The Retirement Problem

My former intro to econ professor pushes for a mandatory retirement savings plan (h/t Ritholtz):

Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts. The specter of downward mobility in retirement is a looming reality for both middle- and higher-income workers. Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day.

In my ad hoc retirement talks, I repeatedly hear about the “guy.” This is a for-profit investment adviser, often described as, “I have this guy who is pretty good, he always calls, doesn’t push me into investments.” When I ask how much the “guy” costs, or if the guy has fiduciary loyalty — to the client, not the firm — or if their investments do better than a standard low-fee benchmark, they inevitably don’t know. After hearing about their magical guy, I ask about their “number.”

To maintain living standards into old age we need roughly 20 times our annual income in financial wealth. If you earn $100,000 at retirement, you need about $2 million beyond what you will receive from Social Security. If you have an income-producing partner and a paid-off house, you need less. This number is startling in light of the stone-cold fact that most people aged 50 to 64 have nothing or next to nothing in retirement accounts and thus will rely solely on Social Security.

Those are some scary numbers, especially considering a lot of those folks have little or no equity in their homes.  That isn't going to be good. As for my economics prof, she thought that the reason girls weren't doing as well in her class as boys was because multiple choice tests favored boys.  So she gave us a choice on part of the tests with two essay questions or five multiple choice questions.  I obviously took the multiple choice part.  That was the class I where I would read the chapter summaries for all the chapters since the last test on the night before the exam.  I never once read any of the chapters themselves.  I got a really nice grade in that class.