Advocates of socialism often tout how generous government-mandated paid leave is in socialist-leaning countries. France, for example, mandates a minimum of 36 paid vacation days per year. In this post, I argue that this benefit simply trades flexibility for rigidity when compared to the US. However, that flexibility in the US requires an ingredient in short supply: Personal responsibility.
In the US, the 4 percent rule of thumb is often applied to determine the amount of funds required to last a thirty-year retirement with no active income (income earned through working). Essentially, if you need $40,000 a year to live in retirement that means you need to save $1,000,000 in diversified stocks and bonds to have a reasonable shot at your funds lasting for 30 years of no income. Let's be more conservative and use 3 percent: Our retiree needs more like $1,400,000 saved to retire.
Assume our retiree started saving at 22 years old and made a salary that remains at exactly $80,000 their entire career. In reality, this salary is easily obtained for a present day retiree-to-be that's willing to start a career in an in-demand field (their choice!), and can grow well beyond that figure. Assuming a 25% tax rate, this individual can save $18,000 a year assuming they spend $42,000 each year. This is a reasonable spend rate considering the retirement goal, better learn to stick to the expected budget early! This individual has saved enough to retire by age 52 based on a reasonable Monte Carlo simulation.
Assuming our retiree is a man, his life expectancy is 78 years according to the World Bank. Due to his diligent saving, he can enjoy 26 years of not having to work for money. This assumes no gap in employment, but, hey, his income also never grew so we'll call it a wash! It's also reasonable to expect no major employment gap considering he chose a high demand field of employment. This retirement has a very high probability of success given that we are shooting for less than 30 years of retirement and chose a conservative 3% withdrawal rate.
Let's image an average Frenchman. In France he can retire by 62, but only assuming he worked for a minimum of 42 years. If our Frenchman started working at 22, he can't retire until age 64! Since his life expectancy is 82 years, that leaves 18 years to not work. But wait, don't forget he gets 5 work weeks off a year! That's (42 * 5) / 52 = 4 years off while working.
Our US retiree has the ability to enjoy 26 years of not working while our Frenchman gets 22 years. But wait, there's more!
- The US retiree will likely be able to retire even earlier assuming income growth that keeps up with inflation (assume 3%). This one tweak allows the US retiree to quit paid work at 42 instead of 52. That's 10 extra years of retirement! What's better, 36 years of no work or 22? 36 years is longer than the 30 year horizon, but we also dropped the withdrawal rate a solid percent to be more conservative.
- Given his choice to work in a high demand field, the US retiree will likely be able to command no less than 3 weeks off a year if my own career trajectory has any say in the matter. (20 * 3) / 52 = 1 additional year off in his 20 years of employment (assuming the pay increases). That's a total of 37 years of not working!
- Our US retiree leaves the workforce early enough to avoid most age-related health issues. How many years of good health does our 62 year old Frenchman have left?
What are the primary differences? The US individual isn't taxed to death and can choose to stop working whenever he can live on his savings without risk to a pension. Notice that these calculations assume all savings were after tax. Those funds aren't locked up in a traditional 401k or IRA. In reality, our retiree seems smart enough to build a portfolio with tax diversity (e.g. some funds in tax advantaged accounts and others in taxable accounts).
However, the US individual must diligently save and control spending (buy less shit, save more -- good for the environment, good for you!), which requires real personal responsibility. This implies traits we might miss in some socialists.
