In theory, the maximum possible Social Security benefit in 2019 for someone who retires at full retirement age is $2,861, up 2.6% YoY. However, in order to collect the maximum benefit, you would need to earn the maximum taxable amount for 35 total years.

Given the maximum taxable amount is $132,900 for 2019, this is no easy feat. According to the the U.S. Census Bureau, median household income is only about $62,000 a year and the average household income is about $11,000 higher.

Thus, instead of the max $2,861, the average Social Security benefit is roughly $1,461 a month. Receiving a total of $17,532 in Social Security benefits a year is not enough for a comfortable retirement.

According to the Bureau of Labor Statistics data, “older households” – defined as those run by someone 65 and older – spend an average of $45,756 a year, or roughly $3,800 a month.

I don’t know about you, but spending $45,756 after-tax a year in retirement sounds like a lot! Based on a 20% effective tax rate, $45,757 is equivalent to $57,195 a year in gross income.

To generate $57,195 a year in gross income requires an investment portfolio of $1,429,875 generating 4% a year. Could it be that the average 65+- year-old retiree is a millionaire?

Given we know the average 60-69-year-old American retiree has only about $198,000 in their 401(k) and only $63,000 if we look at the median 401(k) account balance, something seems off.

Or, we can take the positive view that everything seems to always turn out OK in the end. After all, if you are a current retiree over the age of 65, you likely have some pension income and are certainly eligible for Social Security, which averages roughly $1,422 a month.

Add on some financial help from respectful kids, and all is good for current retirees. Unfortunately, the same might not be true for future retirees.

The following is a guest post from a 25-year-old Financial Samurai reader who lives in Washington D.C., makes $55,000 a year and maxes out his 401(k).

After Sam published his article, Achieving Financial Freedom On A Modest Income In Manhattan, I was fascinated to observe some of the no-can-do responses he received from his readers.

Instead of focusing on Sam’s message of cutting down housing costs, distracting yourself from spending temptation by working more than the average American, and building extra side income while you are young, the naysayers could not accept that he saved 30% of his $40,000 salary even when he did.

They said people making a similar income in today’s dollars would have no chance. Well I make a similar income in today’s dollars and I save an even higher percentage.

There’s a great saying: whether you think you can or you can’t, you’re right. It seems like no matter how much you demonstrate what’s possible, people don’t believe in themselves.

I used to be very salty against those who earned more than I did too. My parents didn’t pay for college, so I had to work ~15 hours a week during school and 30 hours a week each summer to afford my public school tuition. I also lived at home for the first two years of college as well to save money.

But when I graduated from George Mason University in December 2016, I didn’t have any debt. Tuition averaged only about $10,000 a year for my four years there so I handled it like a boss.

I studied accounting, the most boring major in the world. But I knew the chance of getting a decent paying job out of school was high.

I did not have the luxury of studying History or English like my rich private school friends who went to American, George Washington, or Georgetown.

According to Fidelity, as of September 2018, the average 401(k) account balance is $106,500. Fidelity holds 16.2 million 401(k) accounts, including my Solo 401(k). Fidelity is consistently ranked as one of the largest 401(k) providers in the country.

The median 401(k) account balance, on the other hand, is a paltry $24,800. It’s clear that despite an enormous bull run since the 2009 lows, not enough Americans are saving for retirement or don’t have pre-tax retirement plans like a 401(k). I’m sure it’s a combination of both.

What I’d like to do is compare the latest average 401(k) balance by age with my recommended average 401(k) balance by age for financial independence seekers. Let’s see how big the differences are so we can explain how important it is for everybody to focus on their finances.

The 401(k) account is one leg of the new three-legged stool for retirement. The other two legs are post-tax savings accounts and personal hustle. It’s important to never depend on the government or anyone for your financial future.

One of the common beliefs I’d like to overturn is the idea that one shouldn’t count their primary residence as part of their net worth. This belief is propagated by some in the wealth management industry because wealth managers only earn fees based on your liquid net worth. Ideally, some wealth managers would also like you to believe that your 401k, IRA, and any tax advantageous retirement account are not part of your net worth either.

Interestingly, the other group of people that believes a primary residence shouldn’t be included in one’s net worth is the socialist who looks to protect the feelings of renters who don’t own any property. Their logic is: if renters can’t include their place as part of their net worth, neither should anyone who perhaps saved for years to come up with a down payment and took some risk to buy. In the socialist’s mind, it’s OK to discount completely a $200,000 down payment or a 100% increase in home equity.

Let’s analyze a simple example to illustrate my contention that all savings and equity you’ve accumulated in your lifetime should count towards your net worth.

My dad is in his 70s and he mentioned he wish he’d started a Roth IRA when he was young. When you’re in your 70s, you must take required minimum distributions from your pre-tax retirement savings accounts and pay taxes. Given nobody likes to pay taxes, I empathized with his regret. It’s also a good idea to listen to your elders.

But I don’t have a problem paying taxes on income earned. It’s only when I have to pay a surprise tax where the liability wasn’t properly budgeted where I have a problem. This only happened to me once when the state of California passed a retroactive tax of 2.9% for the 2011 tax year.

I’ve been a long time opponent of contributing to the Roth IRA. However, now that I’m older and wiser, let me share some of my excuses and encourage you to contribute to a Roth IRA if you are eligible. 

When I first started writing about achieving  financial independence early in 2009, I never thought the FIRE movement would reach such a huge level of interest a decade later. After all, only misfits decide to aggressively forgo material pleasures, save 50% or more of their incomes, and retire from well-paying jobs in their 30s and 40s.

Back in 2009, the “lifestyle design” movement was all the rage because people were getting blown out of their jobs left and right. Some people went back to graduate school to save face. Others decided to start lifestyle businesses after getting laid off. I figured there was a good chance my head would also roll, which is one reason why I started Financial Samurai that summer.

Thanks to a raging bull market that ensued, life turned out fine and the FIRE movement picked up steam. Today, we are at peak FIRE, perhaps similar to peak crypto reached in December 2017. Unfortunately, when you’re at the peak, there’s usually nowhere to go but down.