About 44% short, according to a new study by Fidelity Investments.
Like the massive RETIRE Project Georgia State University conducted for decades, the Fidelity study assumes that because some expenses decline once you retire, you don’t need as much income to maintain your standard of living.
But that’s about where the similarity ends.
While the GSU study(1) estimates that an individual earning $50,000 to $90,000 per year needs to replace 80% of that amount the first year of retirement in order to maintain their standard of living, this amount includes the taxes you’ll still have to pay on some of your income/ On the other hand, the Fidelity study also assumes you’ll need 80% of your pre-retirement income, but on an after-tax basis.(2) As a result, the before-tax income you will need will actually be 25% higher than the monthly amount cited. [snip]
The Shocking Shortfall…
Nonetheless, based on the self-reported information, Fidelity estimates the “average” baby boomer will need after-tax income of $4,800a month starting at age 67, (the year after reaching the Social Security “full retirement age” of 66) and will live to be 92. Income from Social Security, pensions and withdrawals from investments is projected to make up $2,700 of this amount. That leaves an "estimated" monthly income gap of $2,100, which translates into a shortfall of 44%. Again, however, because these are after-tax numbers, the shortfall amount is actually larger on a pre-tax basis. (continue reading at Fox Business)
If the above study is true, what should you do? Read the full article at Fox Business for some ideas.
As to your 401K retirement funds, there was talk in 2008 of Democrats in Congress conducting hearings on proposals to confiscate private retirement accounts and turn them into government-controlled accounts managed by the Social Security Administration, by implementing a new tax in the guise of mandatory savings scheme.
In 2010 there was discussion of ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into government provided and government managed annuities or other steady payment streams, which would guarantee income until the retiree’s death, and often that of a surviving spouse as well.
Move forward to present day, 2012, and the government wants to take away your tax deduction for money contributed to your 401K. The government needs the money, needs the money now, more money for them to spend and waste. Does anyone think the government would hesitate to tax the 401K again when you start living on that money? According to this article at Tycoon Research, a little background:
The advantage of a 401k is that all money put into it can be taken as a tax deduction against your income. So, in effect, the government subsidizes a good portion of your retirement savings. This is one of the greatest gifts the Federal government has ever given us, because our money is allowed to compound completely tax free!
Now it's not all gravy -- you can't touch this money until you are 59 1/2, and when you start pulling money out you are taxed at ordinary income levels. This is regardless of whether your gains came from long term capital gains or dividend income. At this time, ordinary income rates are, generally speaking (depending upon your tax bracket), higher than capital gains rates and dividend income rates.
So the government gets their money in the end, which is why these are considered tax deferred plans, not tax free plans.
The advantage for the saver to contributing to a 401k is that contributions are tax deductible, meaning they get to grow their money for decades without the relentless performance drag of having to pay capital gains and dividend income tax each year. [snip]
Why should the entire nation be held to the standards of people who can't make good decisions for themselves? It is not only wrong, but it is destructive to our way of life. We are a people that firmly believe in the right to determine the direction of our own lives. We don't need a bunch of narrow minded Washington pukes telling us what's good for us.
It is not unimaginable that this legislation will pass, because crazier things have happened in our country's history. For instance, back in 1933 under Executive Order 6102, all privately held gold was confiscated by the US government.
You were compelled to sell your gold to the Federal Reserve for $20 an ounce under penalty of 10 years in prison. The Federal Reserve then promptly sold the bulk of the gold for $35 an ounce to the Europeans while pocketing the difference.
What's to say that they won't do the same thing with our 401ks? (continue reading)
In a bit of sad irony:
A federal government that is $15.6 trillion in debt is currently using its “bully pulpit” to run 16 different programs to teach citizens “financial literacy,” according to the Government Accountability Office, the accounting agency of the U.S. Congress. (CNS)