3 Things 7-22-24
Thing One
You Don’t Need to Be a Millionaire to Retire
The above is the title of an article from the Wall Street Journal. The million-dollar retirement threshold as well as the notion that you should have 10x your final salary in savings when you retire are, according to the article’s author, theoretical figures that “…serve investment firms that have a product to sell, as well as the media, for which bad news makes good headlines. They also serve politicians who distrust private retirement savings.”
More key excerpts from the article are below:
“Hard data on retirees, however, show it takes nothing like those levels of savings to be financially secure in old age.
The Federal Reserve’s Survey of Household Economics and Decisionmaking asks U.S. households, “Overall, which one of the following best describes how well you are managing financially?” Among respondents 65 to 74 between 2019 and 2022, 3% said they were “finding it difficult to get by,” 12% were “just getting by,” 37% were “doing OK” and 49% were “living comfortably.” Most retirees report that they’re doing fine in other surveys, too.
The Fed asks another useful question: “Approximately how much do you currently have saved for retirement?” It provides categories ranging from “less than $10,000” to “more than $1 million.”
Only 19% of retirees reported having less than $10,000 in savings, a stark rebuttal to Sen. Bernie Sanders (I., Vt.), who claims that “almost 45% of older Americans between the ages of 55 and 64 have no savings at all and no idea how they will be able to retire with any shred of dignity or respect.” Nearly 3 out of 4 of those who were “finding it difficult to get by” had less than $10,000 in savings, and a slight majority of retirees at this asset level (52%) said they were doing OK or living comfortably.
Of the seniors with more than $10,000 in retirement savings, less than 1% said they were finding it hard to get by, while 93% reported they were doing OK or living comfortably. Among the subgroup with $50,000 to $99,999 in savings—a small fraction of what retirees are told they need—3% found it hard to get by, 11% were just getting by, and 86% were either doing OK or living comfortably.
How much does a retiree need to feel financially secure? In the Fed survey, the median 65- to 74-year-old who reported “doing OK” or “living comfortably” had between $50,000 and $99,999 in savings. The median retiree who reported “living comfortably” had $100,000 to $249,000. It’s impossible to find any evidence that seniors need even a fraction of $1.46 million in savings to be financially secure.
Why, then, do seniors report such high levels of security with seemingly paltry levels of savings? One reason is that Social Security benefits are more generous than people think. An average couple retiring in 2022 received total annual benefits of nearly $46,000, up from around $34,600 (in today’s dollars) in 2000. While hardly extravagant, a typical couple can expect an income more than twice the elderly poverty threshold before they touch a penny of their own savings…”
The article also highlighted two more interesting data points. First, spending drops roughly 40% from age 65 to age 90. And second, a significant portion of pre-retirement income is spent on children. To illustrate this point, the authors noted that a household with $83,000 was likely to spend around $26,000 (31%) on providing for children.
The conclusion about how much you need to retire is, it depends. But if you’ve been thinking about it and preparing for it earnestly, the Federal Reserve survey referenced above suggests you’ll probably be okay. If you’d like a second opinion, let us know.
Thing Two
An Objective Take On The 2017 Tax Cuts
(The following was taken from taxfoundation.org)
"Congress has less than two years to prevent tax hikes on the vast majority of Americans from taking place. That’s because the Tax Cuts and Jobs Act (TCJA) of 2017, a tax reform law that simplified individual income taxes and reduced tax rates across the income spectrum, is set to expire. If Congress does nothing, most Americans will face higher taxes, worse incentives for work and investment, and a more complicated tax system starting in 2026.
The TCJA reduced average tax rates for taxpayers at all income levels because it lowered marginal tax rates, widened tax brackets, doubled the child tax credit and zeroed out personal and dependent exemptions, nearly doubled the standard deduction, and limited several itemized deductions and the alternative minimum tax, among other changes. Although not every change the TCJA made was a tax cut—for instance, placing a $10,000 cap on itemized deductions for state and local taxes paid increased taxable income for higher-income taxpayers living in high-tax states—the net effect of all changes taken together was to reduce average tax burdens.
In 2017, the year before the new tax changes took effect, the bottom half of taxpayers paid an average tax rate of 4.0 percent. After the TCJA took effect in 2018, the average tax rate for the bottom half dropped to 3.4 percent. Likewise, the average tax rate paid by the top 1 percent of taxpayers decreased from 26.8 percent in 2017 to 25.4 percent in 2018. Average rates declined across all income groups and have remained below their 2017 levels since. Further, we estimate making the individual provisions of the TCJA permanent would reduce taxes for about 62 percent of filers, leave taxes unchanged for about 29 percent, and increase taxes for just under 9 percent of filers in 2026."

Thing Three
Just A Thought
"Error of opinion may be tolerated where reason is left free to combat it." - Thomas Jefferson
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