Many retirees could outlive a million dollar nest egg

[Independent]

Quote:

Originally Posted by jkern 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]

Quote:

Originally Posted by daylatedollarshort 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/ma...wanted=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]

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Originally Posted by Willers +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]

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Originally Posted by Independent 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]

Quote:

Originally Posted by jkern 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]

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Originally Posted by daylatedollarshort 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]

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Originally Posted by jkern 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/Americ...e_class#Income

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Originally Posted by haha 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]

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Originally Posted by Katsmeow 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]

Quote:

Originally Posted by obgyn65 Incomes for the American middle class are well defined : https://en.wikipedia.org/wiki/Americ...e_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

[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]

Quote:

Originally Posted by haha @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]

Quote:

Originally Posted by haha 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]

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Originally Posted by 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.)

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]

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Originally Posted by Katsmeow 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]

Quote:

Originally Posted by haha 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]

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Originally Posted by jkern 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/communi...lter-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]

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Originally Posted by daylatedollarshort 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.

Quote:

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]

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Originally Posted by photoguy 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.