Future for the 99%

An Examination of current retirement support, by a non-expert.

C. Freya Dumuk, CFO, Guardian Fireboat SF.

(warning: there's a lot of math in here. I researched everything based on US public records searchable using GPT 4.0 and Google search. Figures are rounded for simplicity of estimation and are meant for demonstration purposes only. This is not meant as financial advice but as observations that may be helpful in your family support and planning. Please take this in the spirit intended.)

Like quite a few Americans my age, I managed my mother’s care and expenses for several years until she recently passed in December 2023. Due to an injury at work, my mom had to stop working in 2012, and she was not eligible to draw social security until she turned 67 in 2021. For 8 years, mom had to live on her savings (and my ability to help with whatever I could). Fortunately, she was aided by some atypical circumstances: she was drawing a small widow’s pension from my deceased stepfather, she lived in a low cost town, and she owned her home. Her situation made me wonder: How does the typical person afford retirement?

Most people know that social security alone won’t be enough for living expenses when its time for our generation (X onward) to retire. That knowledge, however, feels abstract when held against the day to day focus on surviving in today's economy. Saving against the future takes a distant back seat against paying a 50% higher electric bill, 30% higher rent, 7% mortgage interest, etc.? In an effort to wrap my own head around planning for my spouse and myself, I modeled today based on what I could learn - Mom's actual budget as a control.

(assuming you buy or own a home in retirement)

The average Californian, like me, would fall short nearly $8000, and the average American, $4000 if they rely on Social Security alone and have a mortgage. YUCK. If you own your home like my mom, that falls to about $1100 per month.

If, instead of a mortgage, you are renting a home in retirement as many of us intend to do there is a slightly better outlook:

Slightly better, but still terrible. $4500 per month in California means you need $54,000 per year ON TOP OF social security just for basic expenses in 2024.

Today, nearly 60% of US workers have 401(K).? 40% of those workers do not maximize (invest 4% of their income per month).? Today's vested 401(K) is valued at $270,000. Estimating an average payout duration of 20 years, that is about $1100 per month in additional income.?

IRA: $300,000 average retirement savings in 2024. 50% of retirees have some sort of IRA or retirement savings plan. Given the same conditions as the 401(K), the IRA would provide approximately $1200 per month. Since mom didn't have any of these things, I'll take her out:

For many of us, maxing our 401(k) and having a fully funded IRA is something we want to do, but for various reasons (many of which are fiscal) we can’t or don’t fully invest. Even with these measures, if we don't have other sources of income or a means to reduce or offset expenses, even with fully funded 401(K) and average invested IRA, it might not work out in our favor. That's a sobering thought, but it needn't be a depressing one. Knowing these challenges helps us plan for how to overcome them while we are in our working years.

If my mom (who owned her home) had $2300 based on average IRA and 401(K), she'd actually be banking $1170 per month. Without social security she'd be slightly in debt at $130 per month. With small changes in her retirement habits, my mom could break even even without social security, given average levels of investment in retirement savings programs.

If there is one takeaway from this exercise, it is to avoid having to pay for habitation, whether through home ownership or family support. Other helpful things you can do:

·?????? Pre-plan where you will retire, based on your lifestyle, income, and your savings.? Try to live somewhere you can enjoy your life without running out of savings.

·?????? If you can, maximize your 401(k) while you are working (save at least whatever your company is matching, most companies are 4%), AND invest in an IRA. Whole life insurance might also be a good option if you can afford it, as it accrues cash value you can use after retirement.

·?????? Try to own a car or have a paid off vehicle for as long as you intend to drive or live in a place where there are easy/affordable public transit options.? If not, try to live somewhere that walking and biking are easy and amenities are close.

·?????? Grow a garden. The next largest expense after car/home is food. Fresh fruit and vegetables not only reduce your grocery bill by up to 30% per week, but also lead to a longer, healthier life.? Not only that, but you can sell/share/barter the excess for goods and services in your community.

·?????? Get to know your neighbors and try to agree on sharing services/produce.? When I was growing up we all gave and took something within our community. It benefitted everyone.

·?????? Consider taking on an elderly / student renter at an affordable rate. It both helps to offset your own habitation cost, but also provides an equal benefit to others with limited income.

As our population is aging in general, and the cost-of-living increases, we need to remember to pause and plan for ourselves and families’ futures.? My greatest wish is to see as many of us thrive at any age as possible, without creating an overly large burden on our next generation or society.