31% think $250K is enough to retire on

[Andre1969]

I wouldn't call $30K poverty level. At least in the U S, it's defined as $10,890 for a single person. The median income is only around $40K.

One thing I've always wondered...when they try to calculate those poverty levels, do they take assets into account, or only income? For instance, let's say I have a $3M saved up, but it's in something lame like a checking or savings account earning almost nothing, to the point that even that $3M isn't paying $10,890 per year.

And, suppose I don't work at all, but just draw money out whenever I need some. On one hand, my income would be in the poverty level, but on the other, I'd still be set for life (or at least a good long time before inflation ate up too much of it).

And, while $30K might not be considered poverty, a lot of it depends on where you live. I'm in Maryland, near DC, and most of the people I know who make $30K per year fall into three categories:
1) still living with relatives, or at least getting some major help from them.
2) renting a room or sharing a house
3) retirees who have a paid-off home and no major expenses.

 

[Delawaredave5]

These surveys that cover "all Americans" are not helpful to me. I wish they would segregate into different pre-retirement income groups - that way could can get a feel for "people like me".

My mother owns her house, lives in low cost midwest, gets $10k in SS, and spends about $12k of her savings each year. Kids indirectly pitch in a little.

She sticks with "cheap hobbies", has no catastrophic long term care plan, and cannot buy a vineyard - but she lives great.

A person who has $250k could do this for 20 years.

 

[Strick]

Retirees DO have a median net worth around 161K, so of course its likely the 31% who said yes CAN retire on $250K.

The question posed did say "comfortably". Thats what makes the 31% interesting and too subjective to know whether they have poor math skills or low expectations.

 

[tryan]

If you stated her income goal I missed it, but with a paid for home and $2400/month locked down, she can get a pretty good income just by setting aside a little cash for emergencies, then investing the rest in dividend growing high quality equities such as PG, JNJ, ABT, WMT, WM, PEP, MSFT, SYY...etc. Some of these are higher quality than others, and they also differ on other dimensions. I just tossed them out as reasonable candidates. There also may be ETFs that invest in this type of stock.

$200,000 invested in a selection of these will yield between $6 & $7 thousand the first year, and this very likely growing fairly rapidly. If it were me, I would like the positive psychological aspect of getting more every year, even with low inflation. Her SS and pension will fill the role of fixed assets.

I assume you have already considered and rejected your special skill area of income producing real estate? (With you as manager.)

Thanx for the tips! 1/2 of the wad is in GE Elfun fund ... it's been doing well of late (but got hammered in 2007). The other half is cash.

She did mention letting me invest the cash. I'ld give a fixed return of 6% and pick up another REO. We had a similar arrangement in the mid 90's (but the rate was 10%!) ... it worked well for both of us.

Need to think about the income goal. Been working it from the back (what can she take). Knowing what she "needs" will help (thanx for that).

 

[Independent]

If $3k a year can be saved form $30k salary (~$20k take home pay) $250k could be built up. But on such a low salary finding $300 a month would be difficult. At 66 the worker would get maybe $12k SS. If we use the 80% rule for income that would leave $12k to find, maybe less as no FICA would be required. 4%x$250k=%10k. Maybe just enough to keep the person at the same poverty level they lived at all their working life.

Your numbers are correct. The only thing I'd question is the "poverty" word.

The median income for full-time year-round workers in the US is something like $36k for females and $47k for males. So the author's guess that 30% of workers might be living on $30k doesn't seem so remarkable. $30k is an income range that I don't want to revisit, but I guess it's a judgement call to say that someone with that income would be "poverty stricken".

 

[Andre1969]

I was curious, so I tried to to run an estimate of my 87 year old grandmother's cost of living.

I pay most of her utility bills (oil, electricity, phone, directv), plus her medicine co-pays, with my credit card, and then once a month I get a check from her for that amount plus $500, which is for groceries, incidentals, and other cash-type stuff.

Well, over the past year, I've come up with $6,303 for utilities/medical copays. Another $6,000 for the $500/mo.

So, we're at $12,303 per year.

House is paid off, but property taxes are around $3200 per year. I think homeowner's insurance is around $700. And the water bill, which my Mom or uncle take care of, might be $200 per year tops.

So, now we're up to $16,403 per year.

I'm sure there's some details I might be missing here, though. For instance, I know she pays estimates taxes every month, but I can't remember what that total is. Maybe another $4,000 for the year? She might give $1000 a year to the church.

So, now we're pushing $21,403 per year.

Granted, she lives a very meager existence these days. Hasn't driven since 1999, so there's no car expense anymore. House is long since paid for, but if something needs replacing, that's an added expense. My uncle and I take turns cutting the grass and doing what upkeep we can. And I'm not sure how much her other medical expenses are...doctor's visit co-pays and such. Maybe her insurance plan covers all that? And, somehow, I think her insurance is all paid for as well, probably because she worked for the federal gov't?

 

[CyclingInvestor]

My mom retired a few years ago in her seventies, with far less than $250K and a paid off house. She lives on a near-maximum SS payment (thanks dad), and says she cannot possibly spend it all, in spite of buying a new car recently and upgrading the house several times. Her savings total has been slowly trending up since retirement.

 

[nun]

Your numbers are correct. The only thing I'd question is the "poverty" word.

The median income for full-time year-round workers in the US is something like $36k for females and $47k for males. So the author's guess that 30% of workers might be living on $30k doesn't seem so remarkable. $30k is an income range that I don't want to revisit, but I guess it's a judgement call to say that someone with that income would be "poverty stricken".

With the cost of living being so variable across the country the real poverty level salary will also vary. $30k salary is poor in New England as the median salary is ~$60k. Someone from Mississippi would be doing ok on $30k, but I still think it would be tough to find $300 a month to save towards retirement at such a low base salary. Also the level of savings would never allow for movement in retirement, they wouldn't be able to move to a less expensive state. I'd be interested to see retirement account balances by state.

 

[NW-Bound]

...
The median income for full-time year-round workers in the US is something like $36k for females and $47k for males...

The median income level indeed does not leave one with much to save, but I would think it is possible to have $250k at the end of one's long working life. For most people, much of it would be tied up in their house. For a couple, both working, it is indeed easier to be ahead. The housing cost does not double for a couple, vs. single persons, for example.

Then again, most people would not dream of early retirement at all. They would be glad to be able to stop working at 65, assisted by SS.

 

[Davis]

When my parents retired, they had less than $250K of liquid investment assets, counting both before and after tax categories. But they were no "Uncle Mick"!

They owned their home and a rental property, which were worth more than $500K combined. They were no early retirees, so were drawing SS and a small state pension. My father deceased, and my mother now lived alone comfortably on a total annual income of less than $30K. Again, her housing cost is minimal.

To retire early on just $250K? Well, there are always people who can or could like Uncle Mick and Jacob, but for me, it's too tough! I'd rather go to work!

PS. Actually, if I were single, had no dependents, and did not care about health insurance, a $250K portfolio may provide enough for me to park my little motorhome in the NM mountains like I often fancy myself doing to play a recluse. Heck, I am sure there are some people doing that already.

I'm sure there are, and I'm sure very, very few have as much as $250,000 in a portfolio.

 

[Ally]

It scares me on behalf of the 80 people who work at our nonprofit that only about 15 contribute to their 403 B account. We ( the employer) contributes 5% of salary for each person, and we have a financial advisor from the retirement co. come talk to them each year, but hardly anyone contributes. I have always contributed about 13-14% of my salary for the 27 years I've been the director. But even those whose family incomes are $60000 to $80000 most don't participate. They definately don't LBYM- instead they are buying the latest cars for their kids and tech items, etc. They think I'm strange because my husband and I drive 10 yr old cars and our house is paid off. I wonder what is going to happen to them.

 

[scrabbler1]

My dad, 80 years old, has about $250k in savings (some stock and bond mutual funds) but also has SS and a small pension. Combined, he gets by okay. He paid cash for a new car 4 years ago and doesn't pay much in taxes because of the many tax credits (i.e. income, property) he qualifies for due to his age. He is on Medicare, of course, and has a MediGap insurance policy. He has had some dental bills which are out-of-pocket. His house is paid off, the same year he retired (in 1994).

He has a financial advisor (Ameriprise) who began overseeing his finances shortly after his wife (my mother) passed away in 1995 - she handled all the finances and set things up for him as she knew she was nearing her death after a 4-year battle with cancer. I take a look at the quarterly statements he gets just to make sure he isn't getting ripped off. Thanks to his Ameriprise adviser, my dad and I went to a lawyer to amend his will and get other estate planning documents in order.

Betweem his financial advisor. his accountant (who seems to find all kinds of tax credits even though he pays little or nothing in income taxes), and his dentist (whom he raves about all the time despite being a bit pricey), he is pretty happy about things. When his ladyfriend returns after a long vacation he will be even happier!

 

[kumquat]

Thanks to his Ameriprise adviser,

Someone praising Ameriprise on these boards. We have a first.

 

[travelover]

......... I wonder what is going to happen to them.

Well, one possibility is that you will be means tested when you draw SS and they will give your excess to them.

 

[Hamlet]

The key to living cheap is having a roommate.

When I got my first job out of college, I started making $24k/year in 1996.

I think I got a raise to 26.5 about 6 months into the job.

I remember starting my 401k at 10% at that time, because I figured I could just keep living on what I was already making and just save the raise.

I lived with another guy in a reasonably upscale 2-bedroom 2 bath apartment and was living what I thought was the high life (Stoli's instead of Philips). I think my share of the rent was about $400/month (it would be about $650 now). It was pretty sweet having an in-unit washer/dryer and a shared pool.

Living in the luxury apartment with someone else was still cheaper than living in a dive by myself.

And, while $30K might not be considered poverty, a lot of it depends on where you live. I'm in Maryland, near DC, and most of the people I know who make $30K per year fall into three categories:
1) still living with relatives, or at least getting some major help from them.
2) renting a room or sharing a house
3) retirees who have a paid-off home and no major expenses.

 

[pb4uski]

Nosiree, ...I did have one question though. What should I do with my extra money ?

Should I pay down the house or should I invest it ?

I think you should tear down the house.

 

[rescueme]

The key to living cheap is having a roommate.

Agreed. That's why we were married ...

 

[Ready-4-ER-at-14]

One thing that I think makes these polls inaccurate is they never ask if the people will get a government pension as well and maybe a quarter of people get a government pension of some kind in a married arrangement.

Considering a quarter million dollars invested at 4.5% (30 yr treasury yields) creates a perpetual cash stream of $937 a month, a pension paying $2,000 a month is somewhat equivalent of having a half million put away.

So does a pension recipient need as much savings? It would not seem necessary to me, especially if they get free health insurance or care

 

[Ally]

That seems to true in all the calculation websites, that they count the value of a pension when considering the savings you need. In our case, we will have a govt pension which will continue on to me if I outlive him. That will really help.

 

[Bestwifeever]

And in a related story, here's an article about boomers inheritances on today's Yahoo Finance page:

The Center for Retirement Research at Boston College estimates that 70% of baby boomer households will receive inheritances. These will total $8.4 trillion — an average of nearly $300,000 per inheriting household, with the wealthiest 10% receiving an average of $1.5 million.
http://finance.yahoo.com/focus-retirement/article/112418/handling-the-boomer-inheritance?mod=fidelity-managingwealth&cat=fidelity_2010_managing_wealth

 

[Delawaredave5]

And in a related story, here's an article about boomers inheritances on today's Yahoo Finance page:

I'll bet this is America's "high water mark" of generational wealth passing.

So this $8.4 trillion is coming from the parents of baby boomers, right ? Assuming the average baby boomer is about 60 - means that half of boomers have already had their parents pass.

Article said $300k per household - so each spouse assumed gets $150k from their parents. If each parent unit had 2-3 kids, that would be each household passing around $300k-400k, on average.

I see these "huge inheritance articles" and I just don't think inheritances will replace the shortcomings of today's baby boomer financial position.

 

[Bestwifeever]

...I see these "huge inheritance articles" and I just don't think inheritances will replace the shortcomings of today's baby boomer financial position.

I completely agree.

 

[Ready-4-ER-at-14]

Should we receive any inheritance I plan to pass at least half of it to the kids immediately.

Better they have use of it when it matters to them getting started and established, than us just putting it on the money pile since it won't likely change or enhance our lifestyle which is pretty set by now.

 

[Ally]

That hasn't been the case for my husband or me. He received $7000 after his mom died and I will probably receive no more than $35000 when my dad's estate is settled since he had a reverse mortgage. However, I inherited many pieces of art work and antiques that are of great sentimental value. And his beloved 12 year old dog.

 

[Andre1969]

My grandmother's estate is fairly sizeable. Roughly $250K in savings/investments (could be more than that by now, for all I know...I haven't checked lately as my Mom handles that). Her house is paid off. Needs a lot of work to get it fixed up really nice, but I imagine it would fetch around $200K, as is.

Right now, her estate is set up to go 40% to my Mom, 40% to my uncle, and 20% to me. I'm the only grandkid.

I don't even consider the house as part of it though, because my uncle will probably live in it. I doubt it would get sold anytime soon.

As for the $250K in savings and such, well if I got $50K, it's a pretty sizeable sum, nothing to thumb my nose at. But that $50K wouldn't be a life changing event. At a 3% SWR, that's an extra $1500 per year of cushioning. If I put it towards my 3.5% mortgage, it would save me about $1750 in interest that first year. Now, I have been saving/investing around $25000 per year lately, so I guess one way of looking at it is that it would put me ahead roughly two years.

My Mom's retired, and stepdad is about to retire. Combined, they'll get a decent pension, even though my stepdad's worried about not having enough money. The $100K they're getting won't be life changing to them, either.

As for my uncle, well, he'll probably use it to help stay in Grandmom's house, and draw it down when needed. So, it would help him to stay afloat. That would be a big deal for him. But, even if it got to be too much for him, my Mom and I would help him out. And even if Grandmom's house had to be sold one day, we'd still make sure he had a place to live.

And honestly, I'm not counting on getting anything. Grandmom's 87 now, and still fairly healthy, but she could always have some condition that runs up a huge medical bill that drains everything away. I'd rather consider it an unexpected windfall if it does happen, than plan for it and have it not happen.

My Granddad on my Dad's side of the family is still alive at 96. I have no idea how much he has saved and invested over the years. He gets a pension from working on the railroad, and they always lived below their means. That side of the family really doesn't talk about money though. On that side of the family there are three sons, and six grandsons. I've heard that us grandkids are included in the will, so it's not just going to my Dad and two uncles. But, again, I have no idea how much it is, so I don't plan for it.