Just how much does it take to retire?

A lot of gurus on YouTube sell their book by pushing the fear of the bogey man recession lurking around the corner. Let’s not forget that artificial intelligence is around the corner, too, ready to start the next world war by taking all of our jobs.

With each unit of fear mongering comes a solution that will save us from financial apocalypse. In the case of recession there is gold. The gold bugs remind us that gold coins have been used as money for 3,000 years and given that track record, users must trust gold coins to maintain the value of their wealth.

America’s two-year bout with inflation and the Federal Reserve System’s battle to reduce inflation by increasing the short term rates at which it lends money to member commercial banks (the discount window rate) and the interest rates that it pays to banks for keeping reserves in federal reserve bank vaults (the interest on reserve balances) has households increasingly on edge.

If I went solely on my ground-eye view of Atlanta, I would say “What recession?” I see plenty folk out driving their luxury vehicles, crowding the airports, and drinking and eating in Virginia Highlands. Life looks good on the outside. As most of us know, however, people are good at hiding all sorts of pain.

An analysis issued in November 2022 by Zippa, a career firm, found that 63% of Americans (approximately 125 million) lived paycheck to paycheck. Forty percent of Americans have enough money to cover a $1,000 emergency while 75% of us are in debt.

No wonder we drinking hard in Virginia Highlands. And that drinking helps to wash away another disturbing figure. For those of us relying on our pensions to get by in our retirement days, a September 2023 analysis by Annuity.org reports that annual median income for individuals over the age of sixty-five is approximately $47,620 while the mean (average) annual income for this cohort is $75,254.

Annuity.org goes on to report that the average retirement savings for those over 65 is $279,997 while the median amount of retirement savings is $87,725.

Neither of these amounts are nothing to sneeze at. I would rather have $87,000 than zero. My fear is, will this be enough and more importantly have we not been told the truth about how much of a nest egg we should have?

When I see advertisements where an investment advisor like Ken Fisher won’t touch you if you don’t have a portfolio of $500,000 minimum or a trade guru telling you on YouTube to keep on scrolling if you don’t have $10,000 to trade, my red flag goes up.

(Are you up for the challenge? https://traderswithedge.com/?r=348)

My back of the napkin calculation of how much we should have accumulated to generate income we can live on found that the United States, as we know it, is coming to a halt.

I’ll break here and will remind you again at the end that this is not investment advice. You don’t want that from me. We good? Okay. Let’s keep going …

How much would the retiree need in accumulated assets to generate $47,620 in income? Let’s use this formula, 47620/n=4.32/100, where 47620 represents the annual income, n represents the amount we have to accumulate, 4.32/100 represents today’s yield on a ten-year Treasury bond.

I am using the ten-year bond rate because it is generating income over the period a 65-year-old, on average, would have left with us. On average.

When we solve for n, the total amount that the 65-year old should have accumulated is approximately $1,102,315 in investible assets. Average and median savings come nowhere close to this amount. The retiree would have to liquidate other assets likely including their home to get to the accumulated amount.

The cohort that will likely contain a higher number of individuals who have not accumulated this level of savings will be those of us living paycheck to paycheck.

125 million Americans.

From a political standpoint, this narrative is far more powerful than anything either Republicans or Democrats can come up with. Can the U.S. government subsidize the shortfall in capital accumulation that a pensioner will need to sustain themselves? This is the question often overlooked as America moves closer to mid-century.

Alton Drew

19 September 2023

Disclaimer: The data and output from this blog post does not constitute investment or legal advice and is not a personal recommendation from Alton Drew.  Nothing contained herein constitutes the solicitation of the purchase or sale of any futures or options.  Any investment activities undertaken will be at the sole risk of the reader.  Alton Drew expressly disclaims all liability for the use or interpretation (whether by visitor or by others) of information contained herein. Decisions based on this information are the sole responsibility of the reader.  Any visitor to this page agrees to hold Alton Drew harmless against any claims for damages arising from any decisions that the visitor makes based on such information.

This page may contain affiliate links.  If you choose to make a purchase after clicking a link, I may receive a commission at no additional cost to you.  Thank you for your support.

For more of my insights on the political economy, buy my book at amazon.com/author/altondrew.