Early retirement? Work forever? Both are both willingly unrealistic
The term FIRE (financial independence, retirement early) has taken over the whole of the financial planning network. But another, less attentive idea (as far as we know lacks an acronym) has also become commonplace: people who do not plan to retire at all, but continue to work until they fall.
How realistic are these two extremes on the pension spectrum? Barron talked to Teresa Ghildarducci, Irene and Bernard L. Schwartz Chair in Economic Policy Analysis at the New School Finance Department and the author of How to Retire With Enough Money.
"Both of these extremes are a commitment to imagination and avoidance," she says.
Barron's : Let's start with your thoughts on the movement to retire early, "financial independence, retire early" or FIRE, plan.
Ghilarducci: The person who says, "I want to go early," will probably talk to a therapist, because there is probably an uncertainty about what they want to do with their life, or they don't like their job. But just financially, it doesn't make sense if you are not very, very rich, and if you are very, very rich, you probably have expensive tastes. For most people to stop working for 40 or 50 years, there's just not a plan that can sustain for anyone, except people on TV. So that's what I want to say to someone who wants to retire in their 40's and 50's. Have you heard what I said? And the 50's! The 50s are too young. Mathematics will not work.
What about the folks who say, "Oh, I'm never going to retire. I'm just going to work until I'm 90"?
There are two types of people who say it. It is the rare pediatrician who loves his work and wants to see a couple of children a couple of times a week until they are 90 years old. It is rare; That's why you see them in the newspaper. It's a kind of partial, part-time, "I control the pace and content of my work," kind of job.
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The other group is people who are engaged in what is called cognitive dissonance. They know they don't have enough money, and then they engage in another form of imagination, which is "I can work until I die. My employer will want me." We find in our research that it is a [level of] tremendous age discrimination, and that there are many jobs that are so fast in terms of technological skills that an older worker just won't be able to keep up.
And even jobs that are not very technical can have a strong physical component to them.
Yes, it's really surprising. Powerful lifting as job requirements are reduced for people over 50 years of age. But the requirement to bow and bend or go has not. In fact, older women need to do more bending and bending at work than they have ever had before. Amazon warehouse work and care work requires a lot of physical strength. Even computers require eye vision and intense concentration.
Now it seems that older workers are pretty good TSA screeners. They do not get as antsy and they are a little more patient. But an older worker, even though the older worker can do the job, becomes much more expensive for an employer. The salary is slightly higher, and their health costs are five times higher than a younger person.
Do most people choose when to retire, or is it just happening?
It is always much more worthwhile to say that what you do is something you chose to do. But when researchers are betting a little and asking people why they retired, you get the most people to say that their pension is not voluntary. They were pushed out, or they were put off, or they had to take care of the spouse or had to go to their own illness. Most do not retire when they want. They are retiring earlier. Most will stop working before the age of 65 and collect social security schemes before the age of 65.
Perhaps some of the never retired people have been discouraged by assuming, "If I am going to live for 30 years after retiring, I have to save 30 years of salary." But that's not how it works.
If a person said, "I need $ 50,000 a year for 30 years," and then multiplied only 50,000 by 30, they would have too much money. When you are 65 or so, 63, you should have about eight times your annual salary saved for retirement, if your annual salary is about what you want to live on.
And do you need to replace 100% of your annual salary?
You need 70% of what you usually live on. Why is it not 100%? Because you don't need commuting costs. No need to save. Your taxes will be lower.
Eighty percent of the millennia and 84% of Gen Xers say they care. Social security will not exist when they retire, but for the sake of the argument, let's say it's still around for 30 to 40 years. How does this factor take?
If your goal shift is 70%, social security will provide just over half of that, or about 40%, for a worker earning $ 50,000 a year. That means you will need an additional 30% and you'll have to save 30%. If you earned $ 50,000 when working, you need $ 300,000 in savings to live the same standard you did while you were working.
So what should people do instead of hoping to work forever or retire early?
Here are some rules of thumb. If you are 30, you should be out of debt and you should have about half of your salary in the bank. When you are 40, you should have a little more than your annual income in the bank sequestered for retirement in either a 401 (k) or an IRA. When you are 45, you should have twice your annual salary. When you are 50, you should have three.
When you are 65, 63, you should have about eight times your annual salary, if your annual salary is about what you want to live on, you know, without tax and savings. Get out of debt by 30; Save 5% to 10% of your payment in a secure and secure pension account, and don't touch it for 40 years.
