These days, most people plan to retire in their mid-60s. This is the age range when Social Security benefits generally kick in, providing at least some modest level of monthly income. When that income is supplemented with outside savings, be it via traditional defined-benefit plans or the more recent defined-contribution 401k plans, retiring couples or individuals can expect to live comfortably.
To accelerate retirement, individuals need to get motivated in setting aside income for the years that follow employment. Market returns could provide a boost, but the past decade has proved difficult for investments in the stock market. Additionally, interest rates have been on a steady decline since the early 1980s. The current interest rate on a 30-year Treasury bond is only about 3%. This makes it extremely difficult to earn a sufficient income from money saved up over the years.
The chart below presents a brief summary of the savings amount needed to ensure a $50,000 annual income in retirement, based on yield percentages. Back when interest rates were closer to 5%, an individual had less of a savings hurdle and needed to accumulate only about $1 million by retirement. These days, the average blended interest rate (including a mix of shorter-term, medium-term and longer-term bonds) is only around 2%, which suggests that the savings amount needed has more than doubled to $2.5 million.
The simplified information in this chart fails to take into account a number of other variables, including any Social Security income and the potential boost that can come from investing in equities or other assets that can grow over time (venture capital, private equity and hedge funds come to mind), as well as potential inheritance money or other income sources. However, it does indicate that individuals will likely need to be millionaires before they even consider retiring.
A volatile stock market, low interest rates and uncertainty over future Social Security benefits only add to the challenges for those who wish to retire early. Someone who plans to retire by age 50 instead of 65 will have 15 years less time to build a sufficient next egg. Using the retirement savings calculator here, you can see how some of the variables could play out to reach an annual income of about $50,000 per year.
A 35-year-old individual with an initial savings of only $10,000 would need to save approximately $33,000 a year to end up with $1 million by age 50. (Implicit in these estimations are an 8% annual return on a stock portfolio, a 2% annual return after retirement and a tax rate of 33%. It also assumes surviving 25 years after retirement, or until age 75.)
Starting a retirement plan early certainly has its advantages. If you begin at age 25, you'll need to set aside roughly $12,000 annually to reach the same savings goal. Conversely, waiting too long can make accumulating a healthy savings amount upon retirement nearly impossible. Under the scenario above, waiting until age 45 would require setting aside more than $150,000 annually to reach a seven-figure savings amount just five years later.
To accumulate between $1 million and $2 million by retirement, the best bet is to start saving modestly once you start working or by your early 20s. With decent stock market returns, this could mean retirement by age 50 is possible. Of course, attaining a six-figure salary could certainly help accelerate this objective, as could an inheritance, winning the lottery or some other stroke of luck, including double-digit annual stock returns.
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Surviving retirement at any age is all about cutting costs of living now. If there is one thing we should have learned from companies that are firing people it’s that. Cut costs by downsizing everything; your house, cars, vacations, debt payments, food and utility bills, etc. That will get you through to the point when you need that one big operation to keep you alive a bit longer. And thanks to geometric growth in health care costs, you’ll probably be bankrupt after that no matter what age you retire or how much you start with.
IMO unions with great pension plans were a great idea until deadbeat workers decided to abuse their rights... Now companies are moving to "right to work" states to avoid unions...
Two of my neighbors just retired in their 50's - both were union workers who opted to retire early so that they could retain their pensions from globally recognized companies. Both started working for their respective companies just out of high school and neither has a college education, yet they were making $35-$45 per hour and enjoyed over 4 weeks of paid vacation, a premium health insurance plan, and a premium pension plan.
In both cases, the companies had become heavily unionized and claimed they were no longer making money for shareholders... Both neighbors admit that there were a large number of deadbeat workers who just did the minimum to get by. Protected by the union, the company had to keep the under-performing deadbeats as they down-sized and eventually let-go of everyone with less than 10 years of seniority. Left with an even higher ratio of deadbeat union workers, the company continued to lose profits compared to their operations down south...
Therefore both closed-up all of their northern shops and headed down south to "right-to-work" states where they can hire non-union workers. We have a high number of foreclosures because the number of families leaving our state has exceeded the number of families moving into our state...
I own my own businesss and do not make $50 per hour... I work very hard because my "employer" is my client base. If I underperform I do not get paid. IMO the unions should not have protected the deadbeats. They should have allowed companies to not have to jump through hoops to fire underperforming workers. They should have allowed companies to promote individuals based on merit and not seniority. The unions should have adapted to protect the 90% vs. the 10% who were deadbeats and eventually cost everyone their jobs...
Retirement is going to SHOCK babyboomers.
401K? We were warned when they came out: THIS IS NOT A SUBSTITUTE FOR YOUR COMPANY RETIREMENT.
So, what changed?
Stocks? OH PLEASE! The middle class is the pawn of wall street; our savings are their next years bonus.
Interest? OH PLEASE! .05% on my 401k. this year. No lie!
Work till the day I die and hope to hell I don't get sick so my family will at least have SOMETHING left?
Folks! We have a winner!
And as usual, it's the 1%, not us.
So much gloom and doom in regards to retirement…humbug! I retired 7 years ago at 62 and things have never been better. We lived in the last house for 32 years and paid it off before selling it. We had all bills paid off and paid cash for an even larger home at a shore 55+ community in N.J.. We both worked hard and seldom made over $100,000/yr., but always lived within our means. We collect 36,000 in social security and 15-20,000 in investment income without diminishing our principal. The only thing we can’t do, that we had planned, is to continue boating and snow birding on the coast. You Damn sure don’t need a million plus unless you still have bills, mortgages, or are just a bit slow.
If you worked for a major airline and sorry to the haters joined the union we have a pension plan and help from the union for health care.
You guys bash the unions but I love them, I retired at 55 and loving it. Everything is paid off and I live very well on 20k CASH a year. I also had a 401k that the airline put in 3% match.
So It's not just gov workers getting the good life.
I always tell people that life is just a bunch of choices .... if you make the wrong ones don't blame me.
It seems to me that Janinpa and her husband are set for life! Just think, full retirement pension, no charge health insurance and a whole state full of people to pay her way. I don't begrudge her her pension, as this is the package she worked under while employed by the state. But it says a lot about what is wrong with state employee contracts when these benefits are supported by all other tax payers who do not have any opportunity to access these benefits.
Now, tax payers will pay for the $50,000 per year each of them will receive in pensions as well as the insurance premiums for each that run several hundred dollars per month. Multiply this times the number of retired state employees and the dollar amount needed to support them and it is easy to understand why states are going bankrupt not being able to meet the burden of their unionized retiree pensions. States will go bankrupt and hang their state populations with even more costs to support this outdated and unsupportable system.
Now, compare that with your (personally invested) IRA, 401K or other "retirement vehicles" that private employees have in order to make their retirement plans and you can see that there is little chance for most people to retire @ 65 with the same benefits as their "state and public service" retirees. What's more, if you live in the same state with Janinpa, you can continue to fund her cushy retirement with your tax dollars.
Wait, you can still retire early if you start walking, but you can't afford to save for retirement and still fill up your gas tank...choices, choices...
I would like to set the record straight with my working situation. First of all contributing to Social Security was not elective, it was mandatory and I paid into it for many years, and second, yes the state contributed towards a pension plan, but I also had to contribute from my wages. Joining a union was not mandatory, you could opt out but your fair share was still deducted from your check.
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