Does anybody want to be rich when they get old?

[clifp]

I have been seeing a lot of threads where people are discussing very conservative withdrawal rates 1.5-2.5% and equally conservative portfolios with equity ratios in the 10-40% range.

Now yes these will fund an adequate perhaps even a comfortable retirement if you start with enough money. But you won't become really rich with that conservative of a portfolio.

I understand rule #1 is don't run out of money before you die. Still I am surprised that there doesn't seem to be a lot of interest in moving from being affluent to the rich stage. I realize that those terms are vague and you can define them how you want.

But for my purpose I'm going to say that somebody who has $5 million after age 75, and typically spends 100K or so is rich. In that they aren't going to run out of money even if they live to 100 and you can easily afford spend a million or even two million on extravagant things.

So that means if your grandkids want to go to Harvard or Stanford you can send them.
If you kids needs a million dollar to start there dream business you can make it happen.

If you don't have kids or don't think giving them a lot of money is good idea.
It means you can make a $1 million gift to your favorite organization.
Book a round the world cruise, first class.
Dine at the finest restaurants
Hire the best doctors or nurses.
Hire the best cooks, yogi instructors or whatever.
Buy your dream car, plane, boat or in some places dream house.
Fly in outer space.
If you are widowed or single have a young cute companion

One of the few pleasure my 89 year mom has left is helping out her favorite granddaughter and her great grandkids who certainly appreciate the generosity. Since she just hit a $1 million it made me realize that it isn't bad being wealthy when you are old.

Anyway I am curious if any of these items are people bucket list?


I looked at three different Firecalc runs for 50 year early retirees. I am assuming that all withdrawal $40,000 a year I also assume that at 67 they will collect social security of $20,000 a year (I think this is lower that they will get but who knows maybe a SS will be taxed more heavily).
What I varied is the equity percentage and the initial portfolio values.
In each case they all had 100% success rate in Firecalc over 49 years. (The social security matter a lot in making a 100% success)
I redefined success as having $5,000,000 in your first 30 years
35% Equities starting $1,000,000 average value. $1,114K percentage chance that you'd have $5 million by age 80 0%
80% Equities starting $1,000,000 average value $2,425K, and it looks like about 10-15% of getting to $5 million before age 80.
10% Equities $2,000,000 starting value Average Value $2,796K and about a 10% chance of getting to $5 million before age 80.


What was interesting to me is that even with starting out at 1/2 the size the 80% equity had almost the same average ending value and a slightly higher chance of getting over $5 million. Now because of the addition of social security each of these portfolio had 100% success rates over the full 40 year run.

It seem that many/most people are advocating taking the most conservative portfolio with a 100% success rate. My question is why not take the most aggressive portfolio with a 100% success rate in order to maximize your changes of becoming rich?

 

[Danmar]

I can predict that the responses will be typically " don't need any more money, very happy spending what I do". or "money doesn't buy happiness and i am already very happy". These views are valid and certainly reflect the LBYM mind set prevalent on this site.
Me on the other hand already meet your wealth criteria several times over nevertheless am 100% in equities if you ignore our pensions. Basically we are still playing the "game" that some people would say we have already won.. So I can say that I agree with you! I think.

 

[Fishingmn]

One thing to remember is that if FireCalc says you are going to have 100% success you are probably going to meet your definition of rich ($5M).

For example, I think FC shows that I'm at 100% with the worst scenario just over $0. But that also means my best scenario is something like $30M and my average is projected at $8M.

We already project to spend what we want in retirement - my biggest motivation would be to have money for the kids since I'm very worried about them having the same economic opportunity in decades ahead.

 

[donheff]

35% Equities starting $1,000,000 average value. $1,114K percentage chance that you'd have $5 million by age 80 0%
80% Equities starting $1,000,000 average value $2,425K, and it looks like about 10-15% of getting to $5 million before age 80.

What was interesting to me is that even with starting out at 1/2 the size the 80% equity had almost the same average ending value and a slightly higher chance of getting over $5 million.

The way I read what you posted you have an 80% chance of getting rich with 35% equities and a 15% chance with 80% equities. So what am I misreading?

 

[pb4uski]

....
I redefined success as having $5,000,000 in your first 30 years
35% Equities starting $1,000,000 average value. $1,114K percentage chance that you'd have $5 million by age 80 0%
80% Equities starting $1,000,000 average value $2,425K, and it looks like about 10-15% of getting to $5 million before age 80.
10% Equities $2,000,000 starting value Average Value $2,796K and about a 10% chance of getting to $5 million before age 80. ...

The way I read what you posted you have an 80% chance of getting rich with 35% equities and a 15% chance with 80% equities. So what am I misreading?

Yes, you are mireading it. He is saying that if someone starts at age 50 with $1m and 35% equities there is a 0% chance of amassing $5m by age 80 (not 80%). But with 80% equities the chance of amassing $5m by age 80 increases to 10-15%.

 

[donheff]

Yes, you are mireading it. He is saying that if someone starts at age 50 with $1m and 35% equities there is a 0% chance of amassing $5m by age 80 (not 80%). But with 80% equities the chance of amassing $5m by age 80 increases to 10-15%.

Oops, missed that. ADD is to blame.

 

[Danmar]

I had a tough time figuring out what the question was too.

We don't have kids and all our nieces/nephews will be educated when we're gone so we'd be fine dying broke. But it seems prudent to start retirement with a conservative withdrawal rate or methodology (like % remaining portfolio) with 30-40 years to go. We'll spend more aggressively later and if we have money to give to charities when we go poof, wonderful. Like all calculators or projections, FIRECALC is an axe, not a scalpel - so I don't put a lot of weight on 'highest withdrawal rate that still meets 100% success rate.'

My initial thought based on the title alone was 'no' in that this is an early retirement forum. Anyone with "to be rich when they get old" as a priority would work as long as possible no? Some here have accumulated more than they need, but most members here seem to place "early" ahead of "rich" - they're direct trade offs.

I think he was wondering why people are so conservative in their AA during their draw down phase. Having said that, it is pretty obvious to me that not running out of money is a more powerful motivator for most retirees than being rich. Of course that is assuming you can't meet both objectives simultaneously.

 

[Lsbcal]

...(snip)...
So that means if your grandkids want to go to Harvard or Stanford you can send them.
If you kids needs a million dollar to start there dream business you can make it happen.

If you don't have kids or don't think giving them a lot of money is good idea.
It means you can make a $1 million gift to your favorite organization.
Book a round the world cruise, first class.
Dine at the finest restaurants
Hire the best doctors or nurses.
Hire the best cooks, yogi instructors or whatever.
Buy your dream car, plane, boat or in some places dream house.
Fly in outer space.
If you are widowed or single have a young cute companion

One of the few pleasure my 89 year mom has left is helping out her favorite granddaughter and her great grandkids who certainly appreciate the generosity. Since she just hit a $1 million it made me realize that it isn't bad being wealthy when you are old.

Anyway I am curious if any of these items are people bucket list?
...

We spend a lot on things, travel, etc. but the items above are not on my list. One doesn't need $5M to spend $100k. Could do this with considerably more especially including SS and possible pensions. Having a low tax profile helps too.

 

[Dawg52]

I think he was wondering why people are so conservative in their AA during their draw down phase. Having said that, it is pretty obvious to me that not running out of money is a more powerful motivator for most retirees than being rich.

Perhaps if I had a pension, I might be more inclined to be more aggressive. Of course I could buy a pension(SPIA). But I'm not so sure that would even do it for me. An insurance company can go belly up and we have all seen news of pension failures.

So for tinfoil types like myself, not easy to change.

 

[MichaelB]

It seem that many/most people are advocating taking the most conservative portfolio with a 100% success rate. My question is why not take the most aggressive portfolio with a 100% success rate in order to maximize your changes of becoming rich?

I don't see this as people choosing between the two options. I think (almost) everyone first chooses to maximize the success rate based on conservative assumptions. Some then take that further, looking to increase portfolio value even more, while others take no more interest and turn their attentions to other aspects of life. This just shows the marginal value of money is different for each of us.

 

[Hamlet]

I think it also depends a lot on how much the fluctuations of the market bother people.

Some people don't worry to much about them, and it keeps some people up at night, even though they have more than enough money to ride out the fluctuations.

Here is a thought experiment--

If you had a billion dollars, but kept your spending at a tiny fraction of a percent in withdrawl rate, would you keep it in the market to maximize your ability to give to charity and pass on a legacy, or would you put it all in CDs to minimize the chance that you would lose a large portion of it year to year? Or something in-between?

It's a decision that for most people boils down to how much those ugly red numbers on the down years bother them.

I don't see this as people choosing between the two options. I think (almost) everyone first chooses to maximize the success rate based on conservative assumptions. Some then take that further, looking to increase portfolio value even more, while others take no more interest and turn their attentions to other aspects of life. This just shows the marginal value of money is different for each of us.

 

[bradaz2488]

When I was in my 20's and 30's I think the goal of achieving "rich" status was more important then achieving happiness because I thought money would make me happy. This changed in my 40's after realizing that money makes life easier but not happier. For me (now 50 w/ no kids) material stuff weighs me down and acts like anchors. I do not have $5M and if I did I think the only thing I would buy is a second house to get out of AZ during the summer time .. and I probably drive newer cars since all of ours are >10 old. I do not think I would like traveling more then we do now. Having just turned 50 I'm finding that I want to simply my life and having more stuff seems to complicate things. I would not turn down $5M if I won it in a lottery, but my goal is not to build more wealth in my retirement years. Only goal is to be happier then I was working at a MegaCorp. FIRECalc and other tools say we are good with a AA of 65/20/15....

 

[Alan]

I don't see this as people choosing between the two options. I think (almost) everyone first chooses to maximize the success rate based on conservative assumptions. Some then take that further, looking to increase portfolio value even more, while others take no more interest and turn their attentions to other aspects of life. This just shows the marginal value of money is different for each of us.

I think that sums it up for us.

Yes, I believe we could achieve the goals you list if we wanted to, but since we have been very fortunate to have pensions plus a very good run of market returns in the first 4 years of retirement we are choosing to up our spending levels so that we can do the exciting things (for us) that we have dreamed of doing while we are still healthy and affluent enough to do so.

 

[robnplunder]

My goal in RE is not get rich. It is to live a comfortable life + travel. As long as I have enough, any excess money is a waste.

BTW, I have already been generous to too many family members and frankly, a few of them have been taking advantage (or taking for granted). In RE & rich will only make things more awkward with those who expect handout.

 

[ERD50]

One technical note on the analysis - going to 50 years will give a false positive bias, as you end up dropping off some of the worst periods starting in the 1960's.

I'm not sure I can relate to the question (if I understood it properly) - I'm aiming for a conservative WR and a maintain a high equity position. I think OP was figuring these would generally be mutually exclusive?

-ERD50

 

[Live And Learn]

For me the conservativeness is 2 pronged :

1. I have a potential retirement of 40 - 50 years and alot can go wrong in that time. I want to be conservative in the early years to ensure that I minimize the chance of running out of money in old age
2. After 10 years of retirement I will re-evaluate. If it appears that I can take a large chunk out of my portfolio and still have "comfortable" success rates then I will work towards spending that chunk of the portfolio on additional travel (a cruise around the world sounds splendid !) or building a swimming pool or other "unplanned" luxuries
3. Every 10 years I'll repeat step 2.

I don't "need" any of these unplanned luxuries to feel like I've had a successful retirement, but I wouldn't be unhappy if I ended up splurging a bit in my 60s and 70s because I was "too conservative" at the start of my retirement.

 

[Spanky]

Me on the other hand already meet your criteria several times over and am 100% in equities if you ignore our pensions. Basically we are still playing the "game" that some people would say we have already won..

Apparently your definition of "has won the game" differs from that of others. My definition is having all the money/financial assets that I will ever need or want. In this case, why risk it for more (than you ever need) even with a pension that might be sufficient to fund your normal expenses. Further, there's no guarantee that a pension (either public or private) will always be there.

my 2 cents.

 

[W2R]

Asset allocation and withdrawal rate are usually set according to one's risk tolerance.

It's not surprising to me that people are suggesting more equities and higher withdrawal when the market is surging as it is now.

However, I remember the fall of 2008, when so many of our members posted that they were selling. Some were even completely pulling out of the market, selling ALL of their equities low and essentially condemning themselves to many more years of work before ER. All this, because they had not originally set their AA to a level that they could stick with during bad times as well as good.

Sure, one could become wealthier in the long run by going all in, and that is not too tough during the accumulation phase (even I was 100% equities for a few years, despite my conservative stance now). But you know, it takes a lot more courage to stick with an AA this risky than most retired people have. Mistakes in these decisions can have horrific results.

 

[daylatedollarshort]

If you look at the globalrichlist and average disposable income in OECD countries, many posters here are already incredibly wealthy on a global scale -

Global Rich List

OECD Better Life Index

Yet on most happiness surveys, the U.S. does not fare as well as many other developed and even some lesser developed countries. According to most happiness studies, more money beyond a certain point doesn't provide greater amounts of happiness.

However, it seems from many of the posts on this and other financial forums, investing in riskier investments and then constantly worrying about having enough to stay retired or having millions in savings and yet still not leaving a soul sucking, never seeing sunlight during the week, working for a psychopath boss job does cause endless years of unhappiness.

We limited our stock exposure partly after the 2008 meltdown and partly after I read about the top 10 asset owned by millionaires based on actual IRS data, which is very different than the Boglehead recommended type portfolios -

The Top Ten Assets Owned by Millionaires

The thing that struck me is Thomas Stanley writing in his blog and one of his books that millionaires like to have investments they can control, and they can't control the stock market.

I have posted this before, but for those who have not read it, this articles makes a case that in some not insignificant time periods stocks have not provided returns worth the extra risk -

Biggest Urban Legend in Finance by Bob Arnott

http://advisoranalyst.com/glablog/2011/03/30/the-biggest-urban-legend-in-finance-arnott.html

 

[jerome len]

I started making $78 bucks a week and now I've got more money than I need.....I've been lucky and we live modestly.

Why don't I spend more? Extended family. If they thought I was "rich" our relationship would change. And, we still like pizza, Mexican restaurants, clipping coupons etc. We have a nice home, almost new cars but we don't live up to our means and we invest conservatively. ......lots of muni bonds, 30% dividend index funds and a couple years of cash. And, we don't worry.

But......we do love our extended family, don't want to lend money and don't want to have our family relationship change. So I guess we'll leave a bunch of money to someone someday in the future. Lucky Kids! I guess.

 

[Letj]

When I was in my 20's and 30's I think the goal of achieving "rich" status was more important then achieving happiness because I thought money would make me happy. This changed in my 40's after realizing that money makes life easier but not happier. For me (now 50 w/ no kids) material stuff weighs me down and acts like anchors. I do not have $5M and if I did I think the only thing I would buy is a second house to get out of AZ during the summer time .. and I probably drive newer cars since all of ours are >10 old. I do not think I would like traveling more then we do now. Having just turned 50 I'm finding that I want to simply my life and having more stuff seems to complicate things. I would not turn down $5M if I won it in a lottery, but my goal is not to build more wealth in my retirement years. Only goal is to be happier then I was working at a MegaCorp. FIRECalc and other tools say we are good with a AA of 65/20/15....

True. If you not worried about money, you'll find something else to worry about. It could be worries about the choices your children would make, your health, whether you'll be around to enjoy your wealth, etc. Human beings tend to replace one worry with another. I've seen people with no money happy with whatever they've got and I've seen people with money terribly unhappy and always searching for the next adrenalin rush. It's just human nature.

 

[haha]

True. If you not worried about money, you'll find something else to worry about. It could be worries about the choices your children would make, your health, whether you'll be around to enjoy your wealth, etc. Human beings tend to replace one worry with another. I've seen people with no money happy with whatever they've got and I've seen people with money terribly unhappy and always searching for the next adrenalin rush. It's just human nature.

Supporting this is that there seem to be more ready smiles on third world faces than walking down any big city US street.

 

[Letj]

Supporting this is that there seem to be more ready smiles on third world faces than walking down any big city US street.

That is absolutely true. Take it from me who have been to many third world countries. It's all about expectations. If you don't expect much, you don't have much to worry about.

 

[unclemick]

I spent a good deal of my working life in manufacturing - smiling was considered a sign of insanity or at least one needed to be checked out for a possible concussion. 'Smile - it scares the hell out of them' was an oft used cliche.

In ER I still practice the sheer joy of whining. Remember it's "Life, Liberty and the Pursuit of Happinese." I also practice catch and release.

heh heh heh - 60/40 1970 and 60/40 now - give or take. My old Pals at the IRS starting this month are taking their cut and giving me my RMD remainder to spend or hoard - as strikes my fancy.

 

[Danmar]

Apparently your definition of "has won the game" differs from that of others. My definition is having all the money/financial assets that I will ever need or want. In this case, why risk it for more (than you ever need) even with a pension that might be sufficient to fund your normal expenses. Further, there's no guarantee that a pension (either public or private) will always be there.

my 2 cents.

Yes, but I enjoy "playing the game" Agree there are virtually no iron clad guarantees, be it pensions, dividends, bond interest,etc. I am confident that the risks I have assumed are not too large. My WR is quite conservative. Besides I can think of lots of things to spend more money on even though I could easily spend less. Not the least of which is giving it away. Bill Gates and Warren Buffet are still mostly in equities I believe.
Equities got me where I am financially and I am very comfortable with equity risk.