Is there a disconnect between real life and the "professionals"?

[MRG]

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Originally Posted by Big_Hitter I don't think it's media inspired. There is a train coming.

That's why I choose to plan. I can control my spending and investments. I can't control others, or their foolish spending. I can't control taxes, inflation, or SS, so I'm just gonna have to be OK with that.

[robnplunder]

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Originally Posted by bclover So it seems in the financial/investment/retirement world the message is if you don't have AT LEAST a million dollars saved that you are pretty much doomed to living your old age in a box underneath a bridge..... < snip > So is all the doom and gloom about a nation of retirees about to implode media inspired hysteria?

I think there is something to that. Both of my parents retired with no savings at earlier than age 62. They live on SS + "allowance" from me. They live within their budget and they are contend. This is the case with a lot of people I know around me. Typical ER.org members are exceptions to this (they piled up money, they are financially astute & conservative, want to live well in their ER, ....). Just look at ER.org's introduction threads. If I average those folks net worth, I think it is closer to or north of $3M, and many with good SS & pension. And they still ask the question "can I retire?" ER.org is not a reality for the vast majority of folks out there. Out there, people retire at later age, and get by with what they have in retirement. ER.org folks should not have much to "rant" about their lives, at least, in financial areas.

[Cobra9777]

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Originally Posted by ArkTinkerer ...One thing I pick up from this forum is a big divide is growing between government and private industry. In private industry pensions are pretty much dead. I'll get a tiny defined contribution pension when I FIRE. This is one of the few companies in the area that still offers any sort of pension and its being phased out. Pensions with COLAs are gone from private industry as far as I can tell. It may take a while but I'm betting they will be on the way out for government workers in the next 20 years. Will take longer than that for them to disappear but by then I suspect new workers will no longer be eligible.

Generally, government workers make less than equivalent workers in private industry. Pensions compensate for that. So, there's a built-in, mandatory LBYM arrangement, that's compensated later with a pension that replaces a decent percentage of working income. Private industry folks need to DIY, which is where the failures usually occur. But I would argue that with focused and disciplined planning, they have a better opportunity to ER and/or improve their status at retirement, vs their public-sector counterparts. I wouldn't despair too much over the lack of private-sector pensions. Those who choose to spend all their money early in life and live on SS later have made their choice. Just don't ask me to help with their bills.

[bclover]

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Originally Posted by MrLoco I think the message is not so much the actual "number" needed in savings for a comfortable retirement, but the fact that most Americans do not have nearly enough saved to support the type of retirement they desire. This is why everyone freaked out when Legg MAson came out with their "$2.5 million" needed for a comfortable middle class retirement. Obviously, there are many variables involved. Location, couple, versus individual, expenses, etc. I think one of the big problems is that many people do not realize just how much they will need to contribute to their health insurance costs once they retire. Also, those with pension and future SS benefits factor in these numbers as virtually " guaranteed" and set in stone. Nothing could be further from the truth....look at Detroit. Pension benefits can and do change. Future SS benefits will definitely change. Medicare? Who knows for those of us 5 or more years away from 65. In fact when estimating me and my wife's future income versus expenses I do not even factor in pension and SS benefits. I figure whatever we get will be a "bonus." I know one thing. I would rather have the "millions" myself, invested myself, and under my control than be at the mercy of some private or government entity to pay me a monthly benefit. And my wife and I will receive future pension payouts but I know they can be changed at anytime.

I think that right there is the problem. Every day we are bombarded with new information. first it was a million, then it was 2.5 million. recently I read an article that said you should plan on working until you're 70 since our life expectancy is changing.

I know for me it gets depressing. I do start to feel like, "what's the point". I play the game and the goal line keeps moving.

the other day I was listening to Suzy O and she's berating this poor slob because he wants to buy a new luxury car. He could afford it, and she did approve it but she goes on and on about how it's a waste of money. Of course I'm screaming, damn after being frugal for 60 years, working hard for 40 years, poor slob still can't buy the car of his dreams without feeling guilty about it.


So I guess I wish I did here more stories like the ones at the wine affair.
Just regular folks enjoying their retirements, now like I said I didn't know all of them well enough to ask private questions so maybe I'm totally off but I wish I could get to the point where every freakin thing I read doesn't scare me half to death.


it's amazing, I always thought that people who did not have enough were under a lot of stress. now I'm feeling like it might be the opposite.


LOL, I could probably retire if I stop purchasing retirement books and retirement calculating software.

[athena53]

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Originally Posted by bclover I think that right there is the problem. Every day we are bombarded with new information. first it was a million, then it was 2.5 million. recently I read an article that said you should plan on working until you're 70 since our life expectancy is changing. I know for me it gets depressing. I do start to feel like, "what's the point". I play the game and the goal line keeps moving.

I know. The 4% withdrawal rate was considered a good safe shot for years. Then the financial crisis hit and suddenly the "experts" were saying maybe you should plan on a 2% withdrawal rate. I was in my late 50s at the time, so not that many years to shift gears. I just stuck to my "invest as much as we can while still having fun with a little of our $$" philosophy. Now they're saying 4% again.

[MRG]

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Originally Posted by bclover ....snip, good stuff... it's amazing, I always thought that people who did not have enough were under a lot of stress. now I'm feeling like it might be the opposite.

To that point I'll offer that many folks are in denial. They haven't saved, but know they should have; they're looking at 40, 50, 60, 70 and realize it's even harder, maybe too late. Even though many are well educated, intelligent people, they can't see what they have to change in their lives to get ahead. Many go through their lives on the same merry-go-round wondering how others retired and they're broke.

All I can do is take care of myself, I can't change how anyone else lives life, just my own. Best wishes.

[Options]

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Originally Posted by athena53 ... The 4% withdrawal rate was considered a good safe shot for years. Then the financial crisis hit and suddenly the "experts" were saying maybe you should plan on a 2% withdrawal rate. ... Now they're saying 4% again.

Who started saying 4% again? Last I read Bernstein was sticking to 2% as "bulletproof", 3% as "probably ok", and 4% as not ok. I believe Pfau's most recent paper gave much w/r's much lower than 4% for 30, 35, and 40 year retirements. 35 years, for example, amounted to a 2.5% w/r (assuming 1% fees). I believe VG's recent projections are something 3.5% for a 30 year retirement.

[haha]

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Originally Posted by Cobra9777 Generally, government workers make less than equivalent workers in private industry.

No longer true, except at higher levels of employment. Compare a city bus driver in Seattle with a guy who drives the Connector for Microsoft.

Government workers make more each day, and get way more over a longer retirement.

[2B]

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Originally Posted by Cobra9777 Generally, government workers make less than equivalent workers in private industry. Pensions compensate for that.

I dispute this statement even as a generality. There are places in the US that pay public school teachers outrageous amounts of money for a relatively easy to get degree. Other places in the US pay teachers poorly. This goes through different job functions and different locations. Places that pay poorly usually also have poorer pensions. Pay and pensions for government workers are usually more closely tied to the relationships between the public employee unions and the local politicians.

In a career dark spot, I worked at NASA as a contractor. Contractors are paid well below the civil servants that they work with. Some of the CSs I worked with had technical degrees and were top level scientists. I would consider them underpaid but they wanted to be in the space program. Some of the others had non-technical degrees and very high GS levels. Some of these wouldn't have lasted a week in my organization.

[athena53]

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Originally Posted by Options Who started saying 4% again? Last I read Bernstein was sticking to 2% as "bulletproof", 3% as "probably ok", and 4% as not ok. I believe Pfau's most recent paper gave much w/r's much lower than 4% for 30, 35, and 40 year retirements. 35 years, for example, amounted to a 2.5% w/r (assuming 1% fees). I believe VG's recent projections are something 3.5% for a 30 year retirement.

I must have read articles quoting old numbers. Fortunately, I think we'll be at 3.5% for the next few years, then lower (adjusted for inflation) as a $10K pension kicks in in 3 years, Spousal SS in 4 years and my full SS in 8 years. Health insurance and healthcare costs should also go down when I ditch my $6K deductible plan for Medicare in 3 years.

[stepford]

Well, this thread has rapidly morphed into a gripefest about both the hysterical financial media and now about generous public pensions. But to get back to the OP's question:

No, the professionals aren't wrong. One will very likely need at least $1M - OR OTHER ASSETS OF EQUAL VALUE - to retire early with a median income level in much of the US. The key point is that pensions should be considered part of one's net worth and can be valued just like any other asset by calculating the cost to purchase an annuity with the same payout.

As an example, an immediate annuity paying out $54K/yr starting at age 55 has a value of $1M - and this is without any cost of living adjustments. As most public sector pensions include some form of COLA their value can be significantly higher. Thus if the OP's friends who've retired in their mid-50s have pension payouts greater than $54K/yr I would argue that they already are millionaires and their comfort in retirement affirms rather than refutes the financial professionals' point that the OP questions.

That $1M (or $2-3M or more for many folks here) is a pretty loose requirement as people's lifestyles and expenses in retirement vary enormously, but as a rule of thumb (or at least a warning shot across the bow to get people to start saving) I do think it remains valid.

[imoldernu]

The "where" is important. Family income in Arkansas less than $51K, in Maryland more than $87K.
Putting a number on "enough" is related to the personal viewpoint.

[Mulligan]

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Originally Posted by 2B I dispute this statement even as a generality. There are places in the US that pay public school teachers outrageous amounts of money for a relatively easy to get degree. Other places in the US pay teachers poorly. This goes through different job functions and different locations. Places that pay poorly usually also have poorer pensions. Pay and pensions for government workers are usually more closely tied to the relationships between the public employee unions and the local politicians. In a career dark spot, I worked at NASA as a contractor. Contractors are paid well below the civil servants that they work with. Some of the CSs I worked with had technical degrees and were top level scientists. I would consider them underpaid but they wanted to be in the space program. Some of the others had non-technical degrees and very high GS levels. Some of these wouldn't have lasted a week in my organization.

Coming from the government side myself, I tend to agree with you and Ha that generally that probably is not accurate anymore. But it can vary. In your reference of school pay, it can vary tremendously in districts. Two school districts near where I live butt up against each other. One salary tops out around $80k, while the other under $50k. So one will get a 60k pension and the other about 35k for doing the same thing only a few miles apart.


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[photoguy]

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Originally Posted by Mulligan Two school districts near where I live butt up against each other. One salary tops out around $80k, while the other under $50k. So one will get a 60k pension and the other about 35k for doing the same thing only a few miles apart.

How does the 50k district find any teachers? I would think that that would a huge problem for hiring. Or does the 80k district get the cream of the crop? or perhaps there's so many people that want to be teachers that it doesn't matter?

[Mulligan]

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Originally Posted by photoguy How does the 50k district find any teachers? I would think that that would a huge problem for hiring. Or does the 80k district get the cream of the crop?

They get the cream, but they like most around here like to hire the new ones and mold them and they then usually don't leave. But some working in the lower paying schools are just very content too. Smaller class sizes, more rural, more relaxed, sometimes its just a less important second family income, or simply just getting tenure and being happy where you are at and not wanting change.
But a lot of the newbees hired at lower paying schools will try to bolt for better paying jobs.


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[Mulligan]

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Originally Posted by photoguy How does the 50k district find any teachers? I would think that that would a huge problem for hiring. Or does the 80k district get the cream of the crop? or perhaps there's so many people that want to be teachers that it doesn't matter?

I didnt answer question fully.... Most school districts base first year salary are in the mid 30's so starting out you see little difference so it doesn't affect them then. Its the salary schedule compression on the back end that hurts. But many poorer paying schools are content to have them a few years before they move on. But many don't care about the money. I have a good friend who has won a state championship as a coach and could easily make double what he earns. But he loves it where he is at and "is the King" of the town despite making less than $40k a year. A high school of 100, he has had some PE classes that would only have 3 kids in it! Student discipline is out of control there. Ha!


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[photoguy]

Thanks for the explanation.

[Cobra9777]

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Originally Posted by haha No longer true, except at higher levels of employment. Compare a city bus driver in Seattle with a guy who drives the Connector for Microsoft. Government workers make more each day, and get way more over a longer retirement.

Quote:

Originally Posted by 2B I dispute this statement even as a generality. There are places in the US that pay public school teachers outrageous amounts of money for a relatively easy to get degree. Other places in the US pay teachers poorly. This goes through different job functions and different locations. Places that pay poorly usually also have poorer pensions. Pay and pensions for government workers are usually more closely tied to the relationships between the public employee unions and the local politicians. In a career dark spot, I worked at NASA as a contractor. Contractors are paid well below the civil servants that they work with. Some of the CSs I worked with had technical degrees and were top level scientists. I would consider them underpaid but they wanted to be in the space program. Some of the others had non-technical degrees and very high GS levels. Some of these wouldn't have lasted a week in my organization.

Well, perhaps my statement is indeed out of date nationally for bus drivers, certain teachers, and NASA contractors. I can tell you that here in Texas, I have a civil engineer, speech pathologist, and accountant in the family. All 3 have had jobs with public and private employers. In every case, the public employer salary was significantly below the same job in the private sector. Only one of the three (DW, the civil engineer) stayed in the public sector because the pension and post-retirement HI was quite good and made up for the salary differential. The other two (nephew and daughter-in-law) are significantly younger and left for higher salaries in the private sector, despite generous DB pensions in their public-sector jobs. I concede that my 3 cases don't support a strong generalization, but it sure feels real and personal, especially in DW's case. Although, now that we're at the pension stage, it feels a lot better.

[pb4uski]

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Originally Posted by marko If someone is getting a $40K pension, that is about the same as $1MM saved (4% X 1MM). .....

No!!! That would only be true if the $40k pension is COLAed.... if the $40k is non-COLAed, then the value is substantially less than $1M.

[Big_Hitter]

I don't even know if a colad 40K pension is worth a million - depends on the discount rate and cola assumptions as well as the age of the annuitant(s) and form of payment