Marcus Cake

Open Source software is a viable alternative for nearly every application - business and personal. There is, however, a strong view that the installed base of the proprietary software industry is not likely to shift significantly to free software. The reasoning seems to be the inertia the industry and staying with something familiar. There is, apparently, not a significant reason to shift. I provided an overview of some of the potential reasons in Linux or windows: a decision based on cost, security, convenience, stability, innovation or religion? Or am I just stuck with Windows?. I will offer another. The opportunity to double your retirement by allocating the money you would have spent on proprietary software to your retirement. The cost savings are numerically significant, but the present value of the cost savings is roughly equal to the average retirement savings of a US citizen - about US$60,000. The debate over Linux versus Windows is a luxury for a minority. The majority need to adopt free software to contribute to their retirement.

It was once stated that Microsoft had the objective of getting US$1,000 per annum per desktop. Today, open source provides viable alternatives for all proprietary software products for 90% of users. If we make a commitment to open source software for life, we could fund our retirement, or at least make a majority contribution to it. If we invest US$1,000 per annum every year between the ages of 20 and 65 at a 9% interest rate, the lump sum we will receive at 65 is US$287,000 . We have assumed an investment return of 9% over the period which is the long term average for the stock market. For simplicity, we have assumed no tax and that individuals will have the discipline to not spend the money they save. The vast majority of individuals do not have adequate funds for retirement.

The table below provides a summary of lump sum received at 65 for different annual savings between the age of 20 and 65:

Myths and realities of retirement in the US
According to the Center for Retirement Research , “the typical household head approaching retirement had only $60,000 in 401(k) and IRA accounts, which translates into less than US$400 per month in retirement”. I have extracted some other key information below.

Myths and Realities about retirement preparedness, Center for retirement research at Boston College, May 2006

Extract:

• MYTH: People need to replace 100 percent of their pre-retirement income in retirement.
  REALITY: Most people need between 65 to 85 percent to be secure.
• MYTH: People will have enough resources to meet this need when they retire.
  REALITY: Almost 45 percent of working-age households are at risk of failing to meet this objective, according to the Center’s new National Retirement Risk Index.
• MYTH: Younger workers will be better prepared in retirement than Baby Boomers.
  REALITY: Younger workers are more vulnerable — nearly half of households are at risk.
  MYTH: Social Security will still replace 42 percent of an average worker’s earnings.
  REALITY: Net Social Security replacement rates will drop to 30 percent by 2030, adjusting for the rising Normal Retirement Age, taxation of benefits, and higher Medicare premiums.
• MYTH: Although 401(k)s are the most common type of employer-sponsored pension, traditional defined benefit plans still cover a large share of the workforce.
  REALITY: In 2003, only 10 percent of all private sector workers with pensions were covered solely by a defined benefit plan.
• MYTH: 401(k)s have allowed workers to save significant amounts for retirement.
  REALITY: In 2004, the typical household head approaching retirement had only $60,000 in 401(k) and IRA accounts, which translates into less than $400 per month in retirement.
• MYTH: If today’s workers save as much relative to their income as their parents, their retirement will be secure.
  REALITY: Current workers must save more because of the demise of traditional pensions, rising longevity, soaring health care costs, and falling asset returns.
• MYTH: People can rely on the equity in their house to finance their retirement.
  REALITY: Retirees need somewhere to live, so they can tap only a portion of their house’s value with a reverse mortgage — about 45 percent at current interest rates and less if rates rise from today’s low levels.
• MYTH: It’s too hard to save enough for retirement.
  REALITY: If workers consistently set aside 6 percent of their paychecks (with a 3 percent employer match), invest prudently, and leave the money alone, they should have enough.
• MYTH: Given the trends in retirement income, people will have to work until they drop.
  REALITY: Working to age 67 — and not drawing income from Social Security or 401(k)s — would allow most people to have a secure retirement.

For the finance people amongst you, you will know that my analysis above is very simplistic. The lump sum and annual income that could be available at retirement is worth significantly less in today’s dollars. However, the present value of the savings from open source is greater than the average retirement savings of a US citizen. This small change in consumption patterns would double the retirement savings of the average US citizen.

Could the use of Open Source software help nations to retire?
This same analysis above applies to the nation state, or country. Singapore is in the fortunate position of being able to retire (See After 70 years of hard work and focussed leadership, the nation of Singapore can retire). Like the United States, many other countries are insolvent and can not fund their obligations. This is particularly true of the promises of retirement promises. The impact of nations switching to open source should be assessed. I suspect it would be very significant. Nations will need to take every initiative possible to provide for the retirement of their citizens.