Today’s top story: What you need to save every day for a comfortable retirement. Also in the news: The three tax buckets, the 10 commandments of savings, and four boring but essential money conversations.
$82 a Day Is the Average Savings for a Comfortable Retirement
$82.28 to be exact.
What Pre-Retirees Should Be Asking About Taxes
Introducing the three buckets.
The 10 Commandments of Saving Money
Thou shall follow these rules.
4 Boring Money Talks You Need to Have
Boring but necessary.
How to Find Financial Assistance for Your Down Payment
Don’t let your down payment hold you back.
Quoting numbers to the last penny makes them seem very precise, but they’re still only as good as the calculations that produced them. The $82.28 article links to a USA Today post, which refers to “an analysis” but doesn’t cite any specific sources.
$82.28 a day is about $2500 a month. Investing that much over 30 years, with a 7% average return (the number given in the USA Today piece) gives you almost $3 million. That should generate an income of far more than $50,000.
What I think is going on is that they’re assuming an inflation rate of 3%, so that your 7% nominal return becomes a 4% real return. (You also have to increase you $82.28 each year with inflation, contrary to the USA Today writer’s claim that “That means it’s be a struggle (sic) if not impossible to save that much now, but it will be easier in the future as $82 won’t seem so high.”) Then your $82.28 gets you $1,682,551 at the end of 30 years, which, assuming a 3% annual withdrawal rate, generates an income of almost exactly $50,000.
Importantly, though, all this is assuming absolutely nothing from Social Security. As pessimistic as some people are, it’s unlikely that the program is ever going to disappear entirely, so I think it’s somewhat irresponsible to scare people with the huge amounts they’d need to save based on that (unstated) assumption. At the same time, I think it can serve as an important illustration of how important Social Security really is. Who wants to have to come up with an extra $2500 each month just to have a merely average retirement?
Kristin Wong, who wrote about the calculation, has been answering comments about this…it’s an interesting discussion at the bottom of the link.