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The FIRE concept (Financial Independence, Early Retirement) has been extended to whole areas of the Internet of financial planning. But a second idea, less eye-catching (to our knowledge, it misses an acronym) has also become commonplace: people who do not intend to retire, but continue to work until they retire .
To what extent are these two extremes realistic in the retirement spectrum? Barron's spoke with Teresa Ghildarducci, Irene and Bernard L. Schwartz Professor of Economic Policy Analysis at the New School Department of Economic Affairs, and the author of How to Retreat with Sufficient Money.
"These two extremes are a commitment to fantasy and avoidance," she says. This conversation has been modified and condensed for clarity.
Barron: Let's start with your thoughts on early retirement: the plan "financial independence, early retirement" or FIRE.
Ghilarducci: The person who says "I want to retire earlier" should probably talk to a therapist, because behind that, there is probably some uncertainty about what they want to do with their lives or they do not like their work. But, financially, it makes no sense if you are not very rich, and if you are very very rich, you probably have an expensive taste. For most people who give up work for 40 or 50 years, it's just not a plan that can be maintained for anyone except TVs. That's what I would say to someone who wants to retire at 40 or 50 years old. Did you hear what I said? And 50 years! Fifties are too young. The maths will not work.
What about people who say, "Oh, I'm never going to retire. I'm just going to work until I'm 90? "
There are two kinds of people who say that. This is the rare pediatrician who loves their job and wants to see two children a few times a week until age 90. It's rare; that's why you see them in the newspaper. It's a kind of work like "I control my pace and the content of my work" part-time.
Read our recent cover story: How your kids can ruin your retirement and make sure they do not
The second group consists of people involved in what is known as cognitive dissonance. They know that they do not have enough money and embark on another kind of fantasy: "I can work until I die. My employer will want me. We found in our research that there was a [level of] huge discrimination based on age and the fact that there are many jobs whose technological know-how is so fast that an older worker simply can not keep up.
And even work that is not very technical can have a strong physical component.
Yeah, it's really surprising. Lifting heavy objects as a professional requirement has decreased for people over 50 years old. But the requirement to bend and bend or walk has not been. In fact, older women are forced to be more addicted and bend over to work than ever before. The work in the warehouses and the maintenance work of Amazon requires a lot of physical strength. Even computers require intense sight and intense concentration.
It now seems that older workers are very good scouts of the TSA. They are not so anxious and they are a little more patient. But an older worker, even if he is able to do the job, will be much more expensive for an employer. Their salary is a bit higher and their health care costs are five times higher than those of a younger person.
Do most people choose when to retire or does this happen?
It's always a lot more worthy to say that what you do is something you have chosen to do. But when researchers probe a little bit and ask people why they have retired, most people say that their retirement is not voluntary. They were deported, fired, or had to take care of their spouse or take care of their own illness. Most people do not retire when they wish. They retire earlier. Most people will stop working before the age of 65 and reach social security before the age of 65.
Perhaps some of the people who have never retired have been discouraged by assuming that "if I live another 30 years after my retirement, I must save 30 years of salary". But this is not how it works.
If someone said, "I need $ 50,000 a year for 30 years" and if we just multiply that number by 30, it would be way too much money. If you are about 65, you should have about eight times your annual salary saved for retirement, if your annual salary is what you want to live.
And should you replace 100% of your annual salary?
You need 70% of what you normally live. Why is not it 100%? Because you will not need to commute. You do not need to save. Your taxes will be lower.
Eighty per cent of Millennials and 84 per cent of Generation Xs are worried that social security will not exist when they retire, but to argue, there is still in 30 or 40 years. How does it count?
If your replacement goal is 70%, Social Security will provide just over half, or about 40%, for a worker earning $ 50,000 a year. This means that you will need an extra 30% and save for that 30%. If you earned $ 50,000 when you worked, you will need $ 300,000 to live at the same level you worked.
So what should people do instead of hoping to work forever or retire earlier?
Here are some basic rules. If you are 30 years old, you should not have any debt and you should have about half of your salary in the bank. At age 40, you should have a little more than your annual income in the sequestered bank for your retirement in a 401 (k) or an IRA. At age 45, you should have twice your annual salary. At age 50, you should have three.
At around age 65, 63, you should have about eight times your annual salary, if your annual salary matches what you want to live, you know, net of taxes and your savings. Get out of debt by 30; Save 5% to 10% of your salary in a safe and secure retirement account and do not touch it for 40 years.
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