By Scott Burns
It requires gobs of money to be a person of independent means when you are young.
But age changes everything.
Once you have achieved geezerhood, your personal fortune can be a small fraction of what a younger person needs, and you'll live just as well.
There are two reasons for this--- Social Security and what might be called the Old Mortality Trick. Let's tackle Social Security first.
While more young people believe in flying saucers than believe in Social Security, the reality is that Social Security is the largest source of retirement income for the vast majority of Americans. According to a recent study by EBRI, the Employee Benefit Research Institute, Social Security provides an average of 38.6 percent of all income for people age 65 and older. That's more than double the 18.6 percent that comes from pension and annuity income or the 15.6 percent that comes from assets.
Even if your income puts you in the top 20 percent of all retirees, Social Security benefits are a big deal. The same EBRI study shows that top-quintile seniors still get 17.2 percent of their income from Social Security.
Impressed? You should be. Every dollar of Social Security income eliminates the need for $20 to $25 of retirement savings. As a consequence, you need a whole lot less in savings to live the Life of Riley as a retiree than you would need as a young playboy or playgirl.
How much is a whole lot less?
Well, last week I showed that you needed $3.1 million to live the sweet life with an income that put you in the top 25 percent of all American households--- an estimated $70,000 a year. Using figures from the Aon Consulting replacement rate studies, retirees can live at the same standard with a mere $490,000 if they will risk a 5 percent withdrawal rate, or $612,500 if they use a more conservative 4 percent withdrawal rate.
That's a whole lot less than $3.1 million.
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