Everyone is talking about the looming retirement savings (or lack thereof) disaster. The Motley Fool reports that among those between the ages of 50 and 55, the median value of retirement accounts is only $8,000.  It is a serious problem.  You can’t go online, check your news feed, read a magazine, listen to the radio or watch TV without being pitched by a retirement consultant or investment firm.

The preferred emotional hook is fear.  “You are going to outlive your retirement “- Be Afraid, Be Very Afraid

Retirement advice from the mainstream is always the same – hang in there, keep going, keep saving, and keep investing.

This is true.  If you live long enough you will run out of money.  Regardless, the real question is whether their advice is good given your current reality.

AARP recommends saving 10-12 times your current income “But for a retiree to generate $40,000 a year after stopping work, he or she will need savings of about $1.18 million to support a 30-year retirement; this was calculated using average returns of 6 percent and inflation at 2.5 percent.

OK, sure.  Let’s go down the rabbit hole

Let’s assume you are 45 years old and plan on working until you are 75, that gives you 30 years to reach AARP’s goal.  Using this formula, all you would have to do is save approximately $1800 per month, every month, for the next 30 years to save enough to retire.  That’s worth repeating. AARP’s advice to us is to save $1800 per month.  NO PROBLEM!!!!  If you would like to play with these numbers, here is a fun tool at Bankrate.com

Are you ready Alice?

Let’s start with the customary 6% long term return number.  Where did it come from? The S&P 500, adjusted for inflation (and including dividends), calculated for the period 1950 to 2009 gives you an average annualized return on your investments of 7%.  In other words, over a 60 year period, given the same conditions as between 1950 and 2009, you would expect to get a 7% annualized return. Fair enough, AARP is being conservative.

Of course, most us don’t have 60 years (much less 30) left for that that magic number to work out to 6%.    Let’s do something more realistic instead.

NOTE:  If you have a great career that you love, a nice pension (at a tolerable job that isn’t killing you), benefits, or a fat nest egg, you are amazing and you can go now. This is for the peasants.

HUGE DISCLAIMER, I’m not an expert (at anything) and I’m not a financial advisor.  I’m just talking out loud, take it or leave it.

Now, where were we . . . Oh yes, our savings.

As anyone over the age of 40 with a 401k knows first hand, the stock market is not for the faint of heart.  According to Investopedia, “the data most relevant to the current [economic] period is from 1945 to 2009. During this period, the average expansion was approximately 58 months, and the average contraction was approximately 11 months. Market timing is a hit or miss strategy at best, which is why buy and hold is often recommended as the best strategy.

So let’s look at how the markets did historically over four 10 year periods beginning in 1995, each of which include periods of both busts and booms.The amount of your retirement is totally dependent upon not only the market, but also the day you began investing and the day you retired. So, to all of those that say we were just irresponsible slackers - knock it off. Click To Tweet

I found  a great online historical return calculator. that creates “rolling period” returns for the S&P 500 adjusted for inflation. A “rolling period” goes from one date to the next incrementally (one step at a time) moving forward every month.   I selected a 72 month time frame for my analysis based on the average amount of time it takes to complete an entire boom and bust cycle (yes, there is a pattern, sort of).    For this example, I calculated the compound average return for 10 years ending December, 2000 (initial investment 1990); December 2005 (initial investment 1995); December, 2010 (initial investment 2000); and 2015 (initial investment 2005) using the Fed’s annualized return calculator .

The outcomes that you get in this type of analysis totally depend on the time frames used. As you will see, the results vary widely which gives you a good idea of how much difference the start and end dates make. Incidentally, it is this phenomenon that many experts were concerned about and the basis for criticism of the conversion of this country from pensions to 401k.  

All of the results below are based on a $500 per month contribution. Also known as never eating out or going on vacation again.  We are also in the fairy tale land of never, ever, having unexpected expenses or emergencies.

Between 1990 and 2000 your annualized return would have been 14.51%, not shabby.  At the end of that 10 year period your $500 per month, compounded annually, would have been worth $118,943.  If you assume that you will receive 6% interest on that amount of principal, and never, ever withdraw any of it, you would have an additional $594 in monthly income to add to your social security.

Now let’s look at the next 10 year period beginning 1995 and ending in 2005.  The annualized return is 6.45% giving you a total of $80,776.11. In this case, you would have an additional $404 per month.

If, on the other hand,  you were unfortunate enough to have began saving at the turn of the century, by 2010 your annualized return would have been negative -1.15%. You were in the hole, but assuming you managed to break even (and not spend it trying to save your ass) you still would have had $60,000 in the bank or an additional $300 per month.

Interesting side note, I couldn’t find a online calculator (government or private) that would calculate negative returns.  Probably best not to know.

Finally, if you started saving that same $500 per month in 2005,  by 2015 the annualized return would have been back up to 5.05% you would have had $75,643.91.  Which boils down to $378 per month, again assuming you never touched a dime of principal.

It should also be noted that the average rate of return for all 4 rolling 10 year periods was 6.215%.  If you had begun saving in 1995 and religiously contributed $500 every month, your 401k would be worth $225,883 (which still isn’t even close to the AARP suggested amount of $1.8 mil).  Regardless, the problem isn’t the long term return. The problem is the investment window.The real bugaboo is that the amount of time we have left to invest does not smooth out the volatility in the marketplace. We could see another 10 year period of 14% returns (1990-2000), or another 10 year period of negative returns. Click To Tweet

In summary, if you save every dime and manage to put away $500 per month, and if you never do anything or go anywhere for the next 10 years, it is possible to save enough money to add $419 per month (on average) to your social security income.  Again, this is assuming you never have any unexpected expenses, never touch the principal in the bank and consistently receive 6% interest for the rest of your life.


NOTE TO FINANCIAL ADVISORS:  please don’t hate all over this post, you provide a valuable service – it just might not be the right path for everyone.

For those of you that are still with me, I ask:

  1. What are your current monthly expenses?
  2. How much can YOU REALLY SAVE each month given your current obligations?
  3. What do YOU THINK the market is going to do over next 10 years?
  4. WILL YOU BE ANY CLOSER TO RETIRING or just older, tireder, poorer and less able to make any of your dreams happen?

Use the links above and input your own numbers to see what this really looks like for you given your financial realities. Who knows, all the politics may disappear tomorrow and we will have the best 10 year period the market has ever seen.

Now, let’s climb out of this rabbit hole (It’s hard to see down here)

Forget the numbers and look at the real goal

Forget all the unsolicited advice (including mine), social norms and all the fear

Take a Deep Breath . . . . ohmmmmmmmmm


What do you want to do for the rest of your life?  The realistic version – not the “lifestyles of the Rich and Famous” version. Not necessarily every detail, but the vibe or feeling of it.   What does “it” look like?

What is working for you right now, and what isn’t?

What’s on the bucket list? Travel? Skydiving? More time with friends and family? Hobbies? Quiet time around the house?

Yes, we need to keep working people.  No doubt about it.

But the “opportunity cost” of sacrificing the next 10 years of our lives with such an uncertain economic reward is very high.  And don’t forget – long term stress and hating your life in general can be fatal (a subject for a later post).

We need to find a better way to work.  We need to get really creative.


Take some time to think about these things in the coming days.  I would love to hear your thoughts and ideas. I’ll be back to follow up with some of mine.

In the meantime, please clap, follow, like and share the love.  I’m just starting out so it means a lot. Visit me at www.genxboom.com




Roma Wright

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Just short emails sharing thoughts, inspiration and insights into my world and the world of other #over50rebels

Glad you joined in! look forward to the conversation :-)

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