I’m Concerned With Generation X’s Retirement Goals

This past week I received an email about a survey that Charles Schwab conducted called Rethinking Retirement. I went to their website and decided to take their survey. At one point in the beginning of their survey it asked “How much money do you think you need to retire?” To come up with some sort of answer that wasn’t directly pulled out of my you-know-what, I ran some numbers using my little retirement calculator. My calculator told me that I would need somewhere in the neighborhood of $3.9 million so that’s what I entered. It then asked me for my birthyear and then it took me to this screen:

The average Generation Xer who took the survey thinks they will need $1.2 million to retire on. I gotta tell ya, I don’t think that’s enough. Let’s think about it for a minute. Here’s a look at the possible first-year income on $1.2 million based on three different withdrawal rates:

Not too bad until you consider the fact that these numbers don’t include inflation. If the average Gen Xer is my age (38) they have about 27 years until retirement if they retire at 65. Here’s a look at the numbers after you adjust them for a 3% inflation rate over the next 27 years (I realize inflation has been running higher than 3% as of late, but 3% has been the long-term inflation rate):

Call me crazy but I just don’t see $21,000 to $26,000 (I wouldn’t recommend a 6% withdrawal) as being a comfortable retirement income. Sure, there will be some Social Security income available but I can’t imagine it being more than $20,000 to $25,000 per year. Including Social Security, you’re looking at an income of $41,000 to $51,000 per year in today’s dollars.

Is it enough? I don’t think so. What about you?

28 thoughts on “I’m Concerned With Generation X’s Retirement Goals”

  1. I am a little older than than you but Gen X. I think almost any retirement calculation at our age is really tough to do since many of the variable are swags (scientific wild-a$$ guess). The biggest variable is at what age do you retire? There is a big difference between retiring at 60 and say 67.

    Personally, I save as much as I can through 401k and IRA’s. I think it is enough, if it you use your calculator, you might argue I am saving too much but I much rather be in the position to retire early than not have enough.

  2. I think I fall somewhere between the two, I’m aiming for 2 million by the time I retire at 65, I think it will be enough for me on my own.

  3. If your house is paid off and you have no significant debt other than credit card debt that’s paid off monthly in full, living on $55,000 to $60,000, is quite feasible. My wife and I live comfortably on that in the Virginia suburbs of Washington, D.C. My income is from a government pension and a small (very small) social security payment. But that income is inflation adjusted annually.

    That’s important, because I remember when my father retired he had a pension income that was much larger than his social security. By the time he died several years later, his social security income had surpassed the pension income, due to the SS inflation adjustment.

    We have additional money set aside for investment purposes, which we’ve never had to use for living expenses. We also carry long term care insurance.
    Obviously, we don’t have an extravagant lifestyle, but we consider it comfortable.

  4. I don’t see why $41K-$51K wouldn’t be enough. I mean, don’t lots of people live on that much as their incomes TODAY?

  5. Of course, the question is ambiguous. Does it mean current dollars or future dollars? Furthermore, anyone’s answer will depend totally on their current income. Seeing as how the median family income is in the $50K range (current $), someone with perhaps $900K (in current $) at retirement can do just fine. A 4% withdrawal rate gives $36K (in current $), which would give approximately that $50K when coupled with Social Security benefits. On the other hand, if you are 35, currently earn $50K, and estimate that your income growth rate and inflation will average 3% for 30 years, then you need $2.2Million (in future $). So, do would most people answer the $900K or the or the $2.2Mil.

  6. Dave,

    “How much do you need for retirement” would implies future dollars but I’m pretty sure lots of people don’t think about the impact of inflation.

    $41,000 – $51,0000 in today’s dollars does not equate to a comfortable retirement in my mind.

  7. The last question was the one that bothered me. How much annual income do you consider “wealthy”?

    Wealth is a measure of net worth not income! If you make $5000 per year but you have $10 million in the bank, you are wealthy! If you make $200,000 per year and have $1 million in debt you are broke!

  8. $50,000 (in today’s dollars) with no mortgage payment, no 403(b) contributions, and a social security check would be pretty comfy I think. Last year my paycheck was about $50k and I did have a mortgage, and I did save for retirement, and no SS. And I did ok.

  9. Whoops. I didn’t see you had counted the SS in the $50k figure. My point isn’t that diminished by it though, because removing my mortgage payment and retirement savings would still make it feel like a pretty big raise.

  10. The median household income is around $45,000. So why do you think that’s unreasonable? During retirement your expenses will be even lower, especially since you won’t have to save for retirement!

  11. But, Andy, medical expenses will most likely go up as you will not enjoy coverage under an employer’s group policy (unless you’re one of the lucky few w/postretirement benefits.) Add in all the extra gifts that having DIL/SIL, grandchildren, etc. will demand and I can see there won’t be enough money!! Plus gas will be $20/gal by then 🙁

    I agree, JLP, $50,000 may be adequate, but it’s not comfortable. Travel isn’t cheap! And I’ll be running away from babysitting grandchildren!! This will be MY time 🙂 (finally!!)

  12. The problem is most people are not even close to being on the their way to saving $1.2mm (let alone $3.9mm). One way reduce the size of the nest egg needed for retirement is through the effective use of mortality credits – think life contingent immediate annuity w/ no period certain.

    I am developing financial products and services that will enable employers to help employees better plan for retirement. One of the cornerstones of the offering is the use of mortality credits.

    As part of my market research, I am also doing a survey of pre-retirees (see the surveymonkey link above). I would like to hear from as many folks as possible so please take the survey and feel free to pass it along. The survey is completely anonymous (no personally identifiable information collected, SurveyMonkey will not collect your IP address).

    I’m also donating $1 to charity for each completed survey received – you can select from a list of 5 at the end of the survey.



  13. 1975 baby here. I consider my lifestyle to be extraordinarily comfortable (bordering on extravagance and excess) and I pay $22,552.88 (in 2007 American dollars) to live each year. So yeah I fit exactly in that range.

    What life of excessive extravagance are you leading that this is not enough money? My guess is that you are buying a brand new Hummer every month, or spending a LOT of time in strip clubs, if you cannot live on less than $25K USD.

  14. Not alot of people think in “Future dollars”. I think the 1.2 million figure is in today’s dollars. Then apply inflation for the amount of years you have until retirement. What is the equivalent of 1.2 million today 27 years from now?

  15. I think the author is right (good website)….I am 48; just made my last house(s)payment and feel freedom going forward…

    However, the ocncern is with the HEALTH and PHARMA INDUSTRY…they have us believing (thru flawed media) I need $200-$300k set aside for my old age….bull…CONGRESS MUST standardize the costs….the health industry eventually will service only the affluent – say 20 yrs – because few can save aggressively…insiders will tell you of layers, duplication of work,and the assembly line to rush customers through to bill Medicare…the industry is an indignation to the middle class and working American…

    with $1.1M now in cash and 10 years to retire I should be ok …(note: it has been hard but satisfying on a median salary…to those single readers out there…stay that way as long as you can…)

  16. The question is too ambiguous. “How much money do you think you need to retire?” — Is that today’s dollars or future dollars? Is that per person or per couple? If it’s future dollars, but per person, by your calculation, $40-50k per person in today’s dollars is not bad at all.

  17. http://allfinancialmatters.com/2006/10/09/how-does-your-net-worth-compare/

    as of 2004, the median net worth of the 65 some retiree household was less than $0.25M, conceivably with their median liquid assets well below $0.125M in 2007 $$$s each retiree.

    If I were one of them and had read JLP’s statements above, I would have scared to death or just committed suicide to dodge the financial nightmare.

    In effect, this thread is really a nice piece of work to scare people into investing, or “devesting”:)

    I’ve been wondering what those wealth management firms have been doing recently. Hope those retirees had not given their savings to Fannie & Freddie, Citi, Lehman, Wachovia, IndyMac, etc, where the factual or potential loss of their money may not even be salvaged by FDIC …

    BTW, I noticed the bond fund I purchased has been buying Fannie Mae and Freddie Mac debt recently, and that Secretary Paulson has been proposing unlimited bail out of my investment at the cost of the tax payer. My casual trading in my cash accounts has rendered returns of 30% and 43%, respectively, since late May. I’m gonna buy short term T-Bills in the next few weeks, anticipating the next financial debacle. I’d express my gratitudes to the LONG term INVESTORS for letting me make some quick money:)

  18. It is a difficult question. No I don’t think 40K in today’s dollars would be enough. I also think one needs to allow for medical care.

    I am hoping to retire in about 10 years – I am 49. When I used the calculator I specified 70% of my 110K income, figuring that I’ll get the rest from the pension from my employer ($2800 a month if I retire at 60 if my company’s tool is correct). This is the current pension as it stands – I am fully vested and my employer froze all pension plans as of the end of last year, so this is all I’ll get. Maybe I don’t need as much – I am living on less than half of my income now and I do travel and such, but I am allowing for higher health care costs.

    Sam, do you really keep it all in cash like bank CDs/money market/bonds and none in the stock market? I have about 650K (half in 401K with a little in Roth, half in non-retirement investments) plus a paid off home worth about 400K, but the value is likely to go down. Everything is a little down from last year because of the stock market performance. About 2/3 of my money is invested in the stock market. With my current savings rate I should be OK unless we have a crash, but I am considering reducing the percentage in the stock market. The trouble is the CDs and bond rates are so low, I think commodities are overvalued, so there is no good safe place to put the money.

    One flaw in the calculator is that it doesn’t divide the current money into tax deferred, tax free and regular investments. Yet, when you withdraw money in retirement the distinction is important.

    “Hope those retirees had not given their savings to Fannie & Freddie, Citi, Lehman, Wachovia, IndyMac” – none of my money is in those guys except through index funds in 401K. The only bank stock I have is USB which lost a little since I bought it but is in no danger of going under. Outside of 401K I have a couple of mutual funds, cash and some individual stocks which on the average were doing way better than S&P lately. Way too much in my employer stock (IBM). I did plan to reduce my exposure to my employer’s stock and to sell just as much as I can every year and still avoid AMT, but with the way IBM was doing relative to other stocks, I just am not sure what to do with the money after selling it.

  19. The money estimates is probably in present dollars as in how much would you need if you retired NOW. However, the 4%- withdrawal rate IS adjusted for inflation IF the money is kept invested in stocks.

    My guess is that a lot of the respondents just picked 1 million as that seems to be the popular number for retirement. I doubt that very many has done the analysis. In fact the dominant google search phrase on my site is something like “can I retire on 1 million” with 2 million seeing increasing popularity.

    The “monetary needs” to create the same level of perceived comfort would also vary quite a bit between hyper-consumers and less materialistic lifestyles.

  20. It looks like my post ruffled some feathers.

    When the question asks:

    “How much money do you think you need to retire?”

    I think we have to assume that each person is projecting out into the future that they need $1.2 million and that inflation has not been taken into account. The question would have been MUCH BETTER had they asked:

    “In today’s dollars, how much money do you think you need to retire?”

    $1.2 million may be okay today, but it’s a different story if it’s 15 – 30 years down the road.

    To each his own. If someone’s comfortable living on $41,000 to $50,000 per year, more power to them.



  21. Kitty,

    Thanks for your comment. Point taken on your comment regarding my calculator. I just wanted to say that the calculator is a basic calculator and that there is no way to include everything involved in retirement planning into a single calculator.

  22. I agree with the posters who say $40k-$50k is enough. I would like to see a hypothetical budget (in today’s dollars) from those who think that would be uncomfortable.

    Maybe it’s also important to clarify whether that money is taxable. $50k/year from a Roth IRA with zero income tax is equivalent to what, $80k/year from a traditional 401(k)?

  23. Maybe too many of them have been listening to Dave Ramsey’s advice that you can withdraw 8% of your portfolio in perpetuity and keep up with inflation as well, since you’ll be earning 12% on your investments (according to him, of course).

    Every time he spouts that particular bit of “wisdom” I cringe because he’s going to mislead some into some extremely optimistic assumptions about sustainable withdrawal rates.

    I really don’t understand why he sticks to that nonsense. I know he’s not a stupid man and I really think he’s more financially sophisticated than that. But he stubbornly keeps saying the same thing.

  24. Your retirement calculator might be broken. It says I will need to save $60 per month MORE than I earn, in order to maintain my current standard of living in retirement. Whether or not it’s broken, it isn’t very smart.

  25. I think it will be enough, for us. We’re on track to have between 1-1.5m when I turn 63. We won’t have mortgage payment then, so we won’t need a lot of cash. We don’t buy new cars or have expensive tastes. We live well below our means and live in a modest house. My wife is able to stay home with the child. 3.9 mil sounds excessive, but if you are used to living at that level now and can save that much, knock yourself out.

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