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Building on the ‘fantastic foundation’ of Social Security

"Social Security is a fantastic foundation for retirement," Fink said. "But if that's all you have when you retire, you're going to be living below the poverty line. It's supplemental but it's not meant to be the totality of what you have in retirement."

While there’s no consensus on how much money you need to retire (and everyone’s situation is different), one yardstick is the 80% Rule, where you plan to spend 80% of your pre-retirement income per year. Assuming you retire from a job with a $100,000 annual salary, Social Security won’t come close to cutting it.

The current average monthly benefit for retirees is $1,907, or just under $23,000 a year, according to the Social Security Administration. The shortfall? More than $57,000. The maximum benefit for an individual retiring at age 70 in 2024 is $4,873 per month or $58,476 a year.

Fink also noted in the Bloomberg interview that our current retirement system “was based on statistics created 50 years ago” when the average life expectancy was below 70. Today’s statistics show that with a couple in good health, “one of them’s going to live over 90.”

Breakthroughs in treating dementia, heart disease and obesity have extended life spans, he pointed out. While marveling at these “miracles of medicine,” as he calls them, Fink lamented: "There is not a dialogue in America or most places about, 'Can we afford that longevity?'"

Unless Congress takes action to shore up the system, Social Security will not be able to keep paying all promised benefits beyond 2033. Benefits are expected to be cut by around 20% starting in 2034.

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Saving retirement through saving for investment

"We need to really educate our citizens about the need for savings," said Fink — though not via vanilla bank accounts. Investing, he stressed, allows people to take advantage of capital markets and compounding.

While adding to your portfolio, do a cursory examination of your outflow (expenses) and inflow (bringing in extra funds). The best cuts and side hustles are the most painless. Imagine selling off your expensive SUV and renting out the now-empty garage or parking space on the same weekend – then putting the money into your IRA or 401(k).

Some of the simplest and best investment advice comes from another shareholder letter – this one from Buffett in 2013 to Berkshire Hathaway investors. On his wife's inheritance after his passing he said, “My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.”

In the end, how much you get to live on in your retirement determines how you get to live. “My parents lived their final years with dignity and financial freedom,” Fink wrote. “Most people don’t have that chance. But they can.”

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Lou Carlozo Freelance writer

Lou Carlozo is a freelance contributor to Moneywise.

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