Saturday, August 16, 2014

But you don't need that much!

I find retirement calculators like this one (I know, CNN's crappy Money section again) incredibly frustrating. The single biggest issue goes to methodology where (burried) you can find:
We then assume you can live comfortably off of 85% of your pre-retirement income. So if you earn $100,000 the year you retire, we estimate you will need $85,000 during the first year of retirement. For each subsequent year, we increase your income need by 2.3% to keep up with inflation...
Here's the problem: what you need and what you earn don't scale this way.  Someone making $50k/year at 35 who has a house and kids, is someone who, may be making $100k in 30 years, but who, at that time could well have a paid off house and grown kids they are no longer paying for.  No fucking way does that person need $85k/year (plus inflation) to retire on!  What you need in retirement is only a large fraction of what you earned if you still have lots of debt.  But anyone with that level of debt probably isn't a candidate for this calculator, as they probably can't afford to put away the 15%+ of their income necessary to have a secure retirement!  The whole thing is just fucked.

No matter how much you earn, if you can actually manage to put $1-2 million into retirement, own your residence, and be otherwise debt free at retirement, then that'll be plenty.  There are people who don't believe that, but they are pretty much all delusional financial types.

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