in the world believes that one of the benefits of life is a time at the end to do all those things we dreamed of doing. I’m thinking it’s more the copper years, because if we only achieve that 70% of our working income in retirement, then all that income will go to pick up the slack of those we are connected to, then there will only be pennies left to do the things we want to do.
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