Focus On Generating Retirement Income and Not Just Saving For Retirement
Today, Mr Credit Card from www.askmrcreditcard.com is going to write about a topic that may stir a little controversy – the problem about thinking about “retirement savings” and proposes that we should think about “generating retirement income” instead. Please check out his best credit card recommendations and business credit card sections.
The term retirement did not exist in the 19th century. Back then in the “old days”, folks did not think about retirement. Families had businesses and they passed them on to their kids. The family was a strong unit. Very often, families passed on their business to the next generation.
But somewhere in the 20th century (at least in the United States), the term “retirement” became really a catch phrase. I’m not too sure where it all originated. Perhaps it was the passing of social security in the 30s and the generous pensions that came with government jobs. It could have started because of the industrial revolution. Folks who used to work in the fields came to the cities and did manual work for big companies.
Whatever the origins, the “standard recipe” for retirement seems to be as follows:
Spend less than you earn – Extremely smart advice in my opinion.
Putting part of that savings into a retirement account – On paper you cannot really argue with this.
Withdraw 4% from your portfolio every year – Going with the assumption that one will live about 30 years after retirement, withdrawing 4% a year from your portfolio is the magical number that has the best chance of keeping your portfolio intact for those 30 years. (we are assuming a retirement age of 65).
Aim for the magical $1 million in retirement savings – For some reason, the magical $1 million appears to be the number. But I question whether this number is realistic today.
I have two big issues with the “mindset” of “looking forward to retirement”.
1. You never know if you will ever save enough – Yes, that’s right. You never know if you will ever save enough. The traditional figure says $1 million. But because we run an inflationary monetary policy (ie consumer prices go up 1% to 2% a year (on average anyway), you will probably need a much higher figure now.
You never know how your portfolio will do when you retire
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