David Ning over at Money Ning disagrees with the conclusion of this how-rich-is-rich article from CNN Money (via Yahoo! Finance). The conclusion is that it might be necessary to have $12 million banked to retire.
Now, to be fair, the $12 million figure comes from assumptions are out of reach for most people:
- In retirement for sixty-five years, starting at age 35 — plenty of time to perfect that shuffleboard technique, I suppose!
- Living in Manhattan, one of the priciest locales in the universe.
- Spending $400 per day outside of housing — now New York City is expensive, but that's still living fairly large.
David Ning argues, reasonably, that this is a ridiculous lifestyle that few people would actually want to live:
- Why NYC until you're 100?
- Why are you still renting your apartment?
- Why are you spending so much?
- Why are you retired for so freakin' long?
These are perfectly reasonable, well-thought-out arguments for why most people don't need that much money to retire comfortably, especially for people who are already near the classic retirement age. Under these arguments, though, is a huge assumption. That assumption is that retirement expenses will remain about the same as they are now. I think that's a very poor assumption.
By the time I reach retirement age, my income will be relatively lower than for current retirees, and my expenses will be far higher than for current retirees. $12 million may not be enough to have a comfortable retirement. Here's why:
- Social Security income will be far less, if it's there at all. The system is in trouble. The system is now paying out more than it's taking in. The imbalance will get worse: baby boomers are retiring. How to solve this imbalance? Lots of ways that aren't surprising: raise Social Security taxes; remove the tax cap on earned income; reduce benefits; increase the retirement age for full benefits; institute a means test. It's the last one that would hurt people who saved. Their contributions would go to the people who didn't.
- Taxes will be higher. The US Federal debt is now past $13 trillion. It passed $12 trillion this past November. The debt is blowing through milestones like you-know-what through a goose. Deficits do matter, eventually, and eventually is just around the corner. If the debt is owed to ourselves, we'll be forced to pay ourselves back. Right now we owe over $120,000 per taxpayer. When this number climbs, when the interest payment on the debt exceeds the GNP, who will foot the bill? Why, the rich people, of course! The people who have the most saved up will pay up for themselves, and the people who didn't.
- Good medical care will be very expensive. Universal health care or not, good health care will be harder to come by, and it will be more expensive if you don't want to spend your retirement years waiting in line. This requires money, and finding a doctor who has distanced herself from the Medicare system. What they lose out on volume, they'll have to make up on price.
It could be that we all can get by with less than we thought we'd need. But why count on that? Why aim for only $2 million? Why not aim higher?
Ummmmm…. $12 million is a NO BRAINER enough amount to retire on. At a 3% interest, that’s $360,000 a year.
That’s enough to live a decent lifestyle in Manhattan for sure!
I don’t like when people argue assumptions. The author of the CNN article is just using it as an example.
I disagree with the conclusion that you’ll need $12M for retirement. The author was trying to point out that your needs are completely dependent upon your situation. He was just trying to highlight an extreme case where someone might need $12M.
The main point is that most people don’t know how badly the deck is stacked against them.
As for assumptions, everything involved in retirement planning is an assumption. To say that we can’t argue assumptions is to say that we can’t argue about retirement planning. I don’t buy that.
OMG $12M? I guess I’ll be eating cat food when I retire.
I am always amazed when I hear what some people need to “live.”
“Momma said there’s only so much fortune a man really needs and the rest is just for showing off.” ~Forrest Gump
I don’t disagree with your assumptions, and points about how much will be available from SS.
I look at the whole retirement arugument as invalid. Why do we have social security-it was established to ease workers and the poor through their years between 65 and death-which at the time was only a few years.
The retirement age was also established when a large portion of our work-force was working in manufacturing-and couldn’t do their back-breaking work forever.
Also people had a very limited option as far as work-because moving to the job, was much more difficult.
I think we would all be better to not think about retiring. Find something you enjoy doing,and maintain a lifestyle that can be supported by that activity.
Having an artificial age where we just expect to go home and sit in front of the TV is a waste of brain power.
That doesn’t mean we don’t do retirement planning, it just means not to think we deserve 25 years of vacation just because we reach a certain age.