Silly question about retirement savings

[Poddi]

I've been pondering about retirement savings lately and just can't figure out one thing. OK if you look around for expert advices on how much to save they all say something like at least a million, up to 2 - 3 mils. Yet if you do some research for average retirement fund people saved, right before they retire, it's like 70k. It's such a big gap between 70k and 2 millions. Are those "experts" advices too out of reach for regular people? Is it more like a dream vs. reality thing?

We're talking about 70k vs. 2000k here, yet they estimate that 40% of the people aren't saving enough for retirement. Well, I don't get how that math work.

[zebra15]

What that tells you is most people do NOT have enough saved for retirement. Some numbers only use IRA and dedicated retirement accounts, other sources will use total assets. Some people will include social security. What I learned along time ago is "savings" is a word that has many definations and interpations.

[KatieBonita]

Rather than get too hung up about the advice, and what other people do, I think about it this way - what do I want to live off?

If I'm used to an income of $40k/year, I'm probably not going to want that to go down when I retire. I won't have work expenses but I'll have more fun expenses, and probably more medical expenses and eventually some at home help and that sort of thing.

I like to assume a 5% return because that's pretty safe.

So I would need an investment of $800,000 before I could consider retiring. The other thing to keep in mind is inflation, because $40k in today's money is definitely not $40k in 50 years time. So you want to be able to feed enough to cover inflation back into the investment. I like http://www.inflationdata.com/inflati...inflation.aspx

[Poddi]

I do understand that what the "average" is has little to do with my personal needs. I just don't understand the math there. Does it mean most people have to drastically reduce their expenses (like living on 25% instead of 70%) after retirement? Or is the social security a lot more generous than I thought? Or maybe lots of them still have reliable company pensions? People gotta eat and pay for utilities and property tax, what kind of income can you get from 70K?

[Jadzia]

Well I can think of a few reasons why current retirees haven't saved what we are recommended to:

People are living much longer - many people live to 90 and beyond now. So if you retire at 65, you need to make your money last that much longer.

Pensions - My parent's generation often had pensions from jobs. This is becoming rare for our generation, so we need to save that much more than our parents did.

Social Security solvency - many people wonder if SS will still be around in 25/30 years, so that is another reason to save more.

[Tuesday]

I ponder the same thing, Poddi. I used to work for a mutual fund company that promoted the idea of saving millions for a picture-perfect retirement. I realize the math behind those $1-2 million figures. But IMO realistically the only people who can put away that sort of $$$ are earning big dollars and living frugally. Our 4 person family lives frugally, pretty much paycheque to paycheque, on one income. While we do have RRSPs, there is absolutely no way on this earth we will even remotely save enough to hit even 25 percent of the target recommended.

I find those articles admonishing people (Canadians in this instance) for not saving enough sickening. It's one thing when you're earning huge income and squandering it, but most people I know are hard working, frugal and just taxed out of their mind in this country - there isn't a lot left over to put in retirement savings. This is where my SAHM position seems scary too - no income, no CPP, ?

[SeekingJoy]

There is a huge difference, like the pp wrote, between the assets needed to retire with a pension vs without. For example, my MIL will retire within 5 years with less than $100k in savings. BUT, she will have an income close to being equal with her current income because of her pensions and SSI.

For DH and I to retire to a similar middle-class lifestyle, we will have to save $1million +, which probably won't happen.

[JamieCatheryn]

We're supposed to put away like 10% of what DH makes I think. We actually put in 3% doubled with employer matching, still chipping away at some debts. Not tracking to get that million they say we should just yet. Who knows what a million dollars will mean then anyway. Money is so up in the air...my retirement plan for us involves chickens and apples and asparagus, I know what those mean both today and in 40 years.

[cschick]

When my ILs retired, they both had pensions, and my FIL had a health care plan (full, covered health care until Medicare kicked in, supplemental after). My parents will have access to similar types of plans--even though their most recent jobs haven't offered them, they had jobs from the middle 70s up through the early 90s that gave them access to such benefits that they are still guaranteed.

That allows you to save less for retirement. My grandparents retired on my grandfather's pension and both their social security with some investments in addition, and they're still living frugally but well on that money in their late 80s.

The only company I ever worked at that had a pension plan gave you access to the pension plan after 5 years of working there, I worked there only 3 years. My husband had access to a pension plan when he started working, but a couple of years into his position at that company they basically liquidated the pension plan for employees who had started after a particular date (which was long before he started working there). So, we are not going to have access to those types of retirement funds should we ever be able to retire.

[its_betty]

As I understand it:
Larger amounts of retirement savings will also allow you to live on the interest earned, and not have to spend the principal that you have saved (so you can pass it along to your very lucky kids). Yes, you need to take mandatory withdrawals from some types of retirement accounts, but you could always take the $$ out and buy stocks and bonds or other investments.

If you have $1 Million saved and invested, and earn 5% interest on it yearly, you can take out $50,000 a year without touching the principal. Nice! (OTOH, if you have it all in stocks and your stocks tank...yikes! That's why retirees should have less risky investments.)