Many retirees could outlive a million dollar nest egg

[daylatedollarshort]

Eventhough NY Times reporters don't make great money, they seem to believe that the rest of the world lives this way.

Making it on $50K--- inconceivable

50K puts you in the top .28% in income world wide according to the Global Rich List -

Global Rich List

I kind of tuned out any financial advice from the New York Time after the guy who was an economics reporter wrote the book about his financial meltdown -

"The only problem was money. Having separated from my wife of 21 years, who had physical custody of our sons, I was handing over $4,000 a month in alimony and child-support payments. That left me with take-home pay of $2,777, barely enough to make ends meet in a one-bedroom rental apartment. Patty had yet to even look for a job. At any other time in history, the idea of someone like me borrowing more than $400,000 would have seemed insane."

http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html?pagewanted=all&_r=

Now I really wonder who is writing any of these types of financial advice articles in major publications and what their qualifications are.

 

[haha]

50K puts you in the top .28% in income world wide according to the Global Rich List -

And that should help immensely living in Manhattan or Oyster Bay.

What a fantastic non sequiter.

Ha

 

[clifp]

And that should help immensely living in Manhattan or Oyster Bay.

What a fantastic non sequiter.

Ha

Well that is part of the problem. In size, Oyster Bay and Manhattan combined are .0005% of the US (obviously population percentage is higher).

Now if the NY Times was a regional paper no problem, but it is allegedly the paper of record. I did notice that the, mostly critical, comments on the article came from the rest of the country. So on national issues the reporters and editors might want to keep the remaining 99.9995% of the country in mind.

 

[daylatedollarshort]

And that should help immensely living in Manhattan or Oyster Bay.

What a fantastic non sequiter.

Ha

If I was worried about my retirement funds running out, personally I would move some place less expensive than Manhattan. There are many parts of the U.S. and especially the world where Social Security and $1M in iinvestments can provide quite a nice retirement.

Location is a discretionary lifestyle choice for most people with $1M in investable assets.

 

[haha]

Well that is part of the problem. In size, Oyster Bay and Manhattan combined are .0005% of the US (obviously population percentage is higher).

Now if the NY Times was a regional paper no problem, but it is allegedly the paper of record. I did notice that the, mostly critical, comments on the article came from the rest of the country. So on national issues the reporters and editors might want to keep the remaining 99.9995% of the country in mind.

You make a very good point. But for the most part we have had good jobs, lived in fairly nice homes in nice communities, and we might well want to continue that lifestyle in retirement. Judging by all the European travel, nice remodels on already very nice homes, plenty members seem to live very well. And of course, SS can be fairly large, so the $35,000 or so that may be fairly safely withdrawn from a $1mm account, added to 2 good SS payments, provided these SS payments stay good should make a reasonable retirement in very many places.

Yet, for a couple in many places, this will not be very luxe, and depending on what happens, it may not even feel very safely sustainable.

My Grandma often said that a lot of crap can be cured by money. Not all of it, but a lot of it.

If I was worried about my retirement funds running out, personally I would move some place less expensive than Manhattan. There are many parts of the U.S. and especially the world where Social Security and $1M in iinvestments can provide quite a nice retirement.

Location is a discretionary lifestyle choice for most people with $1M in investable assets.

You are certainly correct. I don't live in either of these places, but I have seen enough of them that I know they beat hell out of most places. I couldn't afford to live there, besides I am happy where I am. But only some of us got pushed out before we could afford the lifestyle of our choice (within reason of course). These people need to deal with their reality, and most do.

And some of use seem to have no strong feelings about where they are, or who they leave behind when they move to cheap somewhere in US or world. But I'd guess more of us do have strong feelings about place and people, and for many of us we may still have the opportunity to make our desired outcomes more likely, by working a bit longer at our relatively high paying jobs. So to me, it is better to seek funding such that our desired lifestyle is not one that would lead us to be worried about our retirement funds running out.

Ha

 

[Tom52]

"Still, the expectation of working longer seems to be the trend. An annual survey for the Employee Benefit Research Institute found that in 1991, only 11 percent of workers expected to retire after age 65, while this year, 36 percent said they would retire after 65 — and 7 percent said they didn’t plan to retire at all."

omni

I didn't read thru all of the above comments but right off the bat I question the validity of the above statement since back in 1991 a lot of people that could have been in the survey qualified for full SS benefits at age 65, now most if not all people not yet drawing SS do not qualify for full SS benefits until age 66 or later. I think the majority of not yet retired people think of retirement in terms of the age they reach full SS benefit age, thus now many people think in terms of expected retirement after age 65. I think the survey is stating the obvious.

 

[dunkelblau]

In Tom Wolfe's book, the Bonfire of the Vanities, there is a great scene where the main character, a bond trader, explains that despite making a couple of million a year (the novel is 25 years old) he is just barely keeping his head above a water.

The maid, butler, chauffeur, nanny, caterer, yoga instructor, hair stylist, interior designer all need raises. The 2nd Mercedes is getting old, his wife has found a new clothes designer who she just must have her latest design, and the head master at the school is suggesting a special tutor for the kids. Not to mention the mortgage, summer house in the Hamptons, and the rental of the Chateau in France.

Eventhough NY Times reporters don't make great money, they seem to believe that the rest of the world lives this way.

Making it on $50K--- inconceivable

Interesting story by a law professor who got access to F. Scott Fitzgerald's income tax returns:
The American Scholar: Living on $500,000 a Year - William J. Quirk

... for most of his working life, he earned about $24,000 a year, which put him in the top 1 percent of those filing returns. Despite his high income, he was not able to save or, as he said, "amass capital." When he died in December 1940, his estate was solvent but modest-- around $35,000 (about 1M today)

Lots of interesting details about his money in and out over time. A couple of culprits seem familiar to the modern day (high living and medical expenses), but income taxes worked a bit differently back then. His nest egg at the time of his death would not have lasted long in retirement (or in his case pursuing his passion).

 

[Ed_The_Gypsy]

It should be quite easy to live on SS and the income from a million bucks, unless a person feels obliged to spend more than most people, while enjoying a retired lifestyle and not working at all.

The most recent median U.S. household income is $50,502. If SS is $20K, then just $30,502 needs to come from the portfolio. This is less than 3.1%. I can't see this person running out of money any time soon.

I certainly hope so. Our combined SS will be more but it is balanced out by our less than $1MM portfolio.

Speaking of 'our combined SS', W2R, I hope you are aware that a divorced or widowed person who was married over 10 years can receive benefits based on the former spouse's record. Does that do you any good?

 

[W2R]

Speaking of 'our combined SS', W2R, I hope you are aware that a divorced or widowed person who was married over 10 years can receive benefits based on the former spouse's record. Does that do you any good?

Yes, hopefully it will do me some good. Half the benefits, anyway, but every little bit helps. It will work out best if I wait until I am 66 (my full retirement age), so I can take 50% of his benefits from 66 to 70, then go back to 100% of my own benefits at 70. Here's the link that someone gave me in that thread, that I believe substantiates that this can be done.

Retirement Planner: Benefits For You As A Spouse

If you have reached full retirement age, and you are:

• eligible for a spouse's benefit and your own retirement benefit, you may choose to receive only spouse's benefits.
• eligible for an ex-spouse's benefit and your own retirement, you may choose to receive only the ex-spouse's benefit. Your ex-spouse needs to be 62 but he or she does not have to have filed for benefits.

If you do that, you can delay applying for your own retirement benefits until a later date to take advantage of delayed retirement credits.

 

[jkern]

A person or a couple?

The median earnings for a full-time, year-round worker in the US is around $40k. I would consider that "middle class" by definition.

The SS PIA on that income is about $16k. It may take $32k in retirement to maintain a lifestyle. That means $16k from investments. Most people here think a 3% withdrawal rate is sustainable. So a portfolio of less than $600k should be enough.

While I understand that $40K is statistically average, it's not necessarily fully funding a middle class standard of living. There are low cost areas and certain situations (health insurance paid by former employer) that a person could sustain a middle class lifestyle on $32K, bit not many.

For example, my essentials (property tax, property insurance, utilities, food, medical and dental insurance, auto insurance, auto maintenance and repairs, gas) equal almost $28k. That's just room and board, transportation and insurance. House and car are paid in full. I would not be able to live a relatively normal life on $32k per year.

 

[Katsmeow]

For example, my essentials (property tax, property insurance, utilities, food, medical and dental insurance, auto insurance, auto maintenance and repairs, gas) equal almost $28k. That's just room and board, transportation and insurance. House and car are paid in full. I would not be able to live a relatively normal life on $32k per year.

What I have found with my mother (and DH found with his parents) is that in very old age much of that goes down. She has a cap on property tax due to age, she has Medicare which does have premiums but aren't that great. She still drives (she is 89) but very little and so her car is very old but still very low mileage. She doesn't like to go out all that much. Occasionally goes out to dinner with someone. Goes shopping when necessary. Talks on the phone. Watches TV, reads the paper, does stuff around her house. Her expenses are just not that high.

 

[Katsmeow]

You make a very good point. But for the most part we have had good jobs, lived in fairly nice homes in nice communities, and we might well want to continue that lifestyle in retirement. Judging by all the European travel, nice remodels on already very nice homes, plenty members seem to live very well. And of course, SS can be fairly large, so the $35,000 or so that may be fairly safely withdrawn from a $1mm account, added to 2 good SS payments, provided these SS payments stay good should make a reasonable retirement in very many places.

Yet, for a couple in many places, this will not be very luxe, and depending on what happens, it may not even feel very safely sustainable

I don't disagree with this. However, the NYT article wasn't talking about retiring with a million dollars in Manhattan or even the greater NYC area. Rather, the article was written more generally as if it applied everywhere.

The notion that - as a general rule - people with SS and a million dollars need to work until 70 because otherwise they can't afford to retire is ludicrous. This may indeed be a choice that some people who live in high cost areas will choose to make. However, for the vast majority of people who don't like in those high cost areas, it is absurd to suggest that they need to work until 70. I'm not at all saying that a million dollars is enough for everyone. Plenty of people do want more and choose to save more and that is fine. If someone really wants to have spend $120,000 a year then, yes, a million (unless you have a nice pension) won't cut it.

However, the part that the article seems to be missing (among many parts) is that for the vast majority of people they could live just fine on SS and a portfolio which would collectively allow spending of around $70k a year. The author just can't seem to fathom this and seems to assume that anyone who has $1 million would automatically be dissatisfied with retirement spending of $70k a year.

 

[daylatedollarshort]

Average annual expenditures in the U.S. for households 65 and older in 2011 was $39K.

http://www.bls.gov/cex/2011/Standard/sage.pdf

The NY Times article author should read The Millionaire Next Door or Your Money or Your Life for a reality checked follow up article. Many people who have acquired $1M plus nest eggs have also figured out how not to deplete it in retirement.

 

[P.S.]

I didn't read the article because I hoard my 10 free articles each month for things I know I want to read.

Ha

ooh! i used to do this too, then discovered you could read as many articles as you want by finding the article through google, which I guess works by bypassing some security portal. Which means when I am bored at work I can stuff myself on op ed pieces. I found you can also do this for WSJ subscriber only articles.

Please don't spread this around to much, lest it get "fixed" by them.

 

[Chuckanut]

Why on earth is the article solely using as examples ridiculous retirement allocations - all bonds or 80% equities?

+1

 

[Independent]

While I understand that $40K is statistically average, it's not necessarily fully funding a middle class standard of living. There are low cost areas and certain situations (health insurance paid by former employer) that a person could sustain a middle class lifestyle on $32K, bit not many.

For example, my essentials (property tax, property insurance, utilities, food, medical and dental insurance, auto insurance, auto maintenance and repairs, gas) equal almost $28k. That's just room and board, transportation and insurance. House and car are paid in full. I would not be able to live a relatively normal life on $32k per year.

It turns out that my number was wrong. If I focus on full-time, year-round workers, the median is closer to $45k. Does that get us closer?

(Table 24 here: Historical Income Tables - People - U.S Census Bureau)

My point is that a "middle class lifestyle" is what middle income people can afford. We know that most people can sustain a middle class standard of living on the median earnings because they are doing it. If some really "need" to spend more because of unusually high medical expenses (for example), then there have to be others who can get by on less because of low medical expenses. If some "need" to live in a high cost area because they have limited job opportunities, then others are able to live in low cost areas.

This source says that the average (mean, not median) spending for single people aged 55-64 is about $33,500. You might compare your spending to this just out of curiosity.

 

[Willers]

I kind of tuned out any financial advice from the New York Time after the guy who was an economics reporter wrote the book about his financial meltdown -

"The only problem was money. Having separated from my wife of 21 years, who had physical custody of our sons, I was handing over $4,000 a month in alimony and child-support payments. That left me with take-home pay of $2,777, barely enough to make ends meet in a one-bedroom rental apartment. Patty had yet to even look for a job. At any other time in history, the idea of someone like me borrowing more than $400,000 would have seemed insane."

http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html?pagewanted=all&_r=

Now I really wonder who is writing any of these types of financial advice articles in major publications and what their qualifications are.

+1 I guess the nicest thing you can say is that he definitely knows the ins and outs of the sub-prime business. What a strange time 2005-2007 was...

 

[daylatedollarshort]

+1 I guess the nicest thing you can say is that he definitely knows the ins and outs of the sub-prime business. What a strange time 2005-2007 was...

I never read the book myself, but the first page reviews on Amazon for it are a hoot.

 

[jkern]

It turns out that my number was wrong. If I focus on full-time, year-round workers, the median is closer to $45k. Does that get us closer?

(Table 24 here: Historical Income Tables - People - U.S Census Bureau)

My point is that a "middle class lifestyle" is what middle income people can afford. We know that most people can sustain a middle class standard of living on the median earnings because they are doing it. If some really "need" to spend more because of unusually high medical expenses (for example), then there have to be others who can get by on less because of low medical expenses. If some "need" to live in a high cost area because they have limited job opportunities, then others are able to live in low cost areas.

This source says that the average (mean, not median) spending for single people aged 55-64 is about $33,500. You might compare your spending to this just out of curiosity.

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.

 

[daylatedollarshort]

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 have retired friends in SF area that live on much less but they both own their own houses and their property taxes are probably very low.

 

[jkern]

I have retired friends in SF area that live on much less but they both own their own houses and their property taxes are probably very low.

I owned my home for 25 years and my property taxes are $5.5k per year. Some of my friends parents, who have lived in their homes for over 50 years, pay very low property taxes. Most do not. I actually know one couple that pays $36k per year (ouch!!).

 

[haha]

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.

Some posters here either do not know this, or choose to ignore it as it makes it easier to make a case for extreme low cost living.

Middle class has no precise definition, but it surely does not mean 50th percentile, since as you point out many of these people have some considerable subsidies.

Reality can be elusive, especially if that can somehow serve one's personal issues.

Ha

 

[obgyn65]

Incomes for the American middle class are well defined :
https://en.wikipedia.org/wiki/American_middle_class#Income

Middle class has no precise definition, but it surely does not mean 50th percentile, since as you point out many of these people have some considerable subsidies.


Ha

 

[ejman]

I don't disagree with this. However, the NYT article wasn't talking about retiring with a million dollars in Manhattan or even the greater NYC area. Rather, the article was written more generally as if it applied everywhere.

The notion that - as a general rule - people with SS and a million dollars need to work until 70 because otherwise they can't afford to retire is ludicrous. This may indeed be a choice that some people who live in high cost areas will choose to make. However, for the vast majority of people who don't like in those high cost areas, it is absurd to suggest that they need to work until 70. I'm not at all saying that a million dollars is enough for everyone. Plenty of people do want more and choose to save more and that is fine. If someone really wants to have spend $120,000 a year then, yes, a million (unless you have a nice pension) won't cut it.

However, the part that the article seems to be missing (among many parts) is that for the vast majority of people they could live just fine on SS and a portfolio which would collectively allow spending of around $70k a year. The author just can't seem to fathom this and seems to assume that anyone who has $1 million would automatically be dissatisfied with retirement spending of $70k a year.

Amazing how the average standard of living is such an elastic thing. When I ER'd back in 2002 I chose a location that would offer what I though was a good middle class standard of living for a good middle class income, which I defined as more or less what I had been spending for quite a few years -mid $60K's per year. So for the last 10 years that's what my spend line has been like - remarkably uniform. For the area I live in (SW Oregon) median household income is $38 k a year so my mid 60"s spend line has basically been the life of Riley. This is more than doable in the good ol' USA.

Once a person is retired and FI any location on this planet is open for consideration. Having worked for many years overseas I can certainly understand the lure of retiring in a third world country for the more adventurous - Life of Riley + maids + chauffeur + gardener.

Our retirement is funded quite nicely by SS ($30K) + drawdown of my nest egg of another 3% or so. The comparison to living cost requirements in one of the most expensive locations on the planet is beyond ludicrous.

 

[haha]

Incomes for the American middle class are well defined :
https://en.wikipedia.org/wiki/American_middle_class#Income

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 do so , but it might seem a bit reflexive.


Ha