Finance
Sorry, but retiring “comfortably” on $100,000 is a myth for most people. This is why.
The new rule that people are happy with a $100,000 pension is a statistical myth as vague as the perfect $1 million pension – or $1.46 million pension, given inflation. Pick a number, add or subtract zeros, and there’s probably a statistic supporting your philosophy that may or may not align with reality.
These numbers aren’t fake, but they also don’t reflect people’s real retirement budgets. For example, the $100,000 figure originally comes from a recent research analysis of government survey data that spread online. The $1.46 million comes from a study by Northwestern Mutual. These big, broad main results come from the statistical analysis of pension surveys, most of which combine quantitative questions with questions about feelings. Things get concrete when you ask about someone’s age, retirement status and retirement savings. But it’s something else if you correlate that with answers to sentiment questions. For example: Which of the following statements generally best describes how well you are doing financially today?
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This is an important question the Federal Reserve is asking Research on household economics and decision making each year, 11,000 American adults are surveyed on a variety of household financial topics. The 2023 report found that 80% of those 60+ said they were at least doing well financially – a higher percentage than for American adults overall, which was 72%.
The Fed did not connect this result to a particular major retirement theory of happiness, which came to $100,000 in savings. What happened to reach that number was a little more academic than that.
Andrew Biggs, a fellow at the American Enterprise Institute, looked at several past years of this Federal Reserve data in an op-ed in The Wall Street Journal and for upcoming research projects. He decomposed the age and income distributions by downloading and filtering the raw data. He was then able to draw up a graph showing the income distribution of those in the group of early retirees aged 65-75, who answered the above emotional questions with ‘living comfortably’ or ‘doing well’ – the negative answers were ‘just getting by ‘ and ‘finding it difficult to make ends meet’.
The magic number? The survey found that 86% of those with savings of $50,000 to $99,999 were at least doing well.
That’s when things start to get a little confusing. Some of Biggs’ fellow pension thinkers disagreed with his reasoning and his agenda, such as Teresa Ghilarducci, professor of economics at the New School in New York. Their problem is more about whether there really is a pension crisis in America than about any specific statistic. Ghilarducci thinks so, Biggs thinks not, to keep it simple.
But as they, and a few others, sparred in op-eds and social media, the $100,000 number took on a bit of a status of its own, with a little “telephone game” as it was shared and passed around on places like Yahoo and other syndication sites.
Biggs wasn’t surprised when he heard about this, as it happens all the time. “You read a lot of facts, but even though they are technically true, they still lack context. It’s like that line from ‘The Princess Bride’: ‘I don’t think it means what you think it means,'” Biggs said in an interview with MarketWatch.
Is $100,000 Really Enough for Your Retirement?
It may seem easier to argue for higher retirement savings figures, but the pitfall you fall into is that the figures may be too ambitious for what is actually happening. Then the headlines blare that we are in a pension crisis because real people are not saving that much and are therefore falling short.
At $100,000, which is closer to the average retirement savings of many Americans, budgets are tight. At 65 you would have an income of €750 per month, which would last roughly twenty years, at a growth rate of 7%. That’s not much, but it could be feasible if you add it to two robust Social Security benefits in a household.
However, there are a lot of ifs in that scenario. It all depends on what you’re talking about in terms of that nest egg and what you mean by ‘OK’. When it comes to real people, you have to ask a lot more questions.
What exactly do you count as savings? Does it include home equity, pensions, family contributions and income from continued work? For example, if you have $100,000 and you’re still working, you can leave that money alone and in ten years it could double. Then you’ll be much better off, especially if you can wait until age 70 to claim Social Security and get your benefits. maximum benefit.
And the most important question might be: what did you make before? The amount you have saved, and much of your sense of well-being, only means anything in relation to your current lifestyle and how you can maintain it in retirement. You’re not in a race against hypothetical average people compiled from survey data.
The goal, Biggs said, “is that you want a smooth standard of living in retirement, not feast and famine. You shouldn’t look at other people.”
So when you think about what to make of the numbers you read when you click on the retirement survey stories, the main thing you should think about is your own situation.
We should all be more interested in the questions asked than the answers. When it comes down to it, if you were to participate, you would be one line out of 11,000 on a spreadsheet, and yours is really the only line that matters to you. Perhaps you should skip the stories about the surveys and click through to the survey itself, look up the list of questions asked and conduct your own personal analysis.
Then you would have the answer to how you feel about retirement – and that is the answer that really matters.
Do you have a question about investing, how it fits into your overall financial plan, and what strategies can help you get the most out of your money? You can write to me . Please include ‘Fix my portfolio’ in the subject line. You can also participate in the Pension Discussion in our .
