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Retire early? Work forever? Both are absolutely unrealistic

The FIRE concept (financial independence, early retirement) has taken over whole areas of the Internet for financial planning. But a second, less attention-grabbing idea (as far as we know, an acronym is missing) is also common: people who do not want to retire at all, but continue to work until they fall over.

How realistic are these two extremes in the retirement spectrum? Barrons spoke with Teresa Ghildarducci, the Irene and Bernard L. Schwartz Chair of Economic Policy Analysis in the New School's Economics Department, and the author of How To With Enough Money.

"Both extremes are a commitment to fantasy and avoidance," she says. This conversation has been edited and condensed for clarity.

Barron's : Let's start with your thoughts on the movement to retire early ̵

1; the "Plan for Financial Independence, Early Retirement" or the FIRE Plan. Ghilarducci: The person who says, "I want to give up early," should probably talk to a therapist, because they probably have some uncertainty about what they want to do with their lives, or they do not like their work. But only financially, it makes no sense if you are not very, very rich and if you are very, very rich, you probably have an expensive taste. For most people who have given up work for 40 or 50 years, this is simply not a plan that can be upheld for everyone except for the people on TV. So I tell someone who wants to retire in the 40s and 50s. Did you hear what I said? And 50s! 50s is too young. The math will not work.

What about the people who say, "Oh, I'll never retire. I'll work until I'm 90 "?

There are two types of people who say that. There's the rare pediatrician who loves his job and wants to see some kids a couple of times a week until they're 90. That is rare. That's why you see them in the newspaper. This is a kind of part-time work, part time, "I control my pace and my work content".

Read Our Recent Cover Story : How Your Kids Can Ruin Your Retirement – And How You Can Make Sure They Will not

The second group is made up of people who work on cognitive dissonance. They know that they do not have enough money, and they engage in a different kind of fantasy, namely, "I can work until I die. My employer will want me. "We note in our research that there is enormous age discrimination [level of] and that there are many jobs that are so fast in terms of technological capabilities that an older worker is unable to keep them.

And even the non-technical jobs can have a strong physical component.

Yes, it's really surprising. Heavy lifting as a work requirement has decreased for people over 50. But stooping or bending or walking is not required. In fact, older women need to be bent and bent more than ever before. The storage and care work of Amazon requires a lot of physical strength. Even computers require sharp vision and intense concentration.

Now it looks like older workers are pretty good TSA screeners. They do not get so annoying and they are a little more patient. But an older worker, even if the older worker can do the job, will be much more expensive for an employer. Pay is a bit higher and their health care costs are five times higher than for a younger person.

Do most people choose when to retire, or does it just happen?

It is always much more worthy to say that what you do is something you have chosen. But when researchers investigate and ask people why they retire, most people find that retiring is not voluntary. They were evicted or dismissed, or they had to look after their spouse or take care of their own illness. Most people do not retire if they want to. They retire earlier. Most people will quit before the age of 65 and complete social security before the age of 65.

Perhaps a part of the never-retired people was discouraged, assuming, "If I'm going to live 30 years after I retire, I have to save 30 years salary. "But it does not work that way.

If a person says "I need 50,000 dollars a year for 50 years" and then only 50,000 times 30, they would have too much money. If you are 65 or so, you should have saved about eight times your retirement pension if your annual salary is what you want to live on.

And do you have to replace 100% of your annual salary?

You need 70% of what you normally live on. Why is not it 100%? Because you do not need any travel costs. You do not have to save. Your taxes will be lower.

Eighty percent of Millennials and 84 percent of Gen Xer say they are worried that social security will not exist at the time of their resignation. How does this factor affect you?

If your replacement rate is 70%, Social Security will provide just over half of it, or about 40%, to an employee earning $ 50,000 a year. This means you need another 30% and you have to save 30% for them. If you've earned $ 50,000 while working, you'll need $ 300,000 in savings to live up to the standard you've experienced while working.

So what should people do instead of hoping to either work forever or retire early?

Here are some rules of thumb. If you are 30, you should not be in debt and have about half of your salary in the bank. If you are 40 years old, you should have a little more than your annual income in the bank that you deposited in a 401 (k) or IRA for retirement. If you are 45 years old, you should have twice the annual salary. If you are 50 years old, you should have three.

If you are 65 or older, 63, you should have about eight times your annual salary if your annual salary is about what you want to live on, excluding taxes and savings. Disappear with debts up to 30; Save 5% to 10% of your salary on a secure and secure retirement account, and do not touch it for 40 years.

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