$50,000

Thanks Mandie for the photo

In the interview posted previously with Ben Stein, he says that the average savings for retirement is something like $50,000. Let’s put some meaning to that.

Let’s assume this ‘average’ person is 10 years away from retirement. At a 7% compounding rate, this $50,000 would grow to $100,000 at retirement. If that sounds like a lot, then you may be suffering from lump sum illusion. Let me cure you of that.

Using the rule of 25 (in this case 1/25), we can see that this means that the retiree can pull $4,000 per year from this portfolio. That’s $333 per month. The average person has enough savings to produce $333 per month in retirement. If you are the average person, could you live in the Bay Area with that income? Okay, throw in $1,800 per month in Social Security and now you are up to $2,133 per month gross income or $26,000 per year. Could you live on $26,000 per year?