Many retirees could outlive a million dollar nest egg

[daylatedollarshort]

Even in the Bay Are all you have to do is move 1 hour outside the city center in some directions and home prices are more reasonable - ~$300K for a newish 3 bedroom, 2 bath home. Or you can live in the 'burbs and buy a town home for that price, though probably not in SF proper or high rent parts like Silicon Valley where the software engineer salaries have bid up the housing prices.

My friends who live in the main metro area live well on $30 - $40K each (paid for houses, natives with prop 13 property tax rates.)

 

[Katsmeow]

@ejman-my bad! I foolishly thought this article was in the new York Times, not the Roseburg News! If they had said that one could buy whatever they thought worth buying in SW OR on a $60,000 budget, I would have understood. But I missed that part of the article.

You have indicated you have not read the article. FWIW, the article is not basing budget on retirees living in Manhattan or any other extremely expensive locale. The article is written as a general article about retiring with a million. It is not written as an article saying that someone who retires with a million in New York City won't have enough. Rather it is making a general recommendation to anyone who has a $1 million portfolio and SS to continue working until 70.

The other issue with the article is that it basically gets into this position by making a convuluted argument that people who have a million are the top 10% and the top 10% has a median income of $150,000 and you need to replace 80% of your income to retire so someone getting $60-70000 from SS and a portfolio won't have enough since they obviously need $120,000. It makes my head hurt....

Anyway - I don't think those of us criticizing the article would disagree that some places are most expensive to live and for people who want to live in those areas they may need more money. However, that wasn't what the article was about.

 

[ejman]

i would say that something that takes this much multifactorial explanation is hardly "precisely defined". Which is all I said.

I took a one semester class on class in America; it was hardly precisely defined then either.

Class-you know it when you see it. Example: Is a heroin dealer who makes $100,000 a year middle class? Is he upper class? Is the prostitute who makes $50,000 a year middle class, and her sister who makes $250,000 upper class?

How about an English Lord who ekes out a living giving tours on his baronial estate? What his his class? How about an Argentine stable boy who works for some wealthy woman on her estate in Virginia? Is he working class until he marries the woman, then upper class?

@ejman-my bad! I foolishly thought this article was in the new York Times, not the Roseburg News! If they had said that one could buy whatever they thought worth buying in SW OR on a $60,000 budget, I would have understood. But I missed that part of the article. Anyway, not sure why you seem to get so steamed about this. My comment was only "And that should help immensely living in Manhattan or Oyster Bay."

How is this any more specialized, or as you prefer, "beyond ludicrous" than your claim that this would be easy in SW OR? To me, neither example is ludicrous, let alone "beyond ludicrous", unless you insist that only your personal lifestyle is non-ludicrous.

Feel free to so , but it might seem a bit reflexive.


Ha

You know, I'm not even sure we are actually on opposite sides of this one. I was simply proposing that the premise of the NYT article was beyond ludicrous because SS + a reasonable draw on $1M of liquid assets results in a nice lifestyle in many locations in the US and the world. Certainly not in NY and I suspect Tokyo, London or Paris would likewise be a bit of a stretch. Although I'm in big foot land down here I know that my daughter in Portland does quite well on a (roughly) similar income.

 

[jkern]

Even in the Bay Are all you have to do is move 1 hour outside the city center in some directions and home prices are more reasonable - ~$300K for a newish 3 bedroom, 2 bath home. Or you can live in the 'burbs and buy a town home for that price, though probably not in SF proper or high rent parts like Silicon Valley where the software engineer salaries have bid up the housing prices.

My friends who live in the main metro area live well on $30 - $40K each (paid for houses, natives with prop 13 property tax rates.)

I live about 45 minutes outside the City and home prices are much more than what you think. Newish 3 bed, 2 bath homes are about $700K. Townhomes are about $500k. I live in what's considered a middle class area.

It would require a tight budget to live on $30k - $40k per year. Do your friends include an annual reserve to replace items such as cars, appliances, furniture, roofs, new paint, carpet, tv, computer, and cell phones? How about special events (kids weddings etc.), travel, buying stuff? Many people tend to under estimate these costs. Maybe they have a nest egg that they draw from to cover these cost but don't include it in their yearly budget.

 

[haha]

You have indicated you have not read the article. FWIW, the article is not basing budget on retirees living in Manhattan or any other extremely expensive locale. The article is written as a general article about retiring with a million. It is not written as an article saying that someone who retires with a million in New York City won't have enough. Rather it is making a general recommendation to anyone who has a $1 million portfolio and SS to continue working until 70.

The other issue with the article is that it basically gets into this position by making a convuluted argument that people who have a million are the top 10% and the top 10% has a median income of $150,000 and you need to replace 80% of your income to retire so someone getting $60-70000 from SS and a portfolio won't have enough since they obviously need $120,000. It makes my head hurt....

Anyway - I don't think those of us criticizing the article would disagree that some places are most expensive to live and for people who want to live in those areas they may need more money. However, that wasn't what the article was about.

Peace be with you. When the gentleman told me how I could read all the NYT articles I wanted without charge, I went back and read it.

I can't defend the article; I didn't write it, nor would I. I've been retired over 25 years, so I know a bit about retirement and retirees, at least those who live in my moderately expensive area. Yet I see older people on the street every day, who very likely are living on much less. Most people do have a preferred lifestyle and locale. People are different from one another, and most of us do not really want to change much if we are not forced to.

I guess what I don't understand is what might be news in the realization that it likely costs more to live on Hilton Head then it does in Tallahassee, and that funding a retirement in these different areas would take different bankrolls and flows? And further, that some people to the extent that they could plan a way a fund the more upscale experience, might well prefer it? So for some out in NYT land, $1mm + unspecified SS may have a retired couple in the tall clover, for others, it would be insufficient. Do only the ones living frugally in cheap places count?

I think I have said several times on here, that I could very happily spend 3, 4, 5 or 10 times what I do. I don't do this, because I have a realistic idea of how unpleasant fear and the feeling of impending failure can be. But it must might be that some NYT readers are not so down to earth, and they might profit from this author's idea of reality. If they don't, it can't be any worse than the other misconceptions that abound in the extremely sketchy area of personal finance. Does no one remember all the anxiety and doubt around here back in 2008? Does everyone suppose that that ended it once and for all, it could not happen again? I don't. I have already experienced in my investing life 3 ~50% equity drops, and the 25+% drop of 1987.

But for the record, I don't care at all how anyone conceives of retirement funding, or where they want to live, or how.

Ha

 

[bld999]

I see an assumption in the text:

"Still, even $61,000 or $71,000 a year — the combined Social Security and cash flow from the $1 million portfolio — isn’t likely to be enough for most people who have grown accustomed to living on $150,000 or more a year. And $150,000 is the median income of a typical household in the top 10 percent, roughly the ranking of a family with $1 million in net assets, Professor Wolff says. "

There's no lbym here, it's status quo, no adjustment, and not location specific. The message is that if you have piled up $1 mil, you live on 150k/yr. Then, somewhere down the road, you go broke.

Is it a dumb assumption, sure.

 

[Katsmeow]

I guess what I don't understand is what might be news in the realization that it likely costs more to live on Hilton Head then it does in Tallahassee, and that funding a retirement in these different areas would take different bankrolls and flows? And further, that some people to the extent that they could plan a way a fund the more upscale experience, might well prefer it? So for some out in NYT land, $1mm + unspecified SS may have a retired couple in the tall clover, for others, it would be insufficient. Do only the ones living frugally in cheap places count?

Of course not. I guess I'm not sure what the point is in terms of the relationship to the article we are discussing. Yes, it costs more to live in Manhattan and some other places than it does where I live, for example.

Some people will want to have a portfolio large enough to live in those places which is fine.

However - none of that has anything to do with the article. The article wasn't making the point that if you want to live in Manhattan you need an income of $120k a year and so a million portfolio isn't enough.

Rather the article is recommending that a million dollar portfolio isn't enough for anyone on the ground that anyone has a million must need an income of $120k in retirement.

What some of us are taking exception to is the idea that no one with a million dollar portfolio could happily live on $60-70k when that is simply false. Of course, not everyone could do so.

 

[daylatedollarshort]

I live about 45 minutes outside the City and home prices are much more than what you think. .

Just because you might not be able to live well on 30 - 40K doesn't mean no one can. Also these friends are single so those expenditures are for one person.

New homes in Fairfield
http://www.newhomesource.com/communityresults/market-41/citynamefilter-fairfield

Driving time 52 minutes to SF in current traffic per Google maps.

Median household income for Fairfield - 68K (20011). But those figures include families with more than one person and/or kids at home and maybe saving for college, paying Social Security taxes and Medicare on their income, paying rent or making mortgage payments, higher property taxes on more recent home purchases, saving for retirement, incurring commute and work associated costs, etc. A one person retired household with a paid for house and Prop 13 taxes from a house bought decades ago would not have any of those costs to cover.

Median household income for California (2011) was 61K so this would be a middle class type area income-wise.

 

[photoguy]

I looked at open houses in the Bay Area last weekend. I don't think I imagined the realtor sheets with the home prices or the listing prices on Trulia and Redfin.

Just because you might not be able to live well on 30 - 40K doesn't mean no one can. Also these friends are single so those expenditures are for one person.

With paid for house and low prop tax due to prop 13k, one can live quite well in the bay area on 30-40k.

New homes in Fairfield
Search Fairfield New Homes, Find New Home Builders in Fairfield, CA

Driving time 52 minutes to SF in current traffic per Google maps.

I find google maps traffic times to be very bad. Could easily be double the estimate. Given that it's 50miles, I would be very surprised if the commute wasn't closer 1:30 one way during normal rush hour.

 

[daylatedollarshort]

With paid for house and low prop tax due to prop 13k, one can live quite well in the bay area on 30-40k.



I find google maps traffic times to be very bad. Could easily be double the estimate. Given that it's 50miles, I would be very surprised if the commute wasn't closer 1:30 one way during normal rush hour.

If you are retired you don't have to drive during rush hours. Even so, 68K a year is the median household income in a middle class neighborhood 1 hour - 1.5 hours (rush hours) from SF, one of the most expensive cities in the U.S. If you don't have the expenses of a younger family with kids, saving for both college and retirement, making 7%+ SS and Medicare payments and making mortgage payments, you could probably live nice, a normal middle class lifestyle for even less.

 

[haha]

What some of us are taking exception to is the idea that no one with a million dollar portfolio could happily live on $60-70k when that is simply false. Of course, not everyone could do so.

Well I couldn't agree more with this. Many people live well and happily on that or less.

I guess I must not have realized that this was in contention, it is so obviously true. My bad. Even on on my worst day I would not disagree with this statement.

I do think that the extreme frugality and flexibility often found around here may not be typical of most retirees, many of whom do not like to take what they see as a step down after retiring. So the author's framework, while clearly not universally applicable, or perhaps not even completely logical, is likely fairly often descriptive of reality as perceived by Joe and Jill Average NYT readers who are accustomed to the modestly affluent life they have been living while working. Many retirees also have some fairly extensive and expensive bucket lists.

Ha

 

[LitGal]

If you are retired you don't have to drive during rush hours. Even so, 68K a year is the median household income in a middle class neighborhood 1 hour - 1.5 hours (rush hours) from SF, one of the most expensive cities in the U.S. If you don't have the expenses of a younger family with kids, saving for both college and retirement, making 7%+ SS and Medicare payments and making mortgage payments, you could probably live nice, a normal middle class lifestyle for even less.

We relocated to Ohio in '96 (because our son was 7, and we knew we had to find a way to save for college, retirement etc.). Prior to the move, though, we had lived in the Bay Area for 12 years. Despite the size of our mortgage, we could live a middle class life.......that is, until we adopted our son. I then cut back to teaching part-time; so, between the reduced salary and the cost of childcare, our budget got very tight.

Nonetheless, I had many colleagues who found a way to live on a teacher's salary in the Bay Area.They might have had to commute an hour each way, in order to afford a house. Or they might have decided to not have children, or they had just one. But they did find a way to make it work. And they were able to retire without relocating.

My best friend from college lives in Marin, in a paid-off house, on way less than $68,000/year. She and her DH are retired on disability, but would never think of moving. They economize, garden, DIY......because Marin will always be "home."

 

[Independent]

The first thing to do is to define "middle class standard of living". I would not define it as the lifestyle of someone making the statistical average income. Most people making below average income are subsidized. Either by government, family & friends or loans. I believe that average income levels provide a very low standard of living in most cases. Using the statistical averages for cost isn't very useful either. For example, where I live a single person renting a typical one bedroom apartment and paying for medical insurance on the open market would almost reach your $33.5k per year with those two items only.

I'm guessing that my definition of middle class is higher than yours. I'm also comparing costs to the San Francisco Bay Area. Depending on someone's particular situation, a middle class lifestyle here could cost between $50k and $75k per year.

I'll agree that many people living in the US are subsidized. But, the number I gave you was chosen to exclude them. Note that it is median earnings of "full-time, year-round" workers. Very few of those people get significant subsidies. If we looked at the entire population, we'd discover that more than 50% live on less than the $45k.

I'll agree that housing is more expensive in the SF area, and that people who buy individual health insurance pay more than those who have employer subsidized health insurance. But, when I make comments about "most Americans", I also include the people who live in fly-over country and people who have lower-than-average health insurance costs. I wouldn't pick the high cost area and say that represents "most".

I forgot a link in a prior post, it should have been ftp://ftp.bls.gov/pub/special.requests/ce/CrossTabs/y1011/sizbyage/aone.TXT

 

[Andre1969]

What some of us are taking exception to is the idea that no one with a million dollar portfolio could happily live on $60-70k when that is simply false. Of course, not everyone could do so.

I don't think I'd be able to live happily on $60-70K per year. I just don't think I could ramp up my lifestyle to spend that much money!

 

[W2R]

I don't think I'd be able to live happily on $60-70K per year. I just don't think I could ramp up my lifestyle to spend that much money!

+1. I hear you!

 

[bld999]

I think what has been demonstrated here is that most on the board do not fit the sample of people in the mind of the authors. A big part of the culture here is lbym, general thrift, and a deep bias toward analysis and resulting adjustment of behavior.

No wonder we are bristling at claims that if you have piled up One Million that you are bound to spend no less than 150k per year.

 

[Keim]

I believe his comes from SS, inherited assets and TIAA-CREF university system retirement. I would like to know more about this, but I don't think he really knows. My understanding is that this is a defined contribution plan, but he thinks of it as if it were a pension. Maybe he annuitized?

Ha

After all these years, I can finally tell haha something he may not already know! YES!

He is probably a participant in the TIAA-CREF Traditional plan. This is a unique beast. It is a guaranteed fixed annuity, with the advantage that every year the TIAA board can vote to pay above that amount, based on the funds performance. To date, it has always outpaced inflation. And, to date, they have only voted once or twice not to go above their guaranteed yearly minimum.

 

[daylatedollarshort]

I think what has been demonstrated here is that most on the board do not fit the sample of people in the mind of the authors. A big part of the culture here is lbym, general thrift, and a deep bias toward analysis and resulting adjustment of behavior.

No wonder we are bristling at claims that if you have piled up One Million that you are bound to spend no less than 150k per year.

I agree with what you are saying, however I don't think it is limited to the posters here. The Millionaire Next Door book noted that your average millionaire household lives like many of the posters here. They are cheap dates and Costco shoppers, "savers and investors in a population of hyper consumers."

That is how they got to be millionaires.

 

[jkern]

I'll agree that many people living in the US are subsidized. But, the number I gave you was chosen to exclude them. Note that it is median earnings of "full-time, year-round" workers. Very few of those people get significant subsidies. If we looked at the entire population, we'd discover that more than 50% live on less than the $45k.

I'll agree that housing is more expensive in the SF area, and that people who buy individual health insurance pay more than those who have employer subsidized health insurance. But, when I make comments about "most Americans", I also include the people who live in fly-over country and people who have lower-than-average health insurance costs. I wouldn't pick the high cost area and say that represents "most".

I forgot a link in a prior post, it should have been ftp://ftp.bls.gov/pub/special.requests/ce/CrossTabs/y1011/sizbyage/aone.TXT

I agree with you than more than 50% of the population lives on $45k or less. My original point is that to have a fully funded, no geographic limitation, comfortable, worry free middle class lifestyle, it is not uncommon at all to need $50 to $75 per year. If you have no pension and receive only $15k to $25k in SS, you will need a $1M+ portfolio to guarantee your standard of living indefinitely.

 

[youbet]

What some of us are taking exception to is the idea that no one with a million dollar portfolio could happily live on $60-70k when that is simply false. Of course, not everyone could do so.

This is how you with your own personal views and biases view the article. I didn't see where the article specifically said that NO ONE with a million dollar portfolio could happily live on $60k-$70k. I saw it as giving examples of how some people couldn't. That's my view. You're welcome to yours.

 

[youbet]

the number I gave you was chosen to exclude them. Note that it is median earnings of "full-time, year-round" workers. Very few of those people get significant subsidies.

I don't think that's true Independent. Most "full-time, year-round workers get medical insurance subsidies, employer contirbution to SS, pension or 401k plan subsidies, etc. These benefits are NOT included in the annual salary numbers published by our gov't.

 

[Mulligan]

I don't think I'd be able to live happily on $60-70K per year. I just don't think I could ramp up my lifestyle to spend that much money!

I don't spend $50k a year either. But, I find it ironic that I have a married couple who make significantly more than I do that have a negative net worth, and have less fun with their money than I do. There are just some people that money "leaks" from them with nothing gained from it. Coming from Midwest I am shocked at what prices can be. I was just talking to a man from Vancouver area while in Vegas this past week who is a hockey fan like me. The total price of what he paid for one game including parking and beer at a Canucks game was about the same price for a half a season I would pay watching the Blues play. He said $50 to park for a game. Unbelievable, I can find free parking when I go. I have talked to Blackhawks fans at Blues games say its cheaper to drive to Chicago airport and fly to STL and watch a game and stay overnight, than to do it locally there.

 

[haha]

After all these years, I can finally tell haha something he may not already know! YES!

He is probably a participant in the TIAA-CREF Traditional plan. This is a unique beast. It is a guaranteed fixed annuity, with the advantage that every year the TIAA board can vote to pay above that amount, based on the funds performance. To date, it has always outpaced inflation. And, to date, they have only voted once or twice not to go above their guaranteed yearly minimum.

Thank you, for the undeserved compliment, and for the answer that very likely explains my friend's situation. He has mentioned that occasionally his check increases. It is so funny, when we in college together he majored in economics but has no interest at all in money today, other than he always seems to have plenty. The university he retired from is a private school, but my understanding is that the UW and UW Medicine faculty also get their retirement through TIAA-CREF. All that I know love it.

Ha

 

[daylatedollarshort]

I agree with you than more than 50% of the population lives on $45k or less. My original point is that to have a fully funded, no geographic limitation, comfortable, worry free middle class lifestyle, it is not uncommon at all to need $50 to $75 per year. If you have no pension and receive only $15k to $25k in SS, you will need a $1M+ portfolio to guarantee your standard of living indefinitely.

The NY Times are article referred to a couple, so Social Security would be ~$15K each, 30K household. According to the consumer expenditure survey from 2011, average annual expenses for 65+ households of 1.7 members are $39K.

1.7 members X $15K SS per member = $25.5K total household SS.

$39k expenditures - $25.5 household SS = $13.5 portfolio draw down needed.

$1M investment portfolio / $13.5 = 74 years of portfolio draw down covered at a zero real return.

 

[youbet]

The NY Times are article referred to a couple, so Social Security would be ~$15K each, 30K household. According to the consumer expenditure survey from 2011, average annual expenses for 65+ households of 1.7 members are $39K.

1.7 members X $15K SS per member = $25.5K total household SS.

$39k expenditures - $25.5 household SS = $13.5 portfolio draw down needed.

$1M investment portfolio / $13.5 = 74 years of portfolio draw down covered at a zero real return.

While your math is undoubtedly accurate, it's naive.

DW and I spend a multiple of $39k annually, living modestly in suburban Chicago. We would not have RE'd if doing so meant living on $39k.

I have no problem with your desire for you and your spouse to live on (pay taxes, provide housing, food, entertainment, medical care, clothing, gifts to the grandkids, etc.) $39k. We just chose another path.