Guest Post: Who's Living Large in Retirement?

Tyler Durden's picture

Submitted by Dennis Miller, via Casey Research,

Who fares better in retirement, pensioners or folks who saved up their own respective nest eggs? If you look at the numbers, you might be surprised to learn who's really "living large" after retirement.

Regardless of how you made your money, what determines if you're rich when you retire? Frankly, it isn't how much money you made, but how much you accumulated that counts. So who are the real rich people?

Retirees generally fall into one of four groups: folks who retired from the private sector with a 401(k), IRA or a lump sum payout in lieu of a private pension; those with a government pension; self-employed folks who saved their own respective nest eggs; and finally, those scraping by on Social Security alone.

The U.S. Census Bureau reports that in 2010 the top 10% had a median net worth of $1,864,000. If you're worth that much or more, 95% of the population thinks you're rich. But are you?

When my wife and I were first married we had a negative net worth. No silver spoons for us! By our late 50s we were successfully self-employed and in the top income tax bracket. And yet, once we paid federal and state income taxes, plus Social Security and Medicare, about 50% of our gross income went to taxes. We raised a family with what was left.

Once the children left the nest, we were in the race to the retirement finish line. For us, like most folks, that's when we really began to accumulate wealth for retirement. Here was our challenge.

For a self-employed person to end up in the top 5%, with a net worth of $1,864,000, he would have to earn a spare $3,728,000 before taxes. Now that sure sounds rich, but is it?

Assuming this person lives in a paid for home worth $564,000, that leaves $1,300,000 in his portfolio for retirement. And let's assume he and his spouse receive $35,000 a year in combined Social Security payments.

Today the best rate for a FDIC-insured CD is 1.1%. If the entire portfolio was in CDs, it would pay $14,300 in interest. Add that to their $35,000 in Social Security and they earn just under $50,000. Remember, 95% of the population thinks they're rich. Their retirement income is likely no more than 40% of what they earned when working.

And the winner is...

Firefighters in Contra Costa County, CA have a state law protected pension; many receive over $100,000 annually. (Their department is also closing four stations to make budget.) I have several friends who retired from the government who've received a large increase the last couple of years, bumping their pensions to well over 80% of their former salaries. Many regularly risked their lives, and I don't begrudge them a dime.

But it would take a self-employed person $2 million in earnings to net $1 million, which could fund an $11,000 pension. It would take just over $9 million for a person in the private sector to fund the pension equal to a Contra Costa County firefighter.

So who is living large?

Those who are fortunate enough to have sound government pensions are living very well compared with those in the private sector.

So what do I tell baby boomers in the private sector? First get out of debt. The quicker you can start accumulating wealth, the better. If you have any type of tax-deferred retirement plan like a 401(k) or an IRA, strive to maximize your contributions.

Once you have maximized tax-deferred accumulation, move on to the next phase. Start accumulating wealth long before your nest is empty. Even saving just $20/week beginning at age 50, with a modest 4% growth rate, will turn into $31,573 by the time you are 70. Through the magic of compounding, $20,800 saved over 20 years will earn $10,773 on top. Start the process and watch it grow; it will make you want to save more.

Don't rush out and join the fire department. Whether you are in the government or private sector, the combination of tax-deferred retirement income, savings and prudent investing, and most importantly—having an easy to use plan that you’ll actually follow—is what will help you enjoy your "golden years."

In our Money Forever letter we recently developed a monthly income plan using some of the safest dividend stocks on the market. The plan is easy to follow, doesn’t require an extensive background in investing or even that you start with a lot of money; you just need a willingness to learn and a desire for reliable monthly income. Click here to find out more.

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Teamtc321's picture

Thank you for helping him open his door and loading the cooler's.


And Fuck you Bernake!!!!

Broomer's picture

You should watch this movie called Blade Runner.

trollin4sukrz's picture

What a buncha shit that above article is. I was forced into a fvkin401k while working prevailing wage in construction. After a year of +investment+ in the SAFEST program allowed, the fvkers charged me 15.89 to lose me 13.65. Lucky for me i didnt have a shitload in a 401K!

Oldwood's picture

We have built a bomb of incredible proportions.Each small explosive device, by itself destructive but of minor consequence alone, placed about a core of enriched debt, levered by countless financial instruments. Each of these small, strategically placed charges, when detonated will create a critical mass of debt that will unleash the binding elemental bonds of society (trust) resulting in only God knows what. Standing by for the count down.

bank guy in Brussels's picture

Very funny so-called 'financial advice' above ... Article says

« Even saving just $20/week beginning at age 50, with a modest 4% growth rate, will turn into $31,573 by the time you are 70 ... »


Where is a guy with only 20 USA fiatscos going to get 'four per cent' interest ?

What will US $31,573 be worth 20 years from now ... a bag of groceries ?

For a guy who is 70, with 30 thousand bucks today in America, what happens to it ? It disappears suddenly ... something Medicare doesn't cover ... some situation, the banks foreclose on his house even tho he owns it free and clear, and the American lawyers steal all his savings 'to save his house' ...

The fireman's big pension etc., just underlines the point the whole American system is going to explode ... the 'financial advice newsletter' sales pitch at the end of the article sounds like the same shite they have sold for years.

« ... tax-deferred retirement income, savings and prudent investing ... »

Ha! ... Americans who believed sales pitches with those words are often broke now.

seek's picture

Yeah, factor in the real rate of inflation and the purchasing power of that "saved" $31K in 20 years is worth about $10K in today's dollars.

Save money to go backwards. That, in a nutshell, is why we're fucked until the reset hits.

Hongcha's picture

if I was 70 in America, with only $31,000 ... I would make sure my teeth were fixed.  I would get a medical marijuana card and a pile of books, and a comfortable chair; and probably do just fine.

Seychelles's picture

Right.  The whole "investment" construct is a financial services conjob.  Most people are way ahead of the game over their working lifetimes if they can break even with their saved after tax dollars.  Most "investors" lose big.

FunkyOldGeezer's picture

$1,864,000 isn't enough for a decent pension????  Just draw down 3% - 5% a year and hope you pop yer clogs before senility.

Some people just don't live on the same planet. This article smacks of jealousy and angst, for choosing the wrong path in life.

MachoMan's picture

It's also kind of suspect that two empty nesters need a $500k house...  here, for $500k, you could get probably 4000 sq ft of top shelf, brand new construction on multiple acres w/ large shop. 

And he's complaining about receiving $50k/year in SS and interest, but that's $10k more a year than the average family here makes in a year... 

GCT's picture

Macho I was thinking the same dam thing.  Hell the median wage for a family of four here is 35 grand!  500k home here would be on one of the best golf courses in the state and be 6000 sq ft or a3000 sq. ft. home in the country with 200 acres!

Shit you can buy a 200 acre working farm here with 4 chicken houses making 6 figures a year for 500k!

Marge N Call's picture

Curious GCT (in a good way), where is "here". I live in the suckass Northeast (yes it sucks).

GCT's picture

Marge I live in Arkansas.  Originally born and raise in CA, Venice Beach.  The people here are friendly and would give you the shirt off their back.  They shut the factories down here for two weeks during deer season as no one will give up hunting hehe.

It is a poor state though, the cost of living is great though.

Downtoolong's picture

How about the school superintendents in New Jersey who retire with $200k + in pension plus two years of accumulated sick pay and medical coverage for their entire family for life , then get a job in the New York or Pennsylvania school system and get paid a full salary while accumulating another pension. Sweet. And you thought teaching was for dweebs.

seek's picture

Teaching doesn't pay. Being and administrator does, however. Just look at the admin to teacher ratios over time, or admin salary to teacher salary, and you'll find where the largesse of education spending is really going.

MisterMousePotato's picture

Teaching pays, asshole. Case in point ... Timothy Bowman. High school teacher in Illinois. Look 'im up. Tell me teaching doesn't pay. Asshole.

hooligan2009's picture

this one?

easiness, helpfulness and clairty...doesn't matter if it's right or wrong i guess

MisterMousePotato's picture

No, this one:

(Misspelled the name - it's Bouman.)

$632,000 per year. Just one of many. In Chicago. Which is just one of many. In Illinois. Which is just one of many in the U.S.

We are on track in the United States to pay more money to 20 million public sector retirees – at an average pension of $65,000 we will pay these retirees $1.3 trillion per year, than we will be paying in social security to 80 million private sector retirees – at an average social security benefit of $15,000 per year that will cost less, about $1.2 trillion per year. Providing a level of retirement security to government workers that only the wealthiest 1% can enjoy in the private sector is not “protecting the middle class,” it is economic enslavement by government unions over the taxpayer.

No More Bubbles's picture

This article was GARBAGE!

PMakoi's picture

Take care of your health.  Buy some good land with good water near a nice smaller community.  Get to know the locals while you're still visiting.  Build a retirement home there.  Stock it with the tools you need to be self sufficient.  Have a marketable skill.  Grow what you can.  Trade goods and services.  Don't count on Social Security.  Don't count on the Government at all.  If the market, and your investments within it, and the firms/people you've trusted it to, hold together long enough, you'll be okay.  If you've got a barn too, stock non-perishable commodities.  If you've got the dough to spare, income real estate in the community where you want to retire.  Maybe rent to firefighters and school superintendants... 

steelhead23's picture

^PMakoi nails it.  Elsewhere on ZH we learn that the Fed is about to enjoy negative income.  To fix that it needs more assets that pay more than its interest on excess reserves payments.  Does this ring a bell?  How could the Fed continue to feed the QE beast without generating more excess reserves it has to pay interest on?  My guess is that the Fed needs to purchase (with money it creates) about a trillion in new USTs in order to remain solvent - more raw emissions of money and frankly the price of damned near everything is going to go up, way up.  So straight out saving is a losing approach - your money will never be worth more than it is today.  If you wish to invest, get your money out of U.S. dollars and into anything that is unlikely to decline in value - like farmland.  But you'd better hurry - land prices are skyrocketing.

hooligan2009's picture

hey, that's a fix...the Fed can pay down the yield curve til it's negative and the debt will just go away! push it down to -10% and the debt has gone in 7 years!!!

augustusgloop's picture

can't rent to FF and SS because they are the ones doing what you are describing. They are the only ones in these cracker communities outside big cities that make any kind of $. They work few hours and are puttering around in their workshops the rest of the week after working 20 hrs a week. 

respect the cock's picture

Most (line) firemen work about 50-60 hours per week.  Don't get too carried away.

espirit's picture

You are what you eat, or what you can get to eat.

I'd rather be living large on a farm.

q99x2's picture

I'm going to college to find a few fires to lay to rest. You can keep the pension.

Seorse Gorog from that Quantum Entanglement Fund. alright_.-'s picture

If being an oldster is anything like this...


...then sign me up!

Kastorsky's picture


all that BS about pigs and fire dept, risking their lives.

Average cab driver risk 10 times more.


I'll laugh when all this fat pig retirement goes fucked with municipal bankruptcies.  

I do get pig's charities calling some time - I tell them to go fuck themselves, or ask if gestapo ran out of cash, why not sell some more guns to Joaquin Guzman.

outamyeffinway's picture

Quick! Everyone start maxing out your tax shelters! I too can has bonds in my 401?

Bear's picture

I'm selling bonds in my IRA

Seychelles's picture

Absolutely no way these retired government employees have earned that kind of retirement pay. Retired self-employed citizens even with considerable savings are getting squeezed badly with only SS and ZIRP.  I am 68, have no debt, 2M in laddered T-bills in personal posttax savings and get about 1350 per month in SS live frugally to minimize loss of savings.  Those who have allowed themselves to be suckered into risk-on parking places for their savings (junk bonds, stock market) are going to find out one of these days that the yield they are getting doesn't begin to compensate them for the REAL risk they are taking.  What will they do at 60+ after losing a large percentage of their principal, wait 20 years for the markets to recover?  Madness. Are the J6Ps going to tolerate forever these civil service and military retirees living high on the hog with other peoples' tax dollars?  How can these pension plans be earning their actuarially needed 8% year after year?  Widespread defaults on pension contracts may be the kindling that gets a social bonfire roaring.

hooligan2009's picture

i think you should be spending 100,000 a year, spartacus

RideTheWalrus's picture

So in the future, will our bio-metric implants be able to tell us how many credits we have in our social security account?

Stuck on Zero's picture

The people in my area who are really, really rich are the government workers.  They were able to spend every penny of their income on entertainment, cars, vacations etc.  In retirement they are pulling in $140K+ each on average.  Some, much more.  Our neighbors pull in $420K between the two of them.  They also get premium health care.  Their kids got big scholarships because their net worth was low.  It's just impossible for someone in the private sector to get to this level of wealth.  My wife and I struggle to save and put our kids through school.  We pretty much live like paupers.  My income isn't bad, either.  We own two small apartments in which I have poured sweat equity.  It has been nothing but work and it's pretty disheartening to see the largess poured on government workers.  If you don't believe it pay a visit to Washington DC area.  The wealth there is startling.


trollin4sukrz's picture

And I was raised in the years of the saying "if you cant get a real job you can always work for the gov." Back a few short generations ago the gov job paid shit and had a stigma attached. WTF happened? I know a few gov workers and all i can say is I sure as hell wont trust them in the coming foxhole we all be living in.

optimator's picture

Those were the years we asked, "Does your Father work?"  The answer was, "NO....he's employed by the Government".

Seychelles's picture

But most of these folks have zip if/when the pension fund dries up.  It's all current cash flow, no backup savings.

Rentier's picture

nice get a 80k to 100k pension with only a 3-6 month fire fighting certification.

hooligan2009's picture

median house price = $178,900 from here:

thirty year mortgage rate = 3% from here:

median household income = $50,054 from p7 (last para middle column) here:

median house price is 3.6 times income and costs c. $8,900 p.a. @ 3% for thirty years, $10,200 @4%, $11,500 @ 5% and $12,800 @6%

studies sugges that most people expect to live off 80% of their pre-retirement living standard and most will live 20 years in retirement; from here:

if you live 20 years, you can take 5% fixed of your retirement capital and assume that any interest you earn saving it up and using it covers inflation and emergencies. this is the price of the fed supporting banks at peoples expense...there is no real (after inflation) return

the capital you need on retirement with zero real returns = 80% of $50,054 final salary, for 20 years until death = c. $800,000. 

if you put this in the same time period of house mortgage of 30 years, you need to save c. $26,545 per annum for thirty years.

planning for a retirement based on 80% of current living standards is a joke. the pension pot required is 4.5 times the value of the median house price. it also requires (over a thirty year period) for you to save a little over half your salary in order to retire.

this is the cost of qe and bank bail-outs for the rest of the economy. remember that banks charge you for the privilege of obtaining a loan, on top of the interest rate and munis and states charge you for the privilege of having a road (then you have utility bills, groceries, holidays and gas guzzling SUV's, beer etc).

why are you paying taxes to make you poor by feeding, healthing and housing crack addicts and the "poor" who are better off than you are with all the benefits that are farmed out?


orangegeek's picture

When these markets collapse, pensions are fucked. 


Pensions are ponzi schemes - the creators have all been paid out, so fuck the rest who are left hanging.

trollin4sukrz's picture

Yes indeed.. was @ the library recently, started up a covers with a retired state worker from alaska that had a huge bitch of having his pension axed in half. One whack.. half- up in smoke.. his OLD lady said, "we dont know what we are going to do." Fvkin makes me feel lucky i live in a shit house with low payments and dont depend on any retirement whatsoveah, as I know the 35 years of paying into SSI will be gone about the time I want/need/expect it..Wish the bastard thieving gov would give me that money back. No interest even.. just cut me a check and we will call it good?.. dreamon/

Seasmoke's picture

The next Civil War

dreadnaught's picture

notice how the Republicans take obscene, extra juicy wages and Healthcare and other perks and bennies-then a wet dream retirement package fit for a king-yet they want to cut Medicare-Talk about the rich being on welfare