Article Exemplifies What Is Wrong with Information Regarding Retirement
People are inadequately preparing for retirement. Much of this is the fault of a lack of financial education. To make it worse, we have Pop Culture Finance trying to fill the Gap. The very article that states the problem is a good illustration of the problem itself. Pop Culture Finance says to use these cookie cutter formulas and you will be just fine. Realistically, this is far from the truth. Here are excerpts from the article along with a little commentary.
When asked how much they should have put away in order to fund a comfortable retirement, a whopping 61 percent of Americans choose the answer, "Don't know," according to a new survey from Bankrate.
Prudent Money: Yes, I think that they understate the problem and show why these surveys are not a good assessment of reality. It is probably more like the upper 80% range.
Another 8 percent under-estimate by a lot: They say that they'll only need $250,000 or less, which is a fraction of the $1 million financial experts typically recommend.
Prudent Money: The notion that accumulating $1 million dollars solves the problem for everyone is the biggest fallacy that Pop Culture Finance preaches.
But even the 15 percent of respondents who say they'll need between $250,000 and $1 million could be missing the mark as well, given that $1 million doesn't stretch as far as it used to.
Prudent Money: To confuse the investor even more, they say that the experts agree it takes $1 million dollars then they acknowledge $1 million dollars doesn't quite do the trick like you might think. In fact, if you are in your 20's shooting for $1 million dollars in retirement, it is like shooting for poverty as a goal.
Only 16 percent of survey respondents say that they save more than 15 percent of what they make, which is what experts generally recommend.
Prudent Money: The second biggest fallacy is that you can save 15% of your income and you guaranteed a good retirement. If only it were that simple.
According to retirement-plan provider Fidelity Investments, a good rule of thumb is to have 10 times your final salary in savings if you want to retire by age 67.
Prudent Money: Cookie cutter formulas and retirement won't get you to where you need to be. Let's say you make $100,000 a year and you save up $1,000,000 and you retire today. Taking $40,000 to $50,000 from that and dividing your income in 1/2 may or may not do the trick. Also, you are assuming that your income is going to keep up with inflation. Another fallacy.
The bottom line - Setting retirement goals and managing retirement goals is unique to your own specific situation. Pop Culture Finance wants you to believe you can easily use cookie cutter formulas be just fine. It takes a lot more effort to reach retirement goals than Pop Culture Finance would have you believe.