Yesterday, I wrote about saving $10 a day longterm. It's amazing how much money this turns into.
What is even more interesting is all the feedback I got. Lot's of people mentioned that saving money is difficult, but everyone agreed it is a good idea.
There were a couple of people who mentioned they can live off $10 a day, especially when combined with national and private pension funds etc. Personally, I don't think $10 a day is enough to retire on in developed countries. I mean if you live off the grid and own property and are pretty self-sufficient, it will likely be possible. However, even if that is the case, I'm sure you will be much happier with an income of $100 a day during retirement!
One of the things about money is most people don't have enough of it. Everyone can use more. A lot of people look at financially successful (rich) people with envy. Some of them want to take the money. Personally, unless they stole the money, I think they deserve it. In most countries, the more you make the more you pay in tax. Also, unless there is a system like Universal Basic Income, it's really impossible to expect people not to get into trouble by wasting their money.
I don't think we are going to see Universal Basic Income any time soon, even if we do, wouldn't you rather have more money? It definitely won't be paying for overseas travel or luxuries, it is basic by definition. Think food stamps and government housing. Not if I can help it, No thanks! That's where retirement planning comes in handy.
I decided I'm going to enter parameters based on the Average OECD family income. If you don't know what the OECD is here is a nice link. Generally, countries in the OECD are economically stable and transparent, perhaps most important the state doesn't abuse the economy and recognizes economic rights. If you don't live in an OECD country, maybe you won't find my analysis as useful.
I need to get some figures.
Across the OECD, the average household net-adjusted disposable income per capita is USD 30 563 a year.
This is cool, so it seems like, after taxes, people have on average 30500 dollars a year. Why do I take the after-tax income? Well, they never really seem to go away!
I got the above figures from here: http://www.oecdbetterlifeindex.org/topics/income/
Here is a retirement calculator, try it out to see if you are gonna be screwed or not:
Please note, it doesn't consider tax.
I'm going to go with 2 cases. 1 will be based on OECD average and another will be based on some easy numbers.
Case 1 OECD average
Finding average pension incomes is really difficult actually and really changes based on the country and individual job. I'm just going to assume it will be 500 a month, or 1000 for a couple.
I'm going to assume you are 40 and have no savings yet. I'll also assume the average OECD family net income of 30563 dollars per year.
Inflation is 3% and interest earnings is 6%. These are the defaults.
Finally, I'll assume you retire at 65 and die at 90. Why not?
Wow, it seems we will need around 400,000 to retire if we have 1000$ pension income and want a similar existence to what a family income of $30563 a year gets us today.
So how to get $400,000 ?
Let's assume you have no savings and you are 40 and save every day until 65...
Amount to Save Every Month: $596.88
Oh, that's about $20 a day. Now, remember, if you are going to be getting more than $1000 a month from your family pensions, you will be better off. Also, this is based on a salary of 30k a year which is low in my opinion.
I think saving this much is realistic for many people in their 40s and 50s and early 60s. If it is not, maybe you should speak to a retirement planner.
Case 2 -Rounded and Nice Numbers
I call this the I ain't relying on no government strategy.
I plugged in to end up that I want around 1 million dollars to retire. It's such a cool number! This is based on wanting 75% of a 50k a year (now) income from 65 to 85 and social security/pension income of $500 a month (pretty basic in a developed country) and 0 additional income after retirement. Inflation was set at 3% and average returns 6% by default...yummy, why not?
Saving from 40 to 65 and starting with 0. You will need to save around $1500 a month or $50 a day between the ages to have around 1 million dollars when retiring! Not so bad.
So one would need to save about $50 a day for 25 years to retire with 1 million dollars. That would give a retirement income of around $100 a day. This is actually really good if you own a house and don't need to save for retirement. If you managed this, congrats you lived and retired successfully middle-class.
It sounds like a lot to save $50 a day. However, if you include pensions, severance pay and investments you probably don't need to save anywhere near this much. Also, most people will probably be fine with $50 a day if they own a house and don't need to get to work every day.
Conclusion and Analysis
If you just use the default settings of the calculator, you have 50000 a year income you want 75% in your retirement.
You need to save around $13 a day from 30 to 65 years old and start at 30 with 20,000 dollars. It also relies on 1800 a month in pension incomes. I'm not sure if that is average or not.
One of the biggest things that will mess with the numbers is paying off a mortgage or having a young family. Realistically, these days most people at 30 haven't put much thought into this. The average age to have kids and by a house is probably right around 30. A lot of people haven't even figured out their careers by then.
I think by 40 most people are done planning a family and have a mortgage. It's definitely smart to start planning your retirement at 40.
I choose this calculator: https://www.calculator.net/retirement-calculator.html
because it isn't tied to a bank. It seems to be based on American life. I guess they have good pensions, but they have things to worry about in retirement like paying for healthcare insurance and being sued. They do have a lot of nice places to live throughout the US though. Obviously, NYC is more expensive to retire in than rural Alabama.
It's so hard to think about this stuff and compare it to others. I really recommend everyone tries a few online calculators and if they don't like what they see go speak to a retirement planner.