Middle Class Assumptions on ER

[Katsmeow]

I think the OP has a good point. I can even see it in this thread as well as other threads. The general gist I've seen is that people here are mostly middle class or above and $1,000,000 gives you $40k a year and anything below that is basically not middle class. (Not necessarily said in those words but that is the gist).

My response to that is that it misses a couple of things.

To use myself as an example. DH and I have SS income of roughly $48k a year without touching the portfolio. $40k from $1,000,000 would make our income $88k a year. Going forward, at this time (now that kids are gone and we are downsized), I don't expect to need that much. So, yes, we could live a middle class existences on less than $1,000,000. (Yes, I am away that one SS will go away when one of us dies -- if our case we have roughly equal SS -- but some expenses go down so the point doesn't change). The point of all this is that these posts about is X portfolio big enough sometimes all but ignore SS or other sources of income.

Now -- to use my mom as an example. She recently died in her 90s. Her income was about $23k a year from a combination of SS, small pensions, and her RMD from a small IRA.

Going over her financial records I found that over the last 10 years she saved $50k on that $23k a year. That is, she was saving about $5k a year on an income of $23k. How did she do that? Her expenses were low. True, she didn't have some things that many people want as part of a middle class existence (she missed the whole internet thing). On the other hand, she didn't hesitate to spend for anything she wanted. She had just got to a point though where she pretty much had everything she needed. Actually one of the issues going through her stuff is that she actually bought some things that she never used at all. She just didn't need anything. She paid off her house years ago. Her main expenses were house maintenance/utilities and medical. Yes, she had to pay for some services (yard and house cleaning in later years) but she also quit traveling and eating out mostly and didn't drive much during the last 10 years. She would have said that she had everything she wanted.... spending about $18k a year.

 

[ExFlyBoy5]

Now -- to use my mom as an example. She recently died in her 90s. Her income was about $23k a year from a combination of SS, small pensions, and her RMD from a small IRA.

Going over her financial records I found that over the last 10 years she saved $50k on that $23k a year. That is, she was saving about $5k a year on an income of $23k. How did she do that? Her expenses were low. True, she didn't have some things that many people want as part of a middle class existence (she missed the whole internet thing). On the other hand, she didn't hesitate to spend for anything she wanted. She had just got to a point though where she pretty much had everything she needed. Actually one of the issues going through her stuff is that she actually bought some things that she never used at all. She just didn't need anything. She paid off her house years ago. Her main expenses were house maintenance/utilities and medical. Yes, she had to pay for some services (yard and house cleaning in later years) but she also quit traveling and eating out mostly and didn't drive much during the last 10 years. She would have said that she had everything she wanted.... spending about $18k a year.

My Dad was in a similar situation as your Mom. He died leaving a decent amount of $ yet only spent about 15K to 20K a year for the last 10 years. His expenses were very low and he wanted for nothing. I also have come across a lot of stuff that was never touched. Funny thing is that over the last few years I asked him repeatedly if there was anything he wanted to see or do and he was content to visit local "haunts".

 

[Katsmeow]

Funny thing is that over the last few years I asked him repeatedly if there was anything he wanted to see or do and he was content to visit local "haunts".

This was true for my mom as well. I said in my post she had everything she needed. That was true. She also had the things she wanted. She just didn't want a lot of things. But, she bought the jewelry she wanted. She put in new windows in her den that were really nice. She bought me a nice Christmas present every year. But, what she was interested in buying/spending did decrease during that last 10 to 15 years.

 

[ER Eddie]

The main question many posters ask in their first ER forum post is "Do I have enough?" The answer, as many always helpfully chime in, depends strongly on age and spend rate. But I've noticed, almost independent of these factors, we tend to say NO to any nest egg under $1M and some variant of "You have so much you should have retired years ago" to anything over about $4-5M.



Granted this is a fairly broad range, but I think it reveals our assumptions about spending - that pretty much everyone needs something over $30-40K/yr to live on and anyone should be happy with anything over about $200K. While there are clearly those for whom these assumptions are incorrect I see this bias time and again in our responses to these initial posts. In other words, we mostly have middle to upper middle class ER lifestyles and tacitly assume everyone else should do the same.

Well, really, though, that will probably encompass 95% of people (need over 30k/yr but not over 200K/yr), so it's a fair assumption.

I think intelligent posters will always ask what the person's annual expenses are going to be. If people are giving advice without knowing that, they're not being smart or helpful.

 

[Andre1969]

Here's a few lower-income examples I can think of, from my family...

1) Grandmom's cousin (the one with the mid-70's son I mentioned). She gets around $40K per year in pension, so she's not doing *too* bad. However, she borrowed against her home equity over the years, and a lot of that was to help out her children and grandchildren. She currently owes around $210K on a house she had inherited, free and clear, back in 1971. She did have to pay inheritance tax though, because it passed through her stepmother, rather than a blood relative. She currently has the house for sale, for $400K, but no takers. She said at the rate she's going, she might die there. She's also almost 94, so she might be right...

2) My uncle (Mom's brother). About to turn 66. Currently living off of around $18K per year in SS. He did inherit around $120K when Grandmom passed away back in 2015. He's been drawing that down though, and it's now down to around $80K. He did buy a new truck, though, which took a pretty big chunk. And, over the years, I helped him invest, so he has around $250K in an IRA to tap, when the time comes. He's living in Grandmom's house, which we haven't sold yet, and figured he could stay there as long as he wants. We're procrastinating on that one, because he really wouldn't be able to make it on his own, but Mom doesn't want him living with her. I had sort of planned on him living with me, at some point, but I'm beginning to second guess that!

3) Grandmom. Passed away in 2015, at the age of 91. She was bringing in around $40K per year, between pensions and SS. And not spending all that much. When she passed away, even after expenses there was still around $360K left. Plus, the house. Uncle had been living with her, and while he was benefitting from that, so was she. She would not have been able to make it on her own for so long if it hadn't been for him being there. She would have either had to come live with me or Mom, or gone into assisted living.

4) My Dad. Retired back in 2008, at the age of 62, to care for Granddad (his father). He was only living off of around $18K per year, by 2016, between SS and pension. It was a situation similar to Grandmom, where he lived at Granddad's house, but took care of him, and that helped keep him out of assisted living, until he passed away just one month shy of his 102nd birthday. Alas, Dad passed away just six months later, a few days after he turned 71. Dad has two brothers, and we're still in the process of settling that mess.

 

[limeyx]

...
5. Watch Small Expenses

Buffett invests in businesses run by managers who obsess over the tiniest costs. He once acquired a company whose owner counted the sheets in rolls of 500-sheet toilet paper to see if he was being cheated (he was). He also admired a friend who painted only the side of his office building that faced the road.

But then Buffet invested mult-billions of $ in a company where the CEO had the employees make the inside of the computer case (that you never see) as beautiful and polished as the outside

 

[Helena]

.

I retired early [comfortably with a nice paid off home in Dallas] at age 55 and I wasn't even close to a million dollars. But my nest egg keeps growing, so I might yet get there before I die!

 

[daylatedollarshort]

Stepford, FYI there is a fatfire subreddit on Reddit for people who want to retire on bigger budgets.

 

[brucethebroker]

But even those that do provide such info, and are broadly consistent with some metric like the 3-4% rule, are often greeted in the manner I describe if they fall outside the "accepted" range. The replies from forum members are usually very helpful and do provide useful analyses, but the bias I describe is often pretty apparent.

I see your point, but do not really agree with your conclusion. If the title of the forum was "big income/savers retirement forum", or "retire using fire calc forum" the answer would be more obvious.

It is a little intimidating here for lower income retirees, (who get along just fine, thank you) to expose themselves financially here. When reading about the multi-millionaires, it can be humbling to go public about your own under 1 mill of investable assets portfolio. As a result, my guess is that many such retirees are silent and simply lurk about. They have their own bias-that a "micro" retirement it is possible, but remain quiet most of the time. (A few years ago I started a lower income retirement thread and got many positive responses).

We can all be victims of our own situation. If you can retire comfortably on a lower asset base (perhaps without a mortgage in a low COL area), you realize it can easily be done. (Of course, if you do it by taking SS at age 62, have a PT/hobby job, or through owning rental property you run the risk of hitting other trip wires of heated debate). If you live in a high COL area, and are used to a $100k+ a year spending life style, you cannot imagine anyone living on less. In essence, you will defend what you believe to be true about retirement based on personal experience.

I see the high income crowd defending their position out of compassion, not because they want to brag. They are just trying to make sure others don't make a serious mistake (being under funded) at a critical point of their lives.

Two things: retirement is all about income and expenses. If, through non-traditional investments, I can make a 7% or higher return, logic says I can get by on a lesser asset base. If my expenses are half of other folks, the same applies.

 

[DrRoy]

$1M to $4M would replace the income for the vast majority of Americans. The following data, for 2015, shows the upper limit for each income quintile in the US.

	Upper Limit		Mean		Assets @ 4%
Lowest	$22,800		$12,457		$570,000	UL/4%
Second	$43,511		$32,631		$1,087,000
Third	$72,001		$56,832		$1,800,000
Fourth	$112,262		$92,031		$2,806,000
Highest	*****		$202,366		$5,059,000	Mean/4%

So, yes you can retire with more or less than the above but you would be at the extremes.

It's not bias, it's just math.

 

[Oz investor]

brucethebroker ,

could i suggest the low-income ( early ) retirees are an unnaturally brave bunch to start with , already resisting peer-pressure , and avoiding stereo-typing .

as i see it they WILL have to invest smarter and be more financially agile , but neither skill is impossible to acquire ( just hard effort )

good luck to all who try

 

[ER Eddie]

brucethebroker ,

could i suggest the low-income ( early ) retirees are an unnaturally brave bunch to start with , already resisting peer-pressure , and avoiding stereo-typing .

My thought, too. To me, keeping expenses low is a source of pride, because it means I've got the courage and smarts to live independently, relatively free from social programming about consumerism/materialism and what the "good life" supposedly requires. It also seems like evidence to me that I've managed my finances pretty well in my life, so that I'm not saddled with lots of expenses.

My retirement expenses will be about 32K/yr. I could be more frugal, but I'm not a fanatic about it.

 

[Oz investor]

i was partly programmed by mum

mum ( and dad ) having grown up in the great depression ( 1930s )

used to put on a special Sunday dinner bread and dripping sandwiches

the bread was not so fresh and 'dripping ' is recycled cooking fats with a little pepper and other spices ( whatever is at hand )

the good part was those economy measures let them pay out the mortgage several years early ( and just as well , father died in 1969 after a short illness at not even 48)

but that bias has probably already crept into my posting here

cheers !!

 

[Major Tom]

used to put on a special Sunday dinner bread and dripping sandwiches

the bread was not so fresh and 'dripping ' is recycled cooking fats with a little pepper and other spices ( whatever is at hand )

Growing up in the Midlands in England in the 70's, I remember my Mum wiping a piece of bread around the pan to pick up the dripping. Tasty!

Dripping - Wikipedia

 

[daylatedollarshort]

My thought, too. To me, keeping expenses low is a source of pride, because it means I've got the courage and smarts to live independently, relatively free from social programming about consumerism/materialism and what the "good life" supposedly requires. It also seems like evidence to me that I've managed my finances pretty well in my life, so that I'm not saddled with lots of expenses.

My retirement expenses will be about 32K/yr. I could be more frugal, but I'm not a fanatic about it.

+1. I don't have super low expenses like some of the posters here in low cost of living areas, but our retirement expenses are down by about 66% from what we used to spend pre-retirement and we've been pretty excited by that. Our retirement principle has been to cut the expenses, keep the lifestyle.

It is a hoot on Reddit how many pre-retiree households say they are making are making $300 - $500K+, living middle class lifestyles and investing the rest to retire early. All those early retirement blogs really have had an impact on at least some of the next generation of retirees.

 

[brucethebroker]

$1M to $4M would replace the income for the vast majority of Americans. The following data, for 2015, shows the upper limit for each income quintile in the US.

	Upper Limit		Mean		Assets @ 4%
Lowest	$22,800		$12,457		$570,000	UL/4%
Second	$43,511		$32,631		$1,087,000
Third	$72,001		$56,832		$1,800,000
Fourth	$112,262		$92,031		$2,806,000
Highest	*****		$202,366		$5,059,000	Mean/4%

So, yes you can retire with more or less than the above but you would be at the extremes.

My points are two: no mention of expenses, only income "assumed" needed by those in that bracket. Again, note the use of the 4%. If I can get 7% (easily obtainable in rental real estate, or holding private paper, for example) I need much less.

Stats provided by those articles using boilerplate US govt. averages are worthless, unless the retiree spends the average, and earns the 4%.

If, for example, a retiree wannabe posted here with ONLY $500k investable assets and asked if he could do it, we need to know how much he plans on spending AND what kind of a return he expects to get on his assets. He may get more or less than 4%, and he may NEED more or less than the government stats say he will. Too many times (most likely NOT anyone reading this, BTW) the rote answer is you cannot do it on $500k, because at 4% that is only......

You will also see this often when "financial experts" are consulted with online Q&A. 4% has become a financial rule of thumb and may be keeping many from pulling the trigger on ER.

 

[brucethebroker]

It's not bias, it's just math.

But it should be math with an asterisk. See above post.

 

[Red Badger]

Like many here, I paid a modest price for my freedom (giving up a six figure income was a bit of a conundrum). While our retirement is solidly middle class, we are far, far from wealthy. We have a couple of modest pensions and (for us) a decent portfolio. Together, these are sufficient to allow for us to have comfortable discretionary spending, that puts a little gold in our golden years.

As for me, I never perceived any big portfolio bias as I queried about ER here a couple of years ago. What I did hear (repeatedly) is that solid, in depth knowledge of both ones spending and ones revenues streams (and that the latter must equal/exceed the former) was the foundation of any successful ER plan. And, I'll confess; it took me a while to grasp that simple concept, as I had been brainwashed for years by the, "You need 25X!! You need 80-100%!!" BS for years. As stated (ad nauseum) before, the ER community hear has our profound thanks and gratitude.

 

[Oz investor]

*** but our retirement expenses are down by about 66% from what we used to spend pre-retirement and we've been pretty excited by that. ****

[mod edit]

goodness you are almost slowing the US economy by yourselves


nice economizing though .. maybe the government should offer you an adviser's post in say the dept. of finance

 

[flintnational]

But it should be math with an asterisk. See above post.

Yes, but the OP asked why we focus more attention on folks with less than $1M (that think they can retire) and folks with more than $4M (that think they can't retire). The asterisk you mention is what we are asking about. It is not bias against these two groups it is just knowledge that they are outside the norms and as you suggest there needs to be a dive into the details to determine if their situation is indeed different.

 

[joeprintz]

I think many on this Board talk "apples and oranges".. Without medical and maybe dental insurance from a previous employer insurance for medical and dental costs can cost $15,000/year.. I think when one considers and states costs that has to be made clear. Then there is rent/home ownership costs, insurance-before one even gets to essentials like eating.

 

[LOL!]

I think many on this Board talk "apples and oranges".. Without medical and maybe dental insurance from a previous employer ....

I was gonna say ... those Household Income Quintiles probably don't include some benefits and perks, but then again, not all employers provide benefits and perks.

At one of my employer's, I got free breakfasts, subsidized lunches, and a subsidized apartment. Also, I didn't have to own a car and rarely had any transportation expenses. Of course, health and dental insurance came along for the ride, too.

 

[Dash man]

Without medical and maybe dental insurance from a previous employer insurance for medical and dental costs can cost $15,000/year...

I wish I only had to pay $15,000/year!
It’s nearly $29,000/year for us!

 

[Surewhitey]

We've been on cruise control for a few years at $44k annually. Still w*rking and saving 60+% of our income. Counting the days (again)...

 

[imoldernu]

one person? two persons?


https://wikiwand.com/en/Household_income_in_the_United_States