Goldman Sachs has a report: The New Economics of Retirement Survey results from interviews with working and retired Americans by generation and wealth level.
There are some noteworthy data here.
For example, they asked retirees what percentage of their pre-retirement income they were supporting during retirement:
The average is 60%, which makes sense since you typically need less income during retirement. No more payroll tax. You don’t need to save money anymore. Work-related costs, such as commuting, are eliminated. And many retirees owe money on their homes.
This is one of the reasons You probably need to save less money for retirement than you think.
This chart is obvious but also interesting:
People with access to a workplace retirement plan have a higher savings-to-income ratio. Therefore, the government should do its best. Giving every worker who wants to access a tax-deferred workplace retirement plan.
It is also worth noting that people are living longer in retirement:
This will have implications for how much risk retirees should take, the timing of inheritances (later than you think) and the growing need for financial advice in the coming years.
Now let’s get to the real highlight:
This chart shows that 41% of households earn between $300K and $500K living paycheck to paycheck. And 40% of households earn half a million dollars or more, living paycheck to paycheck!
Anyone with any knowledge of personal finance will take one look at these numbers and immediately lecture you on the evil of the lifestyle.
It doesn’t matter how much money you make. You’ll never get ahead if you spend more than you bring in.
This is solid financial advice that I wholeheartedly agree with.
But that doesn’t happen here.
It’s ridiculous to believe that 40% of people making half a million dollars are living paycheck to paycheck. Earning $300,000 a year puts you in the top 3% of salaried workers. If you make $500,000 a year, you’re in the top 1%.
Come on! Paycheck to paycheck? NO.
So what’s the real story?
Three things.
1. Social media. I’m not a Luddite. Technological innovation is one of the biggest reasons why we’ve made so much progress as a species over the last few centuries:
Having said that, social media was probably a mistake.1
Keeping up with the Joneses used to be your peers, neighbors and co-workers. There was jealousy, but it was relatively under control. Now every day you are constantly inundated with people flaunting their wealth, spending, vacations, material possessions, investments and more.
Social media is full of influencers, billionaires, scammers, and people who create fake lives that will make you feel like you don’t have enough money.
Our brains were not designed to be bombarded with so much information about how certain people in society live.
We have so much this way rich people who don’t feel rich.
2. Surveys. In his book Everyone Lies Seth Stephens-Davidowitz does not hold back:
People lie about how many drinks they had on the way home. They lie about how often they go to the gym, how much those new shoes cost, whether they’ve read that book. They call even though they are not sick. They say they will contact you when they cannot reach you. And yet they say it’s not about you. They say they love you even though they don’t. They say they are happy when they are in the dump. They say they like women when they really like men.
People lie to their friends. They lie to the bosses. They lie to children. They lie to parents. They lie to doctors. They lie to husbands. They lie to their spouses. They lie to themselves.
And they’re definitely lying to the polls.
Not necessarily this everyone He’s lying, but you should pay attention to what people do, not what they say.
You also need to look at the actual questions asked in surveys. Take a closer look at how Goldman defines living paycheck to paycheck:
I find it difficult to make progress on long-term financial goals.
This isn’t living paycheck to paycheck! Making progress on long-term financial goals can be difficult because you don’t see results in the short term! This is also a subjective definition because different people have different long-term financial goals.
But what if your long-term goals are to own a private jet even though you’ve maxed out your 401k limit? Does this mean you live from paycheck to paycheck?
The other reason you should be skeptical of most financial research right now is vibrations are broken.
From where?
3. Epidemic. derek thompson He wrote about wealth and happiness with a graph showing how dramatically the pandemic has affected our collective emotions:
Look at consumer sentiment:
Covid has caused a happiness gap that we still haven’t recovered from. And this leads to some strange responses to financial surveys.
Here’s another one from Gallup axios:
The share of Americans who say their financial situation has worsened has never been higher this century.
Worse than the Great Financial Crisis? Are you kidding me?!
I lived through the 2008 financial crisis. The financial system nearly collapsed. The stock market fell almost 60 percent. The unemployment rate reached 10 percent. Nobody got a raise. You felt lucky to have a job. Businesses went bankrupt. Those were terrible times.
We are not in recession right now. The unemployment rate is low. Americans are richer than ever. The stock market is at an all-time high.
I feel like I’m taking crazy pills! Or maybe everyone is.
Frankly, the economy is not perfect. It’s never like that. Inflation is painful for many households. Some households are better off than others.
But please don’t believe every survey you read.
Pay attention to what they do, not what they say.
Michael and I talk about living paycheck to paycheck, surveys, and more in this week’s Animal Spirits video:
Subscribe Compound so you won’t miss any episode.
Further Reading:
Super Rich
Now here’s what I’ve been reading lately:
Books:
1And I say this as someone who has benefited from social media in many ways throughout his career.
