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Retirement Planning for Gen X

JestJack replies to Wednesday’s post, in which I held forth on the new formal budget and revealed how much I need to live as a retireee in nominally “middle class” but in fact pretty modest circumstances.

The sad thing is I see no glaring evidence of living beyond one’s means in your or my lifestyle for that matter. But yet I seem to get the feeling you feel, like me, that you are “living on the edge” despite a pretty nice “safety net” to fall back on. I share your concerns on many levels. With poor returns on savings it seems the Fed in their efforts to prop up the economy are doing so at the expense of “savers” …i.e…..seniors. As you aptly point out, there is no substitute for “a paid for home”….that peace of mind is priceless. BUT today’s environment is very tempting. I can borrow money in the form of a mortgage for 10 years at 2.25% with no points and may even get some help with closing for the effort. I just wonder sometimes how folks WITH rent, a car payment, cell phone bills, student loans, utilities and child care make it….

The answer is, of course, that they can’t: not without a decently paid full-time job and a side gig or two.

I’m sure JestJack and I are looking through the same lens that confounded our parents at retirement age: inflation. Though it’s not nearly as rampant as it was during the 1970s, inflation will never go away. So to minds like ours, thirty grand a year looks like a LOT of money. The realization that one can barely get by on it — and only if one doesn’t have a house or car payment — is startling.

And it’s horrifying to understand that one’s “real” income — $14,400 in Social Security benefits — is well below the poverty line. Drawing down from a finite amount of savings is not creating “income”: it’s just using up your resources until such time as no more resources remain.

Thirty thousand dollars — the net amount I need to live on, not the amount I can, realistically, afford to disburse from my funds (assuming my doc’ is right that I’ll live into my 90s — or even if I make it to my early 80s), is untenable. If the entire gross RMD from my savings is consumed by taxes and living expenses each year, in 20 years I will be utterly destitute: I will have nothing left to live on but Social Security.

“Twenty years” assumes I don’t get warehoused in a nursing home, which will eat up $4,000 to $6,000 a month. That will impoverish me a whole lot sooner.

For anyone in their right mind, this represents a HUGE psychological disconnect. If you are a young person, it means the amount you will need to support you in comfort through retirement is far more than you can realistically expect to earn and save over your lifetime.

Net Social Security — $14,400 — is nothing like enough to live in a safe neighborhood, with decent food, adequate clothing, and independent transportation.

It’s poverty level.

Yet it’s almost $2,500 more than my boyfriend in college regarded as the income he hoped to have when he was “set”: a target he figured would support him and a family quite comfortably (at a time when most women didn’t work). I can remember young men, including my young lawyer husband, remarking that they would have “arrived” when they could earn $12,000 a year. Twelve grand in 1969 would be worth $78,551.28 today.

In that light, the numbers we’re looking at in Wednesday’s post don’t compute.

Even an income of twice what a young man in 1969 regarded as comfortable affluence would support a retiree, today, just barely. It might not support two people at all. Certainly not in middle-class circumstances.

If I were going to advise young people planning, very long-term, for retirement, I’d say “Figure out what you think you’ll need per year, and then multiply that figure by three. That’s how much you’ll need as a net annual drawdown from retirement savings, since there’s a good chance the Republicans will cut Social Security or make it go away.”

So. If a man in his late 30s thinks he’ll need $30,000 a year, exclusive of Social Security, to live in the splendor I enjoy just now, then in another 30 years, he should figure he’ll need enough to DRAW DOWN at least $90,000 net per year.

Gross, that’s probably about $100,000 per year, after taxes and Medicare. Let’s say he retires at 70 and he hopes to make it to about 90.

Let’s suppose Social Security survives and increases with inflation. In 2046, my $14,400 net annual Social Security benefit will have bloated to $30,205. That leaves “only” $69,800/year for our Nimrod to come up with by way of keeping a roof over his head in retirement. To maintain that between retirement at age 70 and death at age 90, he’ll need $1,396,000 in savings at the time he quits or is forced out of his job.

That’s a bare minimum. It means…

No eating out in restaurants
No travel
No entertainment that costs anything
Purchasing all clothing in second-hand stores
Purchasing any needed furniture or household appliances second-hand
No car purchases
No mortgage payments
Not even cable TV or a cell phone

And that figure doesn’t account for inflation over the 20 years of his retirement.

To retire in what most Americans regard as near poverty, today’s young men and women will need almost $1.4 million in savings. In cash dollars.

That’s assuming they plan to leave nothing to their children.

3 thoughts on “Retirement Planning for Gen X”

  1. Ah retirement planning. I’m 26 and started maxing out my retirement accounts when I started working at 22. My husband makes fun of me and says we will never use that money since we will die early. I say back, you might be dead, but I will still be alive. It’s an ongoing tease of his…sometimes it gets annoying, but I’m still saving.

    Thinking about retirement can be quite stressful. My parents will have no retirement. Low income immigrants. Their retirement will be on my brother and I. My mom is 46, so she has a long life to live and is a stay at home wife. And my dad is in his late 50s and healthy. My dad is the earner, so he is too old to stop bringing income, the money will stop. So by my calculations, my brother and I will have to start supporting them in about 10 years. It might be a little later, but always plan for the worst.

    It’s scary to think about it. Because if we do decide to have kids (which honestly not sure), we will be financially supporting two generations.

    Reality – probably no early retirement for me. I will be working for a long time. And it’s not because I spent all my money away. (My husband’s parents are spend upper middle income earners). No it’s the opposite. I’ve been thrifty and a saver (it’s in my DNA). Oh well…gotta keep saving and investing.

    • Hmmm… Have you thought about quietly investing something for them? You might be able to create an IRA for them — I was able to start a Roth IRA for my son when he first started working…so why wouldn’t you be able to go the opposite direction and create one for a parent? Every little bit helps, under these circumstances. Ask around.

      Also you might want to look into estate planning that keeps them in YOUR inheritance picture, just in case (god forfend) something happens to you or your brother before they pass. A good life insurance policy, for example?

      • Yes and no. I am definitely guiding my brother in his own personal financial journey. I need him to do well in life, since he and I will be taking care of my parents. He is 19 and has a ROTH IRA. It’s small, but it’s a start 🙂
        As far as my parents, I am careful. My mom (maybe because of where she’s from originally? Lack of technology education? Believes everything the news station says?) has a distrust in banks, credit cards, you name it. So she doesn’t have a credit card, they buy everything in cash, etc. I’m slowly making progress…Maybe in a couple of years?

        I am also nudging my mom to get a job, even if it’s part time at a library etc. She honestly needs something else to focus since she doesn’t have kids and it will benefit her with a little bit of income. But she is really stubborn. Most people think my mom is young. After all, I think she’s young at 46, but sadly she’s an 80 year old in a 46 year old body. I’m not kidding. I always ask her in what century was she raised in? She has the mentality that my dad should be paying the bills. It’s old school. And once my dad is no longer there, we will take over.

        I don’t think she realizes the stress and responsibility that her own personal life will take on her kids.

        Here I am rambling. I admire your tenacity and how you manage to pull it together.

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