He did it from the perspective of people in 1st world countries (or near 1st world) and used securities (such as mutual funds) as the primary vessel of retirement funds. And, in my opinion, he showed retirement really is out of reach for most people.
But I wasn’t 100% satisfied that retirement, at least in theory, was mathematically impossible. So I decided to do some number crunching myself, focusing on the United States.
Based on rough estimates of current demographics, about 3.6 million people reach age 65 (the age of retirement in the US) every year. Using Clarey’s number of 1 million dollars, the necessary amount estimated to comfortably retire, it would thus take 3.6 trillion dollars to pay for the retirement of our population this year. Our current GDP is about 16.7 trillion dollars, so, about 22% of our current GDP would need to be set aside, in some form or another, for our retirees.
In theory, we should be able to fund retirement. We have a 15% tax on employment, known as FICA, that should be able to provide for most people. Combined with FICA benefits, a person would only need to save 5% of their annual income to cover the rest of their retirement (we’re ignoring inflation and compounding interest for the sake of simplicity). Unfortunately, as we know, Social Security and the other programs supported through FICA taxes are fatally flawed programs, poorly designed, poorly managed and completely unfixable.
If, instead of FICA taxes, we simply required everyone with a job to set aside 15% of their income in individual retirement accounts that would store their wealth in a diversified portfolio (a mixture of commodities, national and international index funds, corporate and public bonds, and cash) about 60% of our population could retire at age 65. Those without jobs, or those who are hit with misfortune,would require additional assistance.
From another perspective, our government takes in about 17% of GDP in tax reciepts, so if all our government did was provide retirement, it could cover 77% of our net retirement needs.
So, retirement is mathematically possible for those of us in the United States, even if it’s not very probable due to government ineptitude.
The math gets better over time. Our population grows at about 1%. Our GDP grows, at least right now, at a rate of 2.5%. Over forty years (number not used by accident, we get done with our schooling and apprenticeships at age 25, and work until age 65, and this is forty years), if we compound the 3.6 trillion dollars needed to retire at 1% and do the same for our current GDP at 2.5%, we find out that in forty years, ceteris paribus, we’ll need about 12% of our GDP to support retirement. From this perspective, the adage that a person should save 10% of their income for retirement appears completely true.
Unfortunately, in a country where 30% of our income is gobbled up by the government, we would need to save 17% of our after-tax income for retirement and find a safe place to invest it. And for many reasons, the idea of safe investing in this current environment is ludicrous.
- Afraid You Won’t Enjoy The Same Lifestyle When You Retire? (cashnetusa.com)
- The Latest Contribution To US GDP: Promises… No Really (zerohedge.com)
- The 401K Abyss (harveymushman.mlblogs.com)
- The Retirement Crisis Debate Needs New Experts (forbes.com)
As everyone should have noticed by now, I have finished the novel and it is available on Amazon.com. I’m hoping to post some material about the book, why I wrote it and what I want people to take away from the book. Since publishing a book is rather stressful, I took it easy on the blog this month.
- This blog officially turns ten years old in February of 2014. Which makes me feel very old. I am trying to keep this page alive, the best I can. Thus, I’m shooting for 5000 posts. It’s one of my last writing goals I really want to fulfill, as odd as that sounds. It looks like Random Links might be my preferred vessel. And I don’t care if they’re boring and no one cares or if Random Links shouldn’t even count as a blog post. I do care that some people have unsubscribed from the email list. But they were bound to quit on me anyway, right?
- Please, if you’ve read my book, review it!
- William F. Buckley (Christian Encounters Series) by Jeremy Lott. This was a brief biography from a Christian perspective. Since Buckley played such a big role in my political development, I felt compelled to read this book, but I wouldn’t recommend it. It wasn’t bad, in fact, it was rather interesting. Well written. But sometimes the life of a writer is not as interesting as his writtens.
- The Wikipedia Grand Tour from Dailylit. This exhaustive, almost three-year long email series sends you the intros to nearly 1000 of the most important Wikipedia articles. And there’s a lot of variation in interest depending on the topic. I felt like it was worth it.
- Why Can’t I Use A Smiley Face?: Stories From One Month In America by Roosh V. Interesting book. I would recommend it.
- Jim Cramer’s Getting Back to Even. This book outlines a few new tools and new rules to investing in the post-Great Recession world. Personally, I wouldn’t recommend a few of Cramer’s ideas. They just take too much work. But, the new focus on dividends and gold hedging is a step in the right direction and people should be well acquainted with them. Still, people will probably be better off just getting an index fund (like VOO from Vanguard).
- Enjoy the Decline by Aaron Clarey. Get it. Read it. Make someone else read it.
- The Game: Penetrating the Secret Society of Pickup Artists by Neil Strauss. The first books in the “PUA” genre I’ve read, but this is actually not a PUA guide. It’s a fascinating memoir, as Strauss goes from AFC to mPUA to burnout. Highly recommend.
- A Writers Bucket List by Dana Sitar. As I tell younger writers, you should probably read one or two books dealing with the craft of writing every year. This is a quick read with 99 solid goals writers should have going forward in their “careers”. Worth an afternoon.
- Before There Was Bubble Gum: Our Favorite Pre-World War I Baseball Cards by Dean Hanley. I liked the first book of Hanley’s I read (The Bubble Gum Card War) that I immediately purchased his first book. Big mistake. This short book provides the sort of information you can find in any baseball card catalogue.