What do you fear about retirement?

Aug 26, 2008

How Much Money Do You Need to Retire Comfortably?



Falling home prices and declining stock portfolios are forcing many U.S. workers to postpone retirement or return to work, a survey finds.
A survey by AARP recently determined 20 percent of workers age 55 to 64 plan to delay retirement because of current economic conditions. In the same vein, some retirees are now coming out of retirement and searching for jobs during retirement.
Like in the United States, in Canada we receive advice about needing at least 80 percent for pre-retirement income to retire comfortably. This is rubbish!
Americans and Canadians, particularly baby boomers, are a bunch of spoiled individuals who could live on much, much, less and still have a decent standard of retirement living.
Contrary to the advice of those financial advisers who recommended you need 70-80 per cent of your pre-retirement income to retire comfortably, most retired people get by on a lot less. This is true whether one lives in Canada or the United States.
Certainly, if I had a income of $250,000 a year for several years, I should be able to retire comfortably on $50,000 which according to my calculations would be only 20 percent of my pre-retirement income.
Interestingly, research by Statistics Canada found that people whose pre-retirement income was $70,000 or greater tended to retire on about 45 per cent of that – or around $31,500.
Those who earned around the average national wage – between $40,000 and $50,000 – retired on 59 per cent of their pre-retirement income.
Most interestingly, only one in six people with a pre-retirement income of $40,000 or more had a replacement ratio of 75 per cent or more.
Check U.S. statistics and you will see that they are not much different. Few American retirees have retirement incomes of 80 percent or more of their pre-retirement incomes.
The million dollar question is: If so few retirees presently have retirement incomes of 80 percent or more of their pre-retirement incomes, why do these dubious financial advisors keep telling everyone that they need 80 percent or more of their preretirement incomes?
Here is something written by Benjamin Franklin that relates to money management. If more people followed this strategy they would not have a problem with their finances in their retirement.
"When I was a child of seven years old, my friends, on a holiday, filled my pocket with coppers. I went directly to a shop where they sold toys for children; and, being charmed with the sound of a whistle, that I met by the way in the hands of another boy, I voluntarily offered and gave all my money for one. I then came home, and went whistling all over the house, much pleased with my whistle, but disturbing all the family. My brothers, and sisters, and cousins, understanding the bargain I had made, told me I had given four times as much for it as it was worth; put me in mind what good things I might have bought with the rest of the money; and laughed at me so much for my folly, that I cried with vexation; and the reflection gave me more chagrin than the whistle gave me pleasure. This however was afterwards of use to me, the impression continuing on my mind; so that often, when I was tempted to buy some unnecessary thing, I said to myself, Don't give too much for the whistle; and I saved my money."BENJAMIN FRANKLIN, letter to Madame Brillon, November10, 1779.
- The Works of Benjamin Franklin, ed. Jared Sparks, vol. 2, p. 181 (1836)

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