Financial advisor Suze Orman deems a retirement savings of $2 million as insufficient, viewing it as merely small change. Is her assessment accurate?
Most of us aren't born with a silver spoon, so if we're smart, we're usually focused on saving and investing to create a safety net for our golden years. Many individuals aim to retire with a million dollars, while others believe a million isn't enough and are shooting for, say, two million.
So, what's your retirement savings goal? Well, it varies for each person, but get this; renowned financial expert Suze Orman has stated that $2 million is simply pocket change. "Two million is nothing. It's nothing. It's pocket change in today's world, to tell you the truth."
Shocking, right?
Suze Orman's logic: Is she on the spot?
Orman's stance on this topic has sparked a lot of discussion -- and controversy. It stems from a 2018 interview on the "Affordable Anything Podcast." One of the key takeaways from the interview is that she can't stand the "Financial Independence, Retire Early (FIRE)" approach. (There's also a "FATFIRE" approach.)
People passionate about FIRE are aiming to retire early by living frugally and saving as much as they can while investing. It's a commendable goal, and depending on how much you've saved before retiring, it can be a smart move or a risky one.
Why does Orman dislike FIRE? Here are her words:
Listen up, everyone. I know you want to retire at 25, 30, 35, but hear me out. The problem, as I speak to you at 67 years old, approaching 70, is that things happen. Not only do things happen as you get older, but they happen when you're younger too. You get into an accident, you fall, you get sick, you get cancer -- things happen. If you only have a few hundred thousand dollars, or a million, or $2 million, I'm here to tell you that if a disaster strikes, if something goes wrong, what are you going to do?
These are valid points, because disasters do happen, and some disasters are pricey. For example, nobody needs to be reminded that healthcare is costly. (There are ways to save on healthcare in retirement.) A new roof, a new transmission, a few months of unemployment -- these can all deal a significant blow to your finances. Having an emergency fund can protect you in many situations, but it's worth considering how you'd deal with prolonged expenses beyond your budget in retirement before you consider retiring early.
Here are more eye-opening words from Orman:
Artificial intelligence (AI) is making its way, and by 2030, there might be a 25% unemployment rate. When people are no longer working because machines have taken over, there won't be anyone paying into the tax structure. When nobody is paying taxes, tax brackets will have no choice but to go up. There won't be enough money for Social Security because nobody will be paying into it to take care of the 76 million baby boomers retiring. And into Medicare and other programs, they'll all collapse.
While I agree with her thoughts in the first blurb above, this one is questionable. It's all speculative. We don't yet know how AI will change our society and lives. We don't know that unemployment will surge or that Social Security will collapse.
So, don't expect these things to happen, but consider that they could. It's wise to have a retirement savings plan that can help you manage these unexpected developments. Already, the incoming administration is not seeming to be pro-Social Security. So, future cuts in benefits are likely if nothing is done to strengthen Social Security.
What's the next move?
If you're feeling anxious now, hang in there. There are lots of steps you might take to beef up your financial situation -- and to help you accumulate the assets you need. For example:
- Save aggressively and invest effectively, such as in an S&P 500 index fund, via a regular brokerage account or a 401(k), and/or an IRA, among other options.
- Consider working a few years longer if possible. Working a few more years means your nest egg will have to last fewer years, and you'll have more time to save and invest some more before retiring. You may also be able to remain on an employer-sponsored health insurance plan for longer, potentially saving money.
- Consider delaying claiming Social Security until age 70, if you can. For most of us, age 70 is the best age to claim benefits to maximize them.
- Take on a part-time job or a side gig like selling handmade items or giving music or language lessons during the first few years of retirement.
- Think outside the box. If you need more income during retirement, you might consider getting a roommate or investigating a reverse mortgage.
Don't leave your retirement to chance. Plan for your retirement carefully, and don't be afraid to consult a financial advisor. One million or two million may indeed be enough for you, even if it's not enough for Orman. You just have to think things through and calculate your numbers.
Considering Suze Orman's assertion that $2 million may not be sufficient in today's world, it's essential to reevaluate our retirement savings goals. Moreover, as AI and automation advance, potential unemployment rates could rise, making it crucial to have a robust retirement savings plan that can adapt to unexpected developments.
