Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Many retirees could outlive a million dollar nest egg
Old 06-08-2013, 08:25 PM   #1
Thinks s/he gets paid by the post
 
Join Date: Mar 2004
Posts: 1,988
Many retirees could outlive a million dollar nest egg

NYT article today on why many retirees could outlive a million dollar nest egg:

"A millionaire household lives in elite territory, even if it no longer seems truly rich. Including a home in the calculations, such a family ranks in the top 10.1 percent of all households in the United States, according to Professor Wolff’s estimates. Excluding the value of a home, a net worth of $1 million puts a household in the top 8.1 percent. Yet even such families may have difficulty maintaining their standard of living in retirement."

"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."

http://www.nytimes.com/2013/06/09/yo...pagewanted=all

omni
__________________

__________________
omni550 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 06-08-2013, 08:38 PM   #2
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,136
Does that article have a point or is it simply a rambling jumble of disjointed quotes?
__________________

__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 06-08-2013, 09:39 PM   #3
Thinks s/he gets paid by the post
jollystomper's Avatar
 
Join Date: Apr 2012
Posts: 1,364
Quote:
Originally Posted by REWahoo View Post
Does that article have a point or is it simply a rambling jumble of disjointed quotes?
Scaring people makes for better sales and web page hits than helping them to plan for the future. It also tends to foster the "you can't do it on your own" view than many prefer people to have these days.
__________________
Current target FIRE date: Under negotiation, can happen anytime.
jollystomper is offline   Reply With Quote
Old 06-08-2013, 09:52 PM   #4
Full time employment: Posting here.
 
Join Date: Jun 2012
Location: Suburban Woods in Ohio
Posts: 503
Well, if anything, it motivates me to get seriously educated on making our nest egg last. I would much rather become a savvy investor with a tolerance for risk (to withstand some volatility in equities), than the other alternative: working longer. (Or returning to work.)

Nope-- I just do not want to do that.

So, I'll use some advice in the article that seems salient.......like strategizing carefully about when to sign up for SS.
__________________
"Everything becomes more itself." --C.S. Lewis
LitGal is offline   Reply With Quote
Old 06-08-2013, 10:34 PM   #5
Dryer sheet aficionado
 
Join Date: Oct 2012
Posts: 25
I'm confused by this article. Why would a millionaire family have difficulty maintaining their standard of living in retirement? I thought the reason these millionaires 'next door' got to where they are by living a frugally? Why would they change that during retirement?
__________________
joebloe is offline   Reply With Quote
Old 06-08-2013, 11:01 PM   #6
Recycles dryer sheets
 
Join Date: Apr 2013
Location: Jacksonville
Posts: 222
Quote:
Originally Posted by joebloe View Post
I'm confused by this article. Why would a millionaire family have difficulty maintaining their standard of living in retirement? I thought the reason these millionaires 'next door' got to where they are by living a frugally? Why would they change that during retirement?
I'm with you here. The article seems to be assuming people with above average net worth still have average spending habits, making no nod to the fact they're probably much more frugal around that range. The way I see it, $1M is a bit below the range of many who strike it big through a nice stroke of luck, and just above people with decent incomes who never learned to LBYM.

So maybe it's talking to those hoping they can win $1M and retire, letting them know that they can't probably continue their standard of living? I guess.
__________________
Arifriekinel is offline   Reply With Quote
Old 06-08-2013, 11:33 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Nov 2007
Posts: 7,531
There's a lot of validity in the article. Heck, many of us here can't even make it into retirement with a mere million, let alone stay gainfully retired on that piddling amount.
__________________
Retired in 2013 at age 33. Keeping busy reading, blogging, relaxing, gaming, and enjoying the outdoors with my wife and 3 kids (5, 11, and 12).
FUEGO is offline   Reply With Quote
Old 06-08-2013, 11:36 PM   #8
Thinks s/he gets paid by the post
Katsmeow's Avatar
 
Join Date: Jul 2009
Posts: 3,399
From the article:

Quote:
A typical 65-year-old couple with $1 million in tax-free municipal bonds want to retire. They plan to withdraw 4 percent of their savings a year — a common, rule-of-thumb drawdown. But under current conditions, if they spend that $40,000 a year, adjusted for inflation, there is a 72 percent probability that they will run through their bond portfolio before they die.
Well, no. It has never been concerned common or rule of thumb to drawn down 4% with a 100% bond portfolio. The article does mention that all bond portfolios give probabilities that are "remarkably grim." However, given that, why use an example someone who made that kind of bone-headed move? (withdrawing 4% with all bonds). They do point out this is why they recommend people have some equities.

They then point out that if only have $10,000 assets then you have very little flexibility. That is true but seems beside the point in talking about households with a net worth of $1 million.

The article goes on to point that being a millionaire household no longer seems truly rich (I agree). And says people may have difficulty maintaining standard of living in retirement. However, the article sort of begs the question in not describing what they think the standard of living is for the average person with a net worth of $1 million. The article already said that isn't truly rich, but then they seemed to assume that the lifestyle is extravagant.

The article goes on to then discuss the problems with low bond yields and what about when rates go up.

The article then says:

Quote:
Consider again the 65-year-old couple who are starting to draw down $1 million in savings this year: if they withdrew 3 percent, or $30,000, a year, rather than that standard rate of 4 percent, inflation-adjusted, there is still a one-in-three chance that they will outlive their money, under current market conditions.
But again, the point here is that they are still using a couple 100% in bonds. The whole thing in the article seems to be pointing out that if you are 100% in bonds then you have large chance of portfolio failure if you withdraw 3 or 4%.

The article points out stocks will reduce risk of outliving the portfolio but increases the risk of big losses. It then gives as an example a portfolio of 80% stocks and 20% bond. Why on earth is the article solely using as examples ridiculous retirement allocations - all bonds or 80% equities?

So then the article goes on to ask

Quote:
ASIDE from recalibrating a portfolio, what can be done to improve a would-be retiree’s financial situation? One answer is to work longer and retire later. Yet many people can’t do that, often because they are physically unable to do so or can no longer find a suitable job.
Aside from recalibrating the portfolio? Yeah, I can see going from 100% bond to 80% equities might not be ideal. But, why skip entirely over more reasonably asset allocations like 40% to 60% equities?

And then the article gets back to lifestyle:

Quote:
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.
So they have basically assumed that anyone with net assets of $ 1 million had an income before retirement of at least $150,000. And that may indeed be true for many. However, it isn't true for all. And, more to the point, we all know that expenses may decrease sharply after retirement due to kids leaving, no longer saving for retirement, lower taxes, no work expenses, etc. Right now we still have one child in college, one in high school and we are still living on 38% of what we were making before DH retired and I semi-retired. Once the kids are gone we will be living on about 25% of pre-retirement income.

Ah, but according to this article:

Quote:
Without another source of income, perhaps from traditional pensions from either or both spouses, he adds, a household like this won’t come close to replacing 80 percent of its pre-retirement income — often considered an acceptable target level.
So basically a million dollars isn't enough because you really need $120,000 to replace the $150,000 you were making before (sigh) and with SS and portfolio only you can't do that ....

And in the end...just work until 70....

Quote:
You can also try to pay off your mortgage, so you have the option of tapping home equity if you need to supplement your income later. And, she suggested, if you’re lucky you’ll find work that you like and can stick with for a long time — until 70, at least.

What a ridiculous article....
__________________
Katsmeow is offline   Reply With Quote
Old 06-09-2013, 05:15 AM   #9
Thinks s/he gets paid by the post
 
Join Date: Mar 2011
Posts: 3,709
C'mon. This is a NYT article. Fear, uncertainty and doubt is the goal here. Throw in a little "the rich will get their due" and you've got a column!
__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is offline   Reply With Quote
Old 06-09-2013, 05:35 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,451
You know it is a really bad article when the comments section make a lot more sense. I swear that article looks like the author was paid by the word, but the comments include discussion of the Trinity study and this relatively sensible advice.

Quote:
A million dollars? Buy a list of the great industrial and utility companies. The overall yield will be about 3.5%, and (this is key) the dividend per share will increase by a few percent each year. Then move to a low-tax state, take the $35K/year of tax-advantaged dividends, add another $20K of social security... and I think this is quite livable, without even touching principal.
Sure maybe you are better off buying VTI, and BND, but this approach also works.
__________________
clifp is offline   Reply With Quote
Old 06-09-2013, 06:15 AM   #11
Full time employment: Posting here.
 
Join Date: Jul 2011
Posts: 576
I have learned that when an emergency, disaster or special event happens, it will take 3 to 4 days for the news to properly report the facts. After reading this article, I need to learn the rule for financial information reporting. I wish I did not waste my time reading this article.
__________________
davef is offline   Reply With Quote
Old 06-09-2013, 06:31 AM   #12
Full time employment: Posting here.
BTravlin's Avatar
 
Join Date: May 2010
Posts: 994
The article does seem to be quite the mish mash but I do agree with the major theme. We fit he basic premise as having retired with a little over a million but have done so at ages 55 and 50 and are now living in Mexico. We will be able to maintain our lifestyle here quite nicely on $55k per year but would not be nearly so comfortable living on that amount in the U.S. or as confident in our portfolio lasting throughout our retirement. As always, all things are relative.
__________________
Wherever you go, there you are.
(In other words, no whining!)
BTravlin is offline   Reply With Quote
Old 06-09-2013, 09:08 AM   #13
Thinks s/he gets paid by the post
obgyn65's Avatar
 
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
Being an immigrant myself, one of the first things I did when coming to the US has been to find a good newspaper. I settled for the NYT. It has been invaluable for all the information I found about the American culture and way of life. I think I found this website thanks the NYT. Of course, the many financially savvy and highly educated people here may not share the same view, and that's ok.
Quote:
Originally Posted by marko View Post
C'mon. This is a NYT article. Fear, uncertainty and doubt is the goal here. Throw in a little "the rich will get their due" and you've got a column!
__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
obgyn65 is offline   Reply With Quote
Old 06-09-2013, 09:13 AM   #14
Thinks s/he gets paid by the post
 
Join Date: Mar 2009
Posts: 1,437
Like so many today, the article confuses income with net worth and assets. Most people beyond this forum can not comprehend how someone could accumulate a seven figure portfolio on less than a six fgure salary, let alone live on a five figure budget.
__________________
Retired in 2016. Living off dividends / interest and a mini pension. Freedom.
foxfirev5 is offline   Reply With Quote
Old 06-09-2013, 09:39 AM   #15
Thinks s/he gets paid by the post
RockyMtn's Avatar
 
Join Date: Jul 2009
Location: North Scottsdale
Posts: 1,233
Quote:
Originally Posted by marko View Post
C'mon. This is a NYT article. Fear, uncertainty and doubt is the goal here. Throw in a little "the rich will get their due" and you've got a column!

+1. Typical NYT column.
__________________
FIRE'D in July 2009 at 51...Never look back!
RockyMtn is offline   Reply With Quote
Old 06-09-2013, 12:16 PM   #16
Recycles dryer sheets
 
Join Date: Apr 2011
Location: Castro Valley
Posts: 402
In most cases, I believe that without a pension a person needs a $1M+ portfolio AND Social Security to sustain a middle class standard of living.

Several friends and I have a saying: I am a typical, everyday, middle class multi-millionaire.
__________________
jkern is offline   Reply With Quote
Old 06-09-2013, 12:35 PM   #17
Full time employment: Posting here.
 
Join Date: Nov 2008
Posts: 728
A million bucks goes much further in Montana than California.

It's impossible to set a standard for all. Each individual has to look at their net worth, lifestyle, retirement plans as well as their comfort level based on what they THINK they can take out of their net worth each year to continue their lifestyle.

I'm conservative and plan on withdrawing 2% each year. I have more than a million, the majority in bonds but also heavily in dividend stock ETFs that have increased dividends each year.

I read Money Magazine, listen to CNBC and read these blogs faithfully. With all that said I still don't feel completely secure. But, each article brings something to the table, some I agree with, some I don't. Keep the opinions coming....I learn something from everyone of them.....whether I agree with them or not.
__________________
jerome len is offline   Reply With Quote
Old 06-09-2013, 01:03 PM   #18
Thinks s/he gets paid by the post
packrat44's Avatar
 
Join Date: Jun 2007
Location: near Canadian border and near Mexican border
Posts: 1,142
Quote:
Originally Posted by foxfirev5 View Post
Like so many today, the article confuses income with net worth and assets. Most people beyond this forum can not comprehend how someone could accumulate a seven figure portfolio on less than a six fgure salary, let alone live on a five figure budget.
You nailed the true problem.
__________________
Pigs get fat, hogs get slaughtered. That's my story and I am sticking to it.
packrat44 is offline   Reply With Quote
Old 06-09-2013, 01:40 PM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,386
I didn't read the article because I hoard my 10 free articles each month for things I know I want to read. But clearly it is possible to retire at normal age on less than one million dollars, under current conditions. But likely it would not be possible for the majority of NYT readers.

For my asset level I have small SS, but given a modest but adequate owned dwelling I think I could do this, and within my moderately expensive city. I think it could be really tight for a couple, unless they have good SS or could tap subsidies. Base Medicare plus drug plan and Medigap supplements in my locale would cost a couple ~$9000.

But expenses can really go up with lifestyle improvements that may mean little to some but much to others.

I see some fairly free spenders among my retired friends and acquaintances, but they usually have good pensions. These people tend to have no concept of financial risk, as there really isn't much in their lives. It could show up abruptly, but that is another issue. I have one friend who spends plenty money and I think no pension. 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
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 06-09-2013, 01:42 PM   #20
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 3,871
Quote:
Originally Posted by packrat44 View Post
You nailed the true problem.
I agree. Foxfirev5 nailed it.
__________________

__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 08:10 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.