Wednesday, February 23, 2011

The Sarcasm Report v.92

401k balances reach 10-year high

Fidelity Investment's analysis of 11 million accounts shows the average balance the highest in a decade.

Who would have guessed that continuously adding money to 401ks for an entire decade would have worked out almost as well as just hiding the cash under mattresses? Shocking.

Do you know what would be really shocking though? Picture where investors would be if the Nasdaq had simply kept up with the 26% rise in the consumer price index over the last decade.

To put the numbers in perspective, however, keep in mind baby boomers between 46 and 54 should have about 14.6 times their final salary saved in order maintain a similar lifestyle in retirement, according to calculations by human resources consultant Aon Hewitt.

Hey! I'm 46 and I've got to tell you that I love the precision. Not 14.5 times. Not 14.7 times. 14.6 times will do it once I factor in a ton of other assumptions about expected returns, risk tolerances, and inflation rates using the trusty rear view mirror.

As I see it, this is fantastic news for those planning to die 14.6 years into retirement and their investments somehow manage to keep up with inflation and taxes long-term though. No doubt about it.

5 comments:

Charles Kiting said...

I'm 46, I expect to work until I'm 65. How do I find out what my final salary is? Or do I just assume I'll be working 40 hours a week at McDonald's when I'm 64?

Charles Kiting said...

How do I have a similar lifestyle in retirement as I do when I am working? Do I wake up every morning and drive to an office, but do nothing instead of do work? Do I continue to pay my mortgage even after it's paid off just so the banks don't go out of business?

(Verification word is LERCH.)

Stagflationary Mark said...

Charles Kiting,

I'm 46, I expect to work until I'm 65. How do I find out what my final salary is? Or do I just assume I'll be working 40 hours a week at McDonald's when I'm 64?

Great point!

I think if you have 7.3 times your current salary and you assume that your final salary will be cut in half, then there's no need to wait. You'll have 14.6 times your final salary! Woohoo! Retire now! You've already won! ;)

How do I have a similar lifestyle in retirement as I do when I am working? Do I wake up every morning and drive to an office, but do nothing instead of do work?

Just think of the money you'll save on gasoline each time you give yourself a personal day, lol. ;)

getyourselfconnected said...

It has always been backwards. You have plenty of money late when you cannot do much except leave it to the kids, but poor when you are young and full of energy. By plan? Who knows but if you are unlucky with family history 65 seems a reach in any case (that would be me).

Stagflationary Mark said...

GYSC,

I remember being asked (by a spender) why I even bothered to save. I'd be too old to enjoy it anyway.

My reply was that if I was too old to enjoy spending money then I would definitely be too old to enjoy being forced to work! ;)