I must confess I didn't catch this. I read BW's annual Retirement Issue (the one with the obligatory cover of a geezer carrying a surfboard) and paged through the article "How to Tap Your Nest Egg-- and Not Go Broke". When I saw that the hypothetical "typical retirees" had a $2M portfolio I snorted & turned the page.
Then my FIL called me with a question. First, here's an excerpt from the article (which may require a subscription for access): "With an annual income of $200,000, the Smiths, we figured, were used to a comfortable lifestyle. So we gave them a yearly budget of $10,000 for travel, more than $2,000 for clubs and hobbies, and $6,000 for entertainment and restaurants. Combined with daily living expenses -- including mortgage payments, property taxes, home and auto insurance, maintenance, groceries, and health-care costs -- the grand total came to about $9,000 a month. We also gave the Smiths a $2 million portfolio. We put more than 70% of it into stocks, with the rest divided between bonds, cash, and other ultra-conservative investments.
Unfortunately, we learned that the Smiths' $2 million retirement nest egg wouldn't support that lifestyle -- never mind the $500,000 we had hoped they could leave their heirs -- even when supplemented by Social Security and a pension that together are worth almost $60,000 a year. In fact, Fidelity, Merrill Lynch, and T. Rowe Price all warned us that at this level of spending, the Smiths would run a substantial risk of depleting their assets. All three services project to at least age 90. Why? Because if both members of a couple make it to 65, there's a 50% chance at least one of them will live to 92, according to Fidelity."
My FIL's question-- $60K annual SS/pension, $108K annual spending, a $2M portfolio. The portfolio has to support a $48K annual shortfall. If that portfolio was plunked into 10-year Treasuries at 5% (work with me here) it'd cough up another $100K/year. So how does BW project failure?!?
Even at a 100% TIPS portfolio over 40 years, FIRECalc is snickering too. I finally jacked up the annual withdrawals by $10K at year 10, another $10K at year 20, and finally an additional $10K at year 30 to finally beat the success rate down to 97%.
Al, who's proofreading for these guys?!? It'll be interesting to read their "Corrections" & "Letters to the Editor" sections next week...
Then my FIL called me with a question. First, here's an excerpt from the article (which may require a subscription for access): "With an annual income of $200,000, the Smiths, we figured, were used to a comfortable lifestyle. So we gave them a yearly budget of $10,000 for travel, more than $2,000 for clubs and hobbies, and $6,000 for entertainment and restaurants. Combined with daily living expenses -- including mortgage payments, property taxes, home and auto insurance, maintenance, groceries, and health-care costs -- the grand total came to about $9,000 a month. We also gave the Smiths a $2 million portfolio. We put more than 70% of it into stocks, with the rest divided between bonds, cash, and other ultra-conservative investments.
Unfortunately, we learned that the Smiths' $2 million retirement nest egg wouldn't support that lifestyle -- never mind the $500,000 we had hoped they could leave their heirs -- even when supplemented by Social Security and a pension that together are worth almost $60,000 a year. In fact, Fidelity, Merrill Lynch, and T. Rowe Price all warned us that at this level of spending, the Smiths would run a substantial risk of depleting their assets. All three services project to at least age 90. Why? Because if both members of a couple make it to 65, there's a 50% chance at least one of them will live to 92, according to Fidelity."
My FIL's question-- $60K annual SS/pension, $108K annual spending, a $2M portfolio. The portfolio has to support a $48K annual shortfall. If that portfolio was plunked into 10-year Treasuries at 5% (work with me here) it'd cough up another $100K/year. So how does BW project failure?!?
Even at a 100% TIPS portfolio over 40 years, FIRECalc is snickering too. I finally jacked up the annual withdrawals by $10K at year 10, another $10K at year 20, and finally an additional $10K at year 30 to finally beat the success rate down to 97%.
Al, who's proofreading for these guys?!? It'll be interesting to read their "Corrections" & "Letters to the Editor" sections next week...
