Article: Worth $4 Million -- and Unable to Retire

[Nords]

... and are now retired, comfortable and by their own admission "living good." It is more about meeting expenses and having enough left over to do the things you like to do. I call that financial security. Not every one wants the "Lifestyles of the Rich and Famous". Most of us would be satisfied with maintaining our current standard of living in retirement. That standard is different for everyone.

I don't know about you guys, but I've had a hard time planting my butt in a first-class airplane cabin-- let alone spending $10K on a fantasy vacation.

Don't get me wrong, I'm quite happy to travel first class when I [-]win the departure-lounge lottery[/-] get upgraded, but it's hard to put it on my credit card. It's not buyer's remorse or a lack of value as much as it is a sad commentary on what it takes to get treated with a bare minimum standard of [-]personal space[/-] travel accomodation. I wonder if the inflation-adjusted cost of a first-class airline ticket has risen over the last 40 years... but I guess we'd have to factor in hedonic adjustments like [-]better aircraft timeliness, reliability, and safety[/-] improved in-flight entertainment systems.

Now some financial guru's are upping the ante. Now you need millions more.

How strange. Don't they know that millions of little retail investors will get discouraged and flock to the offices of financial gurus for assistance in meeting their retirement goals? Why would the gurus want to be pestered by all these crowds of desperately unhappy people??!

The cost of being rich just keeps going up and up. Just check out the Forbes "Cost of Living Extremely Well" index. The index clearly shows that the cost of being rich is racing ahead of the normal cost of living as measured by the CPI....

BTW Forbes has an updated chart (Sep 2007):
Interactive Chart: Cost Of Living Extremely Well Index - Forbes.com

and an updated CLEWI basket:
The Price of Living Well - Forbes.com

Luckily the cost of a subscription to Forbes magazine has managed to hold the line (no doubt with a few hedonic improvements) at the bargain rate of just (*choke*) $60/year...

 

[nun]

If drawing $80k per year from $2M in assets makes you middle class what does my planned $30k per year from $750k make me?----working class? But I'm not working... oh yes I remember now I'm poor . Actually I think with $30k as a single person I'd be at 3x the official poverty level and if you don't have a mortgage you can live a very comfortable life on $30k per year anywhere in the US.

 

[Khan]

If drawing $80k per year from $2M in assets makes you middle class what does my planned $30k per year from $750k make me?----working class? But I'm not working... oh yes I remember now I'm poor . Actually I think with $30k as a single person I'd be at 3x the official poverty level and if you don't have a mortgage you can live a very comfortable life on $30k per year anywhere in the US.

I'm not only living comfortably at just under $30k, I'm still saving.

 

[furpants]

Really, I think it comes down to this: these people (the ones referred to in the article) simply haven't saved enough to support their lifestyle after retirement. They have been "rich" their whole lives, and expect to retire rich as well. But they just haven't done the math.

If you're used to making $300k per year and spending most (or all) of it, $4 million ain't gonna support that lifestyle after you stop working.

 

[Hillbilly]

Yahoo finance is a total joke--isn't that where Kiyosaki a-clown gets space to write his dribble, I mean drivel? Oh, and Suze, too. Great.

AMEN

 

[unclemick]

as a salute to Flip Wilson - 'the devil makes me do it':

it wasn't too many years back we had some - I can live cheaper than you can threads - both in LBYM and in ER!

not to cross thread or get people angry at the search function or .

12k waaay back in the 90's - of course she threatened bloody murder if I ever ever tryed that again. Seems a lot grouped in the low twenties - paid up house and health care in the bag, kids grown and gone.

I know I know - some of us are just bad to the bone.

heh heh heh

 

[MasterBlaster]

BTW Forbes has an updated chart (Sep 2007):
Interactive Chart: Cost Of Living Extremely Well Index - Forbes.com

and an updated CLEWI basket:
The Price of Living Well - Forbes.com

What is the "Good Life" worth ?

It's worth pointing out that since 2001 the Cost of Living Extremely Well index has gone from 550 to 772 for an increase of just under 38 %.

So if in 2001 you needed to spend $22,606,236 to live extremely well, in 2007 you would need to spend $31,162,932 just to keep up. So to provide this much spending power I might need 50 percent more just to pay the taxes on my income. Therefore I'll need an income of around $46,744,000 to support me in the style to which I would really like to become accustomed to.

So knowing that I want to have a stable retirement, I'll use the SWR of 4 % to predict how much stash I'll need to live extremely well.

If I do that I see that I'll need a nest egg of just under $1.170 billion (with a "B") to provide for my needs.

Actually though that isn't quite enough. I'll need to pad my nest egg ... just in case. So I'll add in another 20 percent for my personal comfort bringing the total to $1.4 Billion.

But now since the CLEWI basket is going up at 3 times that of the CPI, then I'd better use a smaller safe withdrawal rate...say 2%. In that case with the tax hit and the 20 percent cushion I'll need just over $2.8 Billion.

So just between us friends lets make that a nice $3 billion for us to live extremely well

 

[chinaco]

I guess the poor $4M guy has to go back to work since $160k/year is not enough. What a shame. Maybe he will be prepared at 65. Oh well, look at the upside... I suppose he can continue funding SS for the rest of us.

 

[Keim]

I'm doing mine in crayon...



This must be the "cost of keeping up with the Jones'" chart...

No. It is the "cost of keeping up with the Rockefellers" chart...

 

[Ronstar]

The 4m man is probably bringing home $200k salary and $800k in profits in a good year pre-retirement. He probably saves around 100-200k per year and lives on about 500k after taxes. He probably has several cars, houses and other toys and activities that he doesnt want to give up in retirement. The article doesnt say how much he saved in addition to the sale of his business, or how much of a tax bite he had when he sold. But its a safe bet that he cant support his lifestyle on the 160k that he would withdraw per year based on 4% of the 4m.

 

[FIREd]

The 4m man is probably bringing home $200k salary and $800k in profits in a good year pre-retirement. He probably saves around 100-200k per year and lives on about 500k after taxes. He probably has several cars, houses and other toys and activities that he doesnt want to give up in retirement. The article doesnt say how much he saved in addition to the sale of his business, or how much of a tax bite he had when he sold. But its a safe bet that he cant support his lifestyle on the 160k that he would withdraw per year based on 4% of the 4m.

Actually after reading the article, I am under the impression that he can only count on the $4M he received from the sale of his business to finance his retirement. Therefore, it looks like he might have never saved a cent until now and was living paycheck to paycheck. If his income was as high as you seem to think it was, no wonder he feels he can't retire with "only" $4M!

got a call from a newly "rich" executive. Having worked 60-hour weeks for years and now ready to retire at 55, he sold his business for $4 million. He was ready to live out his dream life and live off that tidy nest egg. The problem is, to do so--on $4 million--he must cut his standard of living.

Sounds like there is nothing else in the kitty besides the $4M...

 

[Ronstar]

You're right - it does sound like he is living paycheck to paycheck. He must have an extreme lifestyle not to have saved anything

 

[haha]

You're right - it does sound like he is living paycheck to paycheck. He must have an extreme lifestyle not to have saved anything

Not necesarily true at all. He may have been maximizing growth of his business at the expense of a large salary. A $4million cash-out is not bad, and he likely lived at least as well as most of us baggie washer/savers.

Ha

 

[Lakedog]

Not necesarily true at all. He may have been maximizing growth of his business at the expense of a large salary. A $4million cash-out is not bad, and he likely lived at least as well as most of us baggie washer/savers.

Ha

If this were the case, then he would likely have no problem retiring with a nest egg of $4 million. Hard to believe there are people who cannot live well on $160k per year.

 

[FIREd]

Not necesarily true at all. He may have been maximizing growth of his business at the expense of a large salary. A $4million cash-out is not bad, and he likely lived at least as well as most of us baggie washer/savers.

Ha

Define large salary! OK maybe he didn't pay himself $500K per year. Perhaps he tried to, as you said, maximize the growth of his business at the expense of a large salary. Perhaps he did not save any portion of his income during the past 20 years because he knew he would be able to cash out of his business one day. But he is obviously used to spend more than $160K per year or we would not have this conversation. And 160K can give anyone a fairly nice lifestyle! For him to postpone retirement with $4M in the bank tells me that his annual expenses are in fact so much higher than 160K that he can't even start to picture himself live on such "measly" sum of money...

 

[haha]

If this were the case, then he would likely have no problem retiring with a nest egg of $4 million. Hard to believe there are people who cannot live well on $160k per year.

OK, you guys know everything. Who knows why these silly fellows think they have a problem?

Ha

 

[saluki9]

Not necesarily true at all. He may have been maximizing growth of his business at the expense of a large salary. A $4million cash-out is not bad, and he likely lived at least as well as most of us baggie washer/savers.

Ha

Another possibility (and something that people are missing from the article) is that a lot of business owners may draw nice or high salaries but if you added back in all the expenses they pass through their business it would take a lot more assets to replicate that.

 

[audreyh1]

If you're used to making $300k per year and spending most (or all) of it, $4 million ain't gonna support that lifestyle after you stop working.

Yep, that's the gist of it!

Audrey

 

[Gekko]

Well, I guess I'm the proverbial mmillionaire everybody is talking about. I have a NW between $3-4mm, age 46, married, no kids, and nowhere near retiring or feeling like I could retire and maintain my lifestyle.

But, far from being whiny about it, as this spat of recent millionaire articles likes to promote, I am deeply grateful for the prosperity I have. I didn't grow up middle-class, I grew up piss poor. Like pull the covers over your head so the roaches don't crawl all over you while you sleep poor. Like no heat in winter poor. Like eat grits for breakfast, lunch, and dinner poor. So, yeh, I'm a big deal executive now, and I got the girl so to speak, got my McMansion, know how to order to right wines and all, & hobnob with rich people on charity boards and such, which is all very nice, but I'd like to think I have some perspective on this money thing. Basically, I enjoy my lifestyle, I'm ambitious in my career, I'm still relatively young (though starting to feel the pangs of advancing age), and I still have some things I'd like to accomplish before turning in my badge.

I recognize that I could quit today and lead a perfectly fine "middle-calss" life. And I recognize that it is my choice not to do so.

Ronstar's got me pegged pretty well: I live in a crazy expensive town (NYC), bring home several hundred grand a year, save anywhere from $100K - $300K per year, and spend something like $200K - $250K (after-tax). Trust me, wifey and I are not all that extravagant compared to what we see others doing (does everybody say that). If you haven't lived in NYC, you just have no idea how somebody could spend this kinda money on a "middle-class" lifestyle, but I'm hear to tell you its possible.

So, where's the money going. Part of the big expense is the house, loads of insurance of all types, work-related clothes (wife has to look good too, its all part of the game), charitable giving, travel and vacation (which we enjoy greatly), eating out cause we don't have time to cook, etc. Oh and taxes. I pay more in taxes.... okay well don't get me started about that AMT.

Now I have no illusion about maintaining all aspects of our lifestyle in retirement, because gee... I won't be churning out money anymore. Duh!!!

It's a great ride while it lasts, and when the time comes to shift gears, I think I'll be pretty happy to do so. The key is that I have choices. I can quit and be okay, I can stay and continue to pile up savings, and I can rethink the whole thing, turn around and try something different. That freedom is priceless. By my calculations, if I wait til I'm 60 before touching any savings, I could maintain the same lifestyle.

FYI, one of the things I'm saving up additonal funds for is that when I shift gears, I want to be able to invest in new business opportunities, as well as do some speculative trading. I'm not the type to sit still too long and I will still want to find ways to make money, just different ways than I do right now.

Clearly, my way is not for everyone, but it seems to be working for me.

 

[Meadbh]

If drawing $80k per year from $2M in assets makes you middle class what does my planned $30k per year from $750k make me?----working class? But I'm not working... oh yes I remember now I'm poor . Actually I think with $30k as a single person I'd be at 3x the official poverty level and if you don't have a mortgage you can live a very comfortable life on $30k per year anywhere in the US.

For $30K a year you can live like a nun!

 

[chinaco]

He is not going to get much sympathy from the middle class world based on what was described.

Poor guy. I guess he is not FIRE ready under his terms. Oh well... back to work. Another 10 years, a pretty good stock market... he should double that at least. $8M will give him $320k/yr. Then everything will be peachy in the world.

 

[W2R]

It's not just what we have, it's what we spend (I know, I'm preaching to the choir, here).

If someone does not particularly feel a driving need to live in a McMansion in an area with high housing costs, and does not have a deep yearning or desire for worldwide travel, life can be SO much more satisfying.

I have neither of these desires. Right now I am happily LBYM'ing for about $16K above my paid off house, while I prepare to retire. I am hoping to have a little more after ER, but honestly I don't know what I would do with more than $40K/year. Granted, I will have lifetime healthcare taken care of by Uncle Sam.

To spend more than $40K/year, I think I would have to be a shopping addict. Frankly, I wouldn't want to spend that much time tramping through stores or haunting online shopping websites. There is more to life, people!

Maybe Madison Avenue is causing all this dissatisfaction. Or, maybe there is some sort of extreme lack of self-confidence and people think, "If I only owned (xyz), I would impress people and be loved and admired!". I don't want that kind of love and admiration, because it isn't real.

 

[bow-tie]

I'm confused. So... the person in the article had the ability to build a business worth $4M, but didn't have the foresight to look ahead and see if the nest egg would support their lifestyle. Uh..... say what??

I think I can follow Gekko POV, although it's completely alien to my lifestyle. Regardless, at least he has done the math, and understands his choices and what they mean.

 

[CuppaJoe]

This is an "ah-ha!" moment for me! Forget that my salary is X number of dollars more than the average, I’m now firmly a member of the "working poor." Will retire anyway, most likely at a higher standard of living than while working.

Was it Greenspan who recently pointed out that a hedge fund manager making less than $129 million/year is not in the major leagues in his field. Oh, my poor poor childhood acquaintance has the hedge fund title, address in Greenwich, CT, etc. but I wonder does he have enough to retire comfortably?

 

[Milton]

Well, I guess I'm the proverbial mmillionaire everybody is talking about. I have a NW between $3-4mm, age 46, married, no kids, and nowhere near retiring or feeling like I could retire and maintain my lifestyle.

I suspect that you could easily retire and maintain your current lifestyle - more or less, anyway - if you were prepared to move to a less expensive city. But of course, there's no need for you to do that, as long as you're still enjoying working. An interest in FIRE does not mean that you are obliged to retire ASAP, or that you should feel guilty about choosing to continue to work (your tax contributions are greatly appreciated!).

spend something like $200K - $250K (after-tax) ... If you haven't lived in NYC, you just have no idea how somebody could spend this kinda money on a "middle-class" lifestyle, but I'm hear to tell you its possible.

Wow.

It's a great ride while it lasts, and when the time comes to shift gears, I think I'll be pretty happy to do so. The key is that I have choices. I can quit and be okay, I can stay and continue to pile up savings, and I can rethink the whole thing, turn around and try something different. That freedom is priceless. By my calculations, if I wait til I'm 60 before touching any savings, I could maintain the same lifestyle.

Fair enough!