How to Solve the Retirement Math Problem

I took a bunch of financial planning classes in the 1980s where it was drilled into me that a successful retirement depended on a three-legged stool of income: a pension, retirement accounts and Social Security. 

A comfortable, secure retirement is really just a giant math problem. You factor in your age, how much you’ve saved so far, how much you save each year, your pension benefits, your Social Security payments and what year you want to retire.


Some things are unknown: what your investment returns will be, future tax rates, the rate of inflation and how long you’ll live.

Some of my friends have done a great job preparing for retirement and are living very comfortably.

Others, however, watch their pennies in order to make ends meet, while some are still working because they can’t afford to retire.

The problem for the latter two groups is their primary source of retirement income is Social Security. Here’s a sad fact: 40% of retired Americans rely solely on Social Security for income.

The size of your Social Security checks depends on how much you’ve paid into the system, but the maximum possible benefit depends on the age you begin to collect payments.

For 2021, the maximum monthly benefit schedule is as follows ...

•  $2,324 at age 62;

•  $3,148 at age 66 and two months (“full” retirement age); and

•  $3,895 at age 70.

It sure looks like many Americans have no pension and inadequate retirement savings. Here’s a sorry run of facts ...

Only 6.8% of Americans receive income from all three retirement income sources, according to the National Institute on Retirement Security.

Only 21% of Americans, primarily government workers, will receive a pension when they retire. The rest of us are dependent on 401(k) accounts.

But sadly, most Americans have woefully inadequate retirement savings. According to the Transamerica Center for Retirement Studies, the median retirement savings total is only $50,000.

Worse still, 22% of Americans have less than $5,000 saved for retirement, and 15% have no savings whatsoever. Yikes!

I’m sorry to be the bearer of bad news, but there are really only three options if you’re financially unprepared for retirement:

1. Save more.

2. Work longer.

3. Earn higher returns on the savings you do have.

Most people I talk to say they’re already saving as much as they can and few of them want to work until the day they die.

So, that leaves one option: Make your money work harder.

Look, certificates of deposit (CDs), or cash, and bonds aren’t going to get you the returns you need to goose your retirement savings returns. I’m not saying CDs and bonds are bad … but I’m saying that you need to invest for bigger returns.

The place to find bigger returns is the stock market. And, if you’d like to see the types of stocks I invest in, take a look at my Disruptors & Dominators service, where I recommend a combination of hugely profitable, dominant industry leaders and up-and-coming innovators that are disrupting old business models with new technology.

Take a no-risk test drive; I think you’ll be impressed with the results.


Tony Sagami

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