Retirement - 1 million dollars ain't enough

[FIREd]

Scottrade recently polled 226 registered investment advisers on the topic and found that 71% don't believe $1 million is enough for the average American family. Most said families need to save double, or more than triple, the amount.

Surprise, surprise. Financial advisors want people to work longer and save more and I am sure it has nothing to do with them making a living off of other people's money.

Bill Smith, president of Ohio-based Great Lakes Retirement Group, is among the advisers who took part in the survey. As he sees it, too many people rely on online retirement calculators. Much of that guidance uses a target based on making do with 70% to 80% of pre-retirement income.
"I've never been a big fan of planning to earn less in retirement than you are making now," he says. "I'd like to see an individual continue making the same amount of retirement as when he was working. Who wants to set themselves up in retirement to make less?"

As it turns out, a retirement income equal to 70-80% of my pre-retirement income would allow me to retire like a prince. I wouldn't even know what to do with all that money. But I am sure that Bill Smith would have a few suggestions to help me spend it... An annuity perhaps?

Call me a cynic.

 

[nun]

........we could comfortably retire on what is now about 40% of our current income. Without blinking.

Exactly! The retirement adviser in the article who advocates retiring on the same income you had when w*rking must frustrate a lot of clients. In order to retire you have to be saving a large %age of your income and when you retire you obviously can live on a lot less. He should have said something like "retirement income needs to meet your expenses in retirement which might be considerably less than when you're w*rking"

 

[Jay_Gatsby]

Exactly! The retirement adviser in the article who advocates retiring on the same income you had when w*rking must frustrate a lot of clients. In order to retire you have to be saving a large %age of your income and when you retire you obviously can live on a lot less. He should have said something like "retirement income needs to meet your expenses in retirement which might be considerably less than when you're w*rking"

The operative word there is MIGHT. It might also be safe to assume that health care insurance will absorb any money that would be saved from work expenses no longer incurred after retirement. The $1,500+/month you spend on clothes, food, commuting, car payments, etc... might be equal to the insurance premium you'll be responsible for when your employer no longer picks up part of the tab.

On a slightly different topic, the 70% figure financial "experts" have been bandying about for years makes one key assumption - your retirement expenses will be 70% of what you earn at your peak earning years. If you're earning $100k a year at retirement (not unheard of, even for government workers), that means you're projecting retirement expenses at $70,000, even though you'll probably have a paid-off house (your biggest expense), paid-off cars, kids moved out of the house (and graduated college), and no more retirement savings needed (worth at least $16.5k if saving in a 401(k) account). Add to that any income your spouse earns and the entire speculative retirement calculation goes out the window.

 

[Moemg]

. He should have said something like "retirement income needs to meet your expenses in retirement which might be considerably less than when you're w*rking"

And it might not be ! Consider all the people who only make $30000 to $45000 a year . How much lower are they going to go in retirement ? This board is mostly comprised of very high wage earners and lucky recipients of large inheritances and I think sometimes you forget about the average American . Most of them save but certainly not at the rate high earners do and when they retire they really cannot cut their expenses drastically .

 

[Jay_Gatsby]

And it might not be ! Consider all the people who only make $30000 to $45000 a year . How much lower are they going to go in retirement ? This board is mostly comprised of very high wage earners and lucky recipients of large inheritances and I think sometimes you forget about the average American . Most of them save but certainly not at the rate high earners do and when they retire they really cannot cut their expenses drastically .

This is true and our good fortune colors our perception of things. That said, the average American in that wage range will need to revise downward his/her retirement expectations if s/he failed to take reasonable steps early on in life. This will be a rude (and very sad) awakening for many folks in this situation, but it is a fact of life that cannot be denied. The alternative is to extend retirement for another 5-10 years (i.e. work until 65 or 70), which may not be so bad given the average lifespan today as compared to 30-40 years ago.

 

[rescueme]

...I don't think 100% of one's salary is a necessity or even a realistic goal these days.

It was for DW/me in our retirement income planning.

However, we never looked at gross salary (which many of these articles do).

We looked at 100% of our pre-retirement net salary (without all the contributions and taxable items not seen in retirement), adjusted for our personal rate of inflation, year over year (not the government's numbers).

Of course, another reason that it works is that we are completely debt free, along with not waiting to do "retirement stuff". For instance, travel is a big expense (our biggest...) but it is something we have always done - at least for more than a dozen years before retiring. It didn't require any "extra" savings in retirement.

Works for us ...

 

[nun]

And it might not be ! Consider all the people who only make $30000 to $45000 a year . How much lower are they going to go in retirement ? This board is mostly comprised of very high wage earners and lucky recipients of large inheritances and I think sometimes you forget about the average American . Most of them save but certainly not at the rate high earners do and when they retire they really cannot cut their expenses drastically .

I agree with you. I'm single, well paid and live frugally so I can save for retirement. People living pay check to pay check because they have poor benefits and low salaries are getting screwed. They are the ones who were really hurt by the demise of pension schemes and unless we are careful the attacks on SS will take the final leg of their retirement away. Even households with average income are in trouble if the $1M to retire is real. In MA the median 4 person household income is $85k which might sound a lot, but with having to pay more and more for health, college etc. I imagine very few are maxing out their 401ks or saving after tax. Combine their low retirement account balances with bad investment returns and I see a world of hurt for a lot of people through no fault of their own.

 

[Sea Kayaker]

This Gen X'er sure won't need 3 million... I could probably get there if I worked till 65, but I have absolutely no intention of doing so.

 

[bizlady]

I think savings is very important, along with realistic planning. One must have a realistic idea of what they need to live on.

But I also remember all the milestones along the way. We'll be comfortable when (the kids are out of diapers, not using formula, we're not paying daycare, are out of school, college is paid for, weddings are paid for...)

We always found a way, and pretty much LBYM. We told our daughter who attended college that we would cover 4 years of room and board and that she had to cover spending, the rest was on her--she got out in 3.5 years and worked part time besides.

I look around at neighbors and family and know that they have less than we do, and suspect that to be the case for others. We have saved and planned for retirement for 25 years, and it is just 13 months to go when we are both out by age 55. Those around us found a way, and we will to-- and are prepared to boot.

I may be naive, but I think with focus, sacrifice, living below your means and saving and planning, if one is really willing to do the work, make the trade offs, and is lucky enough to stay employed most of their working life, then early retirement is possible for many more than we realize.

 

[Meadbh]

Why wait until they are out of college? My 5 YO asked me on Sunday (with a very serious look on her face) "Daddy, why don't some people save money?" Yesterday morning she asked DW if she (daughter) has any stocks or bonds.

So.....what's DD's asset allocation?

Out of the mouths of babes....

 

[brewer12345]

So.....what's DD's asset allocation?

Out of the mouths of babes....

Outside of a bank account and a very elaborate electronic ATM that functions as a piggybank, SWBGX 100%. Its a small balance and I am likely subject to the "prudent investor" standard as fiduciary, so no sense getting exotic. She can do that when she turns 8.

 

[fritz]

If a million now isn't enough to retire, and this article estimates that you'll need $2-$3M if you're in your twenties - how do you rationalize:

Less than 10% of US households have a net worth over a million.
Baby boomers have on average less than $100k saved for retirement
For those in their twenties - participation in 401K programs is +/- 50%
It requires saving $1700/mos. @ 7% for 35 years for +$3M
Average household income in the US is just over $46k

Reality dwells at a different end of the earth

 

[LARS]

If a million now isn't enough to retire, and this article estimates that you'll need $2-$3M if you're in your twenties - how do you rationalize:

Less than 10% of US households have a net worth over a million.
Baby boomers have on average less than $100k saved for retirement
For those in their twenties - participation in 401K programs is +/- 50%
It requires saving $1700/mos. @ 7% for 35 years for +$3M
Average household income in the US is just over $46k

Reality dwells at a different end of the earth

My thoughts exactly. There is a major disconnect with these kinds of numbers for the vast majority of people.

 

[Bestwifeever]

With an average household income of $46K, it would be difficult to sock away enough to grow to $2 million, wouldn't it?

 

[unclemick]

Ah -RITE! Time for someone to bring back 'The Four Yorshiremen' to put this thread in perspective and demonstrate true frugal.

Or something.



heh heh heh - After being 'cheap' so long in ER upping spending to match my ORP calculator before I croak is painful. Ok ok so maybe I trade in my Chevy and move on up to ?GMC? .

 

[fritz]

You have to wonder if the article was written for attention getting, or reality (duh).....

 

[Sparky]

You need a million until you don't... or you don't have a million... or you had more... That's the thing I've learned over the last two years. I went from wondering, "should I buy a second property, maybe on Cape Cod or in Manhattan" to "OMG, chuck the cable, the cell phone, the restaurants, I'm screwed and I'll have to go back to work."

At the end of the day, neither is correct.

A paid off house and car goes a long way to cushioning your losses.

 

[plex]

With an average household income of $46K, it would be difficult to sock away enough to grow to $2 million, wouldn't it?

You could barely do it, but as mentioned, it would require about 25-35 full years of savings, would require good investing skills, and the fortitude to save about 50% of your take-home income. As mentioned, for the majority of Americans in Gen Y (I'm Gen Y) and X, as long as nothing is horribly off with the statistical numbers, they need to start saving in their 30s, at the latest, or they will have an extremely difficult time retiring between 60-65 on anywhere near what they used to spending. This doesn't even get into retiring early, which requires more than this.

There is also another major problem, hinted at before, with not getting started by your mid 30s (for most people). That is the ugly truth of age discrimination in the workplace. Not only will SS likely be reduced from what the payout are now, but age discrimination will very likely still exist 30 years from now. While a great deal of work today is not physical, employers in most industries still prefer employees who are much less likely to have health problems, and more than 5 years of possible work left to go (training can be expensive).

Pretty much, for those in Gen X, and especially those in Gen Y, if you don't start in your 30s, or at the very latest, your lower 40's (at a back breaking pace), to plan for retirement, you are very likely doomed to fail, or so it seems from the numbers and the way the work environment operates.

 

[LARS]

Perhaps what this article really points out is the dramatic increasing of no man's land in American society. You are either rich and can take care of yourself or you are poor and the state is becoming your source of income. The middle class is quickly becoming a thing of the past.

 

[ERD50]

The middle class is quickly becoming a thing of the past.

Interesting. Can you provide a reference for this? I honestly do not know if it is true or not, or if it can even be measured since standards of living change over the years.

-ERD50

 

[Alan]

Interesting. Can you provide a reference for this? I honestly do not know if it is true or not, or if it can even be measured since standards of living change over the years.

-ERD50

Professor Warren attempts to use data to show the erosion of the middle class.

YouTube - The Coming Collapse of the Middle Class

 

[youbet]

For those advocating that one million bux is enough.........

Is it that one million is enough or is it that one million PLUS paid for house, paid for car and all the other things is enough?

In other words, is it a million? Or is it a million plus a lot more held as non-monetary assets such as the house, etc?

Here, I believe that we could do it on one million PLUS house, car, etc., each. But as a couple, I doubt we'd make it on one million split between us. Medical and property taxes alone would eat up almost 50% of a 3.5% withdrawal rate. If you included my SS, it would be a piece of cake.

 

[NW-Bound]

...
A paid off house and car goes a long way to cushioning your losses.

A paid off [-]house and car[/-] RV goes a long way to cushioning your losses.

 

[bbbamI]

For those advocating that one million bux is enough.........

Is it that one million is enough or is it that one million PLUS paid for house, paid for car and all the other things is enough?

In other words, is it a million? Or is it a million plus a lot more held as non-monetary assets such as the house, etc?

Two areas were critical in regards to retirement for us (52 & 55). The first being mortgage/debt free and having affordable health insurance. Fortunately we are debt free and have Megacorp health benefits. We also have a non cola pension that for now pays 25% of our expenses.

When our calculations proved we only had to take 3% from our portfolio (I only figured half of ss amt) to live a comfortable lifestyle, we knew we were good to go. One million+ will have to be enough as we have no plans on going back to work.

 

[Martha]

I know all sorts of people with paid off houses or trailers that live off of social security. Often family helps with things like cars.