Early Retirement Extreme Forums

I'm watching an "expert" talk about how much you need to retire on the Today Show. She's saying you need 7x annual income to retire, so someone making $50,000 is $350,000. That's a SWR of 14%.
Why the ridiculously low number? I assume some tax fudging and cost cutting is involved, plus SSI contributions were mentioned. I thought this was interesting; I remember back in 2006-2007 I was hearing much higher numbers. Is this a different Wall Street marketing tactic--trying to lower the bar to make investing seem less impossible and lure more people into the market?

Probably....so many people in their 40's and up have so little saved that even making $50k the idea of saving the $1M by 65 they used to bandy about makes retirement seem impossible to them so they don't save at all.
I think is really a mix.... Wall Street trying to get people to invest and Washington for people to just save period.
After all....deficit or not...if people have nothing saved they are going to demand that SS payments be increased so they can live like they have been all their lives.
And nothing prods people to be voters than their own self interest.

Probably....so many people in their 40's and up have so little saved that even making $50k the idea of saving the $1M by 65 they used to bandy about makes retirement seem impossible to them so they don't save at all.
I think is really a mix.... Wall Street trying to get people to invest and Washington for people to just save period.
After all....deficit or not...if people have nothing saved they are going to demand that SS payments be increased so they can live like they have been all their lives.
And nothing prods people to be voters than their own self interest.

People are obsessed with finding the magic number lately. You're probably right about them lowering the number so they don't scare people into throwing up their hands. This is the first time I've heard something as low as 7x. I've heard everything from 8x to 13x in the last month or so. IIRC, AARP's official number is 9x.
This is my favorite recent "how much" article:
http://www.freemoneyfinance.com/2012/11 ... urity.html

Well I'm still employed and well past the AARP 9x....I guess I'm safe {:>p

So if you can get your annual income down to zero you can retire immediately!

Yes, it's a Wall Street response to the disappearance of the retail retirement investor. Wells Fargo has taken a different approach, doing a study (survey) to show that people who have $250,000 in retirement savings are "confident" in retirement.
WFAffluentRetirementSurveyPriceofRetirement

Yes, it's a Wall Street response to the disappearance of the retail retirement investor. Wells Fargo has taken a different approach, doing a study (survey) to show that people who have $250,000 in retirement savings are "confident" in retirement.
https://www.wellsfargo.com/press/2012/2 ... Retirement

hahaha this is so funny. It's all bullshit. Man, am I glad I found this forum--I feel like I've stepped out of the matrix sometimes.

@hoplite
NO...NO...NO....We CANNOT have everyone "confident" about retirement...people who are confident are happy and happy people tend to live longer and collect SS longer...

@FrugalZen,
No worries, if you give a broker your $250,000, I'm really, really confident that the horrible outcomes you foresee will not come to pass

But the Broker will be confident and happy,,,,

well it is 7x income not 7x expenses so if you could live off of half you'd have 14x expenses and if your income is high like many here (but not me) perhaps you'd be at 21x.

+1 on what Christopher said...
For many of us, 7x annual income is 30-60x annual spending.

adjusting expectations for the future downward - the new reality ...

The very idea of basing retirement savings off income makes me shiver. I wouldn't listen to anybody who recommended basing savings goals on income. You can only estimate reasonable goals based on expenses.

It could be reasonable. 7x income at 4% SWR implies expenses of 28% of income, and therefore a 72% savings rate. That means you can ERE in about 10 years.

I think this might be based on a recent Fidelity report that tried to tell you how much money you need to retire. Here are two links that discuss it (just top results on Google):
http://portfolioist.com/2012/09/24/savi ... -part-two/

http://www.marketwatch.com/story/retire ... ry_popular
To answer secretwealth's original question, I can sort-of make the numbers work like this:
First, assume that the person in retirement will only need 80% of pre-retirement income, so we're looking at $40,000. (this 80% figure is a common adjustment)
Second, they must be expecting Social Security. My number for that is about $23,000 per year, even taking it at 62. (Includes spouse at 50%. I think my numbers are slightly higher than average for SS, so maybe take 10% off this)
If you did a 5% SWR of $350,000, that would be $17,500, so you would roughly have the $40,000 income.
I'm pretty sure the Social Security wouldn't be taxed, neither would there be Fed taxes on the $17,500. (sound right?)