Preparing for the End

Preparing for the End:

The NYT is considering how you can offset the failure of Social Security. I find myself shaking my head in amazement as I read the piece.

AT 35 YEARS OLD At this stage, our couple are earning $120,000 ($60,000 each) and they have $75,000 in total retirement savings. But to make up for the decline in Social Security benefits, they need to save about $84,474 above and beyond what they are already saving before they retire. We assume they save the extra money in a taxable account that allows for easy access, because they are already saving 10 percent or more of their total income in a 401(k). That extra money saved is equivalent to about a 7.8 percent increase in total retirement savings, across all accounts. This also means they’ll have less discretionary income — about 9.4 percent less to be exact — to spend each year, over the course of their lives.

Wow, that's really going to be hard -- but with a bit of belt-tightening, everything will be just fine. Assuming, of course, that your household earns $120,000 a year from age 35. Only seventeen percent of households are in that range; and as peak earning years are later in life, mostly they won't be young couples.

Oh, they also need to have $75,000 in retirement savings already. That's about three and a half times as much as the average 35-year old. Assuming both of them have the average in savings, that gets you a little more than halfway to $75K.

How about some more reasonable estimates? Let's say they earn half what you're projecting, and have more average salaries. Now, to follow the NYT's easy math, they only need to find a way to almost double their combined savings this year, and then they need to save at a far greater rate (with half the money, and much less disposable income).

Assuming they can't do that, they need to expect they won't be retiring -- not at 67, and probably not ever. If they have jobs, they'd better keep them!