Do the Math

I really enjoy math; it has a precision and beauty that language oftentimes cannot match.

Retirement_1
As an example, consider The Street.com’s Daily BlogWatch. This morning, they linked to this post at the Happy Capitalist (graphic in original):

"Can we retire on $14.5 trillion? That’s the amount of money Americans have stashed away in retirement accounts according to research published today by the Investment Company Institute.

"Clearly, Americans are focused on saving for retirement as a top priority," said ICI senior economist Sarah Holden, who co-authored the study with ICI senior economist Peter Brady, in a statement.

"Our research continues to indicate that individuals are building retirement nest eggs by using employer-sponsored plans and IRAs."

Now, the data part of what the ICI is saying is technically true; Yes, the line "Clearly, Americans are focused on saving for retirement as a top priority" is crap — Its not clear, and we have no idea if its their top priority. The Street.com compounds the situation by adding "This demonstrates that things might not be so bad after all. $14.5 trillion is not chicken scratch."

But the math is what I want to focus on:  It turns out that $14.5 trillion dollars is (more or less)  chicken scratch. And courtesy of an idea dropped by a commenter at the aforementioned Happy Capitalist, along with some quick calculations, we know precisely how much scratch it is:

"Let’s do the math. $14.5 trillion divided by 80 million retiring baby boomers over the next 20 years = $181,250/American.

The Average retirement 65 and lifespan 15 years (80 at death)= $12,083.33/year or $1007/month.

Hmmmm… I don’t know anyone that can live on $1007/month unless you are in some fourth world country.

Oh wait, I forgot to add all those free medicaid, medicare, prescription drug benefits everyone is going to get. Hmmm.. I wonder who’s going to pay for that."

Its actually even worse than it sounds:  As we have seen from many data sources this year, wealth distribution is somehwat lumpy. Its not remotely evenly allocated. This means that for at least half of the future retirees, their savings will generate less than $1007 per month. And if the retirement dollar distribution curve is anywhere near the rest of the nation’s wealth distirbution, it means most retirees have considerably less than that.

Inflation is another concern, but let’s assume that returns between now and then keep pace. If not, its even worse.

~~~

And that’s why I love math. Some weasel at the Investment Company Institute throws a multi-trillion dollar number out there, and it sounds great — until you dissect what it actually means.

Less than a $1007/month — in 2025. Sounds alot like chicken scratch to me . . .

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