Three Takes on Whether $1 Million Is Enough to Retire

[W2R]

compulsive shopping

Not really dangerous, it all depends on your spending habits. Right now we are living just fine on 55% of my working salary and we could make do on less. Since I retired last September I can easily add up over $9000 in discretionary expenses that we could have done without, like things for the house and hobby spending. All this on my pension and DW's SS.

If we want to kick the spending into high gear I still have my SS and the 4% withdrawal that would put us over 110% of my working salary. But for now I'll just let it grow.

You are right though, for some people that can't control spending even 100% wouldn't be enough. DW knows a retired couple that recently filed for bankruptcy. Both in their early 60's and still haven't learned to control the purse strings.

The unspoken truth is that a large proportion of Americans are compulsive shoppers and can't seem to stop. They have borrowed to the hilt and many are getting farther and farther behind each month instead of closer and closer to their financial goals.

If you drive through the poorer sections of town (any town), you are likely to see check cashing, household loan, and pawn shops, all of which cater to those who are spending more than the pittance they are earning. This is a sad situation. But do the rich get away from the siren pitfalls of compulsive shopping? Hardly. I think that what we call the "yuppie mentality" is very much like compulsive shopping with a high income.

Compulsive shopping is everywhere, and it is more and more the norm rather than the exception. I lay all of this at the feet of Madison Avenue.

Like you, UncleHoney, I spend far less than I make. I love watching my progress towards ER, and knowing that I don't owe a penny to anyone. In some circles that almost is not socially acceptable these days!

Sorry - - didn't mean to drift off topic but felt the need for a cleansing rant!

 

[W2R]

The real key to the article's assumption of working until retirement age isn't full SS benefits it's decreased life expectancy. 5% is a safe withdrawal rate when you can expect to live only 18 years longer, as is true for a 65 year old man today.

Good point! For ER's in their 40's and 50's it is probably not such a good idea. Also, some of those 65 year olds will live to be 95 or older, and for them a 5% SWR is more of a gamble.

And even if you are withdrawing at a rate that's more than "safe" as long as your risk of being dead is many times more than your risk of being alive & broke you may decide that's OK. Studies show that spending decreases with age anyway, even considering LTC and other medical costs. The one true limiting factor in life is time, not money.

I have not yet seen a study which shows whether the decrease in spending with age is due to decreased needs/desires, or due to a decrease in available funds to spend, though. With inflation eating away their assets and income, many of the very elderly are also very poor.

I don't buy into the thesis that Americans are saving too much - way too many folks are in debt - but it seems perfectly reasonable that much less than $1M might be enough for many folks. Although I'm aiming for $5M by 50 myself...

There are so many different factors at play. Apparently it takes a lot less for a frugal person to live in the Ozarks in a paid off house, with eventual SS and pension with lifetime medical, than it would take for someone used to living large to get by in SF or Manhattan with none of these.

And then the old adage about "two can live as cheaply as one" doesn't always seem to apply.

 

[Dawg52]

I Although I'm aiming for $5M by 50 myself...

Nice. I hope you are a doctor or something similar.

 

[Rich_by_the_Bay]

Really? That's rich...

Not bad, not bad.

5% may be a little on the high side, but for percent-of-total-asset withdrawal schemes (like ESRBob's 95% Rule) it is not off the radar. For initial withdrawal plus inflation adjustments, the more conventional method around here, it would be too high for me.

After all, recreation is expensive.

 

[Jarhead*]

Not bad, not bad.

Must feel a bit like you are a top sirloin being grilled, and ReWahoo is the worlds largest meat-bee.

 

[Bestwifeever]

I wonder if the assumption that most people can retire on 65% of their salary is based on a mortgage consuming 1/3 of one's income while working, and the mortgage being paid off by retirement.

It seems to me that people who plan ahead to have their mortgage paid off by retirement probably have planned ahead for their retirement as well.

 

[ziggy29]

I've estimated that if we stay in our paid-off, small home and live simply/cheaply, we can probably retire with relative comfort on about 35-40% of my current income. And that's before considering Social Security (if it's there for me) or the puny pension I have coming to me from a previous employer.

My current retirement portfolio could generate about 22% of my current income at a 4% withdrawal rate. So that tells me about how much distance I have left to travel.

 

[haha]

Must feel a bit like you are a top sirloin being grilled, and ReWahoo is the worlds largest meat-bee.

You haven't lost any steps.

Ha

 

[Finance Dave]

I agree with most posters on this topic.

I have a slightly different view of the withdrawal rate though. In my personal planning, I use a 6% initial rate (which I know is higher than advised), but I then use a lower rate in later years. I realize that medical costs will continue to increase, but I'm fully anticipating that my early retirement years (age 52-60) will be full of vacations, hobbies, cars (I'm a car nut), and other such things. Once I'm 80, I'll have little ability or need for these things.

I also believe in "flexible" spending as defined here... (copied and pasted from a web site)...


****
Next, the “Flexible” spending policy extends the conservative policy by allowing the retiree to spend more than originally specified in the plan if their portfolio does well. In lean years, this policy mimics the conservative policy by withholding the COLA when the portfolio is shrinking and the balance is smaller than it was at the start of retirement. If the portfolio is growing, but is smaller than it was at the start of retirement, the percent of expenses funded remains constant (retiree gets a cola, but that’s it). However, following good years when the portfolio has a balance that’s greater than the starting balance, the flexible policy allows the percentage of expenses funded to grow well above 100%. The amount of spending growth depends on the relative size of the portfolio compared to the balance at the start of retirement. If the portfolio is at least two times the size it was when retirement started, spending percentage is increased by the inflation rate. If the portfolio is between one and two times the original size (at retirement start), an increase of 1/4 of the inflation rate is given. These thresholds were chosen somewhat arbitrarily and is still subject to further adjustment. However, simulation results aren’t hugely sensitive to small changes in these variables in otherwise successful plans.
****

This flexible plan means that if my initial assumptions are wrong, and my balance dwindles a bit fast, I can easily skip a vacation or buy one fewer cars to make sure my plan is still safe.

Dave

 

[Finance Dave]

$1M will NOT be enough for us (wife and I). Why?

Because....
1) We want to rehire early (I'll be 52-53)
2) We want to travel quite a bit the first few years
3) I have expensive hobbies (cars and woodworking)
4) We like to eat out a lot
5) We like to shower our families with gifts

But that's ok...our savings plan will get us to about $1.8M by the time I'm 52-53, so I think we'll be ok. If i get to that age and we're short...I can easily work 1-2 more years.

We are very fortunate that:
1) We both have good-paying jobs
2) Our health is good (although that can change quickly)
3) I am very handy (no paying plumbers $125 to fix a leaky faucet...and I can fix cars, lawnmowers, and nearly anything else around the house)
4) Our parents have planned well for their old age, so we don't have financial issues to take care of there
5) We do not have children (I'm not saying we're fortunate to not have children...just saying that we're able to save a lot more than others we know because we don't have children)
6) We live in a low-cost part of the country (Indiana)
7) We bought our house on a 15 year fixed loan, and there's only 5 more years to pay on it
8) We have been able to give back to our community in a variety of ways through volunteering and mentoring others

 

[mathjak107]

about 1.8-2 million for us ... we are very active with many hobbies .. only thing we will have more of in retirement is time and with us time seems to cost money. just seeing the kids and going to the diner is 60 bucks