What would inspire a 74 year old man to run for the office of president of the United States? Yes, it could be a passion for reducing financial inequality among Americans, as Bernie Sander’s campaign indicates. But could it be that he needs to keep working because he hasn’t saved enough to retire? USA Today reports that Bernie’s net worth is roughly $330,000. That is not a lot to show for a life-time of work, and comes out to a monthly income of $1,100 per month.
Most of the presidential candidates are multi-millionaires, but a few stand out as being behind in planning for their financial futures. Rand Paul has an estimated net worth of $1.3 million, which doesn’t seem too bad for a 52 year old. However, he is earning $300,000 per year, and if he were to replace that income with savings by the time he is 67, he’d have to grow his net worth by nearly 6 times. Marco Rubio is the youngster among the candidates at the age of 44. His current net worth is estimated at $443,000, with an annual income of $174,000 per year. He’ll need to grow his savings by ten times to replace his current income. Perhaps Rand and Marco are just shooting for a higher paying job. Then there is democratic candidate Martin O’Malley, whose net worth Forbes estimated at zero. Martin and his wife are high earners with over $800,000 in annual income between them. They can count on generous pensions from their government jobs, however to close the gap with their current spending levels, they will need to have savings of $13 million.
Actually, these stories are not unusual. Neither high earners nor people in high places have it nailed when it comes to planning for their financial future. A Pew Research Center study found that the median net worth (total savings minus total debt) of upper income families in the US in 2013 was about $639,000, while the median annual income was $147,000. To replace that income level in retirement, net worth would need to grow by nearly 6 times. Imagine what will happen to the economy when even our high earners have to take a pay cut in retirement.
With the near extinction of the traditional pension plans that paid workers a guaranteed monthly income, Americans have been left to their own devices to save for their financial future. Most are at a loss to know how much they’ll need or how to save, making for a rude awakening at the end of their careers. However it is possible to create a plan and be successful.
- Start by saving enough to replace your current spending. You can reasonably expect to be able to spend $333 per month for every $100,000 you save when you stop working for money. As your income grows save more. You can fine tune your targets along the way.
- Eliminate debt. This provides the highest risk free return on your money, and debt payments can be converted to payments into savings for your financial future. After all, your financial future is in a sense a debt. You just never get a bill for it.
- Invest simply. Today’s financial markets offer many simple investment options for those who don’t have the time, inclination or skill to manage their own money. Target Date mutual funds are a great place to start, because they automatically adjust your investment strategy to align with your remaining time to retirement.
I’m sure the candidates are running out of love for country and not because they can’t currently fund their retirements. But that is the issue. Like many Americans, they don’t even know the extent of the problem. Fortunately it is possible to save for a secure financial future by understanding what you are doing today and making a plan.
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