Ultimately It Comes Down To Accountability


The Pension Pulse Blog took kind of a deep dive into the current state of the US' retirement mess with some of the grimmest numbers that I have seen as captured in this chart;

I have no idea about the preciseness of these numbers but there is no question that we are woefully undersaved and for as long as we've been talking about it, it doesn't seem like meaningful progress has been made.

The article frames out a couple of numbers that might be familiar which is that the average Social Security check is $1470/mo and that the average household spends $3900/mo on "basics" which leaves a gap of $2430 that needs to come from somewhere, presumably from accumulated retirement savings. Using the 4% rule (a 4% withdrawal rate is generally accepted as being a sustainable amount to withdraw without outliving your money), the numbers imply needing $729,000 to cover $2430/mo. I can't imagine a reasonable scenario where the median retirement savings get up to $729,000.

Ok, so the numbers are something that people will need to address (many ways to do this) but the article then takes a turn that I think is dreadful. Monique Morrissey from the the Economic Policy Institute is quoted as saying “The system is designed to make people feel bad about themselves — everyone privately thinks that they’re screwing up. And yet if everyone is screwing up, then it’s clearly a system flaw.” She is also quoted as saying that saving enough is “overwhelmingly impossible to do and people give up." There are also a couple of jabs at capitalism thrown in too. There might be an access issue, where many people don't have a 401k for whatever reason but anyone can open an IRA and start to put money into it. Even if someone doesn't know exactly how to open an IRA, they can Google it, find a company they have heard of, open an account online, connect their bank account and make contributions. This is simply a problem to solve, and solving it doesn't take that much time.

Even if we concede every way in which the system is stacked against us and concede the ways in which people feel they are being let down by capitalism it still doesn't change the incredibly simple reality that no one will care more about your outcome than you.

There is no one who doesn't know that they should save some money for the future. I also believe that people know that spending more than they make is unsustainable and so it is reasonable to conclude that many people (I'd like to say most) realize that the less they spend in relation to their income, the better off they will be. This is probably simple to understand but not so easy to do but people gotta do it, they need to figure out how to rearrange their financial lives to give themselves the best chance for a desirable outcome. Expecting someone else to do it for you or taking a woe-is-me attitude as implied in the article as an excuse to throw in the towel will result in very bad outcomes. From the top down, no matter what your circumstance (wealthy or otherwise) you're simply a statistic, a number in a decile or other statistical cohort. From the bottom up you are an individual who at some point will have to figure some things out if you haven't already done so fully understanding that no one will care more about your outcome than you (repeated for emphasis). The sooner you can figure it out the better.

The article then goes into some ideas to start saving some money. There's good stuff there but nothing you haven't seen before. The $2430 monthly gap mentioned above is probably less than that amount, there is some hope there. The $3900 of spending is for a family so if that is the case there is very often going to be a second person getting a Social Security check, either their own benefit which as an average would be $1470 or a spousal benefit which taking the average should be $735. This means the monthly gap to be funded ranges from $960 up to $1695 so applying the 4% rule the accumulated savings would need to range from $288,000 up to $508,500. However daunting those numbers might be, they are far less so than $729,000.

Since the financial crisis, people have become more skeptical of buying homes but the optionality of buying a home and staying in it can play a vital role in improving retirement prospects by downsizing such that a mortgage free home might add $100,000 to someone's financial picture (selling a $300,000 house into a $200,000 house/condo would not be be too heroic of a possibility).

It is also not unrealistic that someone could have their house paid off in their 50's leaving X number of years until retirement even if they get to that point with very little saved. From that point, the amount of money that had been going into the mortgage could instead go to some form of retirement savings and over a 10-15, even 20 year period could become a sizable amount of money ($1500 multiplied by 120-240 months is plausible in this context).

Someone getting to the point of just having enough on paper to make the numbers work, or at least getting close will not have an easy time of it (think one off expenses that cannot be budget for) but they have reasonably avoided catastrophe.

I will also bang the drum again for monetizing a hobby or finding some sort of side gig that aligns with your interests. I think success on this front takes years of pre-planning in the form of learning and starting to do before retirement which is a way to build clients if that fits or network within the field if that fits and otherwise getting experience. Actively volunteering is of course a way to create this sort of optionality. Part of my Plan, I don't know, C maybe, includes trying to work as overhead on an Incident Management Team in large fires or as an EMT which would both stem from my many years volunteering as a firefighter. Working at a gym a couple of days a week would align with my interests and who knows if my photography could ever evolve into something that generates semi-steady revenue but the point is putting in the time now, because I am interested and maybe adding some optionality should I ever need it. You likely have three or four things that you're interested in that you could pursue in this fashion. And of course pursuing something completely new could be fun and serve to charge your emotional batteries.

The idea of someone else solving/preventing my problem is unacceptable to me. Every aspect of your life will be better and easier if you can solve/prevent your own problems.