Retirement Stats Are Grim But It Is Never Too Late To Start
Ben Carlson Tweeted the following;
We have looked at countless variations of these statistics and while they are always different they tell the same story which is that we are woefully undersaved for retirement. Keeping the 4% rule in mind (the rule of thumb that says 4% is the optimal withdrawal rate in retirement to avoid running out of money too soon), $80,000 or $100,000 is more of an emergency fund than a retirement fund. There are plenty of factors that could be to blame for being in this state; economic events of the last 20 years, a mismatch between skills needed (coding and other very technical jobs) and skills we have or anything else, I wouldn't push back on anything you could name.
But none of that matters. Regardless of how anyone got to where they are today, where they are today is their reality from which to either get by on or start to build up from.
I've made this point before but it can't be said enough, it is never too late to start. Starting at 45 or 50 or 60 will certainly make it more difficult but you can absolutely make progress toward something of a retirement number.
Conceding that we all have limits in terms how much we earn, need to spend just to pay for a roof and food and other essentials, this is maybe better thought of as the opportunity to catch up. Anyone who is very far behind can hopefully think in terms of how to make changes to what they're now doing, or not doing.
A single earner couple younger than 50 can put up to $36,400 into qualified accounts (maybe more if your self-employed); $18,500 into a 401k, $5500 into a Roth, $5500 into a spousal IRA and $6900 into a Health Savings Account (HSA) and hopefully get a match of some sort for the 401k. If both partners work then the number jumps to $54,900 plus any 401k matches. At 50, most of the numbers go up; $24,500 into a 401k, $6500 into a Roth, $6500 into a spousal IRA and still $6900 into an HSA for a total of $44,400 plus any 401k match and if both work then it increases to $69,400. Finally at 55, the HSA lets you add another $1000/yr until Medicare kicks in at 65.
In theory, starting at 45 for a single earner family and working until 65 could mean saving $858,500 in 20 years plus matching plus whatever price appreciation you think is reasonable. Waiting until 55 to start saving and just working until 65 could be $454,000 plus matches plus price appreciation. Working until 70 could add another $187,500 to the singe earner scenario. Regardless of how much someone told you you needed way back when, you would now have a piece of money that could easily function has a retirement plan.
If you bought a house at a youngish age and paid for that at the expense of saving for retirement, then hopefully somewhere in this age range we're talking about, your house would be paid off. If that happened at 55 and someone could or would work until 70, then that is 15 years of what was the mortgage payment that could go into retirement savings.
Obviously, with enough income you could put money into a taxable account too.
The necessity of this includes whatever might be coming in the way of a hair cut (reduction) to Social Security in the mid 2030's. The exact year this might happen seems to move around a little bit but the reduction being talked about is 23%. There is a long time between now and then and who knows what will happen but no reduction in payouts won't make it worse but a reduction, whether it is 23% or something else, would make it worse and needs to factor in to your planning.
I mentioned above having a mortgage free house at some point which I regularly say is optionality. The optionality could mean serious downsizing for someone needing to add to their savings or some scenario where the could be rented out for a few years like expat living for a few years or some sort of National Park gig that provides lodging or any of the other alternative ideas we have discussed here in the past.
That's the opportunity, if you're behind but can't max out versus those numbers, what can you do? What can you do this year? What about next year and so on? You can only do what you can do but this is an opportunity (I am using that word a lot by design) to solve your own problem. Aside from just plain having to do this, being able to build a retirement plan is a real accomplishment to feel good about.
A favorite quote of mine from Joe Moglia that I mention all the time; no one will care more about your retirement than you.