Is there a disconnect between real life and the "professionals"?

[MRG]

....snip, good stuff...

it's amazing, I always thought that people who did not have enough were under a lot of stress. now I'm feeling like it might be the opposite.

To that point I'll offer that many folks are in denial. They haven't saved, but know they should have; they're looking at 40, 50, 60, 70 and realize it's even harder, maybe too late. Even though many are well educated, intelligent people, they can't see what they have to change in their lives to get ahead. Many go through their lives on the same merry-go-round wondering how others retired and they're broke.

All I can do is take care of myself, I can't change how anyone else lives life, just my own. Best wishes.

 

[Options]

...
The 4% withdrawal rate was considered a good safe shot for years. Then the financial crisis hit and suddenly the "experts" were saying maybe you should plan on a 2% withdrawal rate.
...
Now they're saying 4% again.

Who started saying 4% again? Last I read Bernstein was sticking to 2% as "bulletproof", 3% as "probably ok", and 4% as not ok. I believe Pfau's most recent paper gave much w/r's much lower than 4% for 30, 35, and 40 year retirements. 35 years, for example, amounted to a 2.5% w/r (assuming 1% fees). I believe VG's recent projections are something 3.5% for a 30 year retirement.

 

[haha]

Generally, government workers make less than equivalent workers in private industry.

No longer true, except at higher levels of employment. Compare a city bus driver in Seattle with a guy who drives the Connector for Microsoft.

Government workers make more each day, and get way more over a longer retirement.

 

[2B]

Generally, government workers make less than equivalent workers in private industry. Pensions compensate for that.

I dispute this statement even as a generality. There are places in the US that pay public school teachers outrageous amounts of money for a relatively easy to get degree. Other places in the US pay teachers poorly. This goes through different job functions and different locations. Places that pay poorly usually also have poorer pensions. Pay and pensions for government workers are usually more closely tied to the relationships between the public employee unions and the local politicians.

In a career dark spot, I worked at NASA as a contractor. Contractors are paid well below the civil servants that they work with. Some of the CSs I worked with had technical degrees and were top level scientists. I would consider them underpaid but they wanted to be in the space program. Some of the others had non-technical degrees and very high GS levels. Some of these wouldn't have lasted a week in my organization.

 

[athena53]

Who started saying 4% again? Last I read Bernstein was sticking to 2% as "bulletproof", 3% as "probably ok", and 4% as not ok. I believe Pfau's most recent paper gave much w/r's much lower than 4% for 30, 35, and 40 year retirements. 35 years, for example, amounted to a 2.5% w/r (assuming 1% fees). I believe VG's recent projections are something 3.5% for a 30 year retirement.

I must have read articles quoting old numbers. Fortunately, I think we'll be at 3.5% for the next few years, then lower (adjusted for inflation) as a $10K pension kicks in in 3 years, Spousal SS in 4 years and my full SS in 8 years. Health insurance and healthcare costs should also go down when I ditch my $6K deductible plan for Medicare in 3 years.

 

[stepford]

Well, this thread has rapidly morphed into a gripefest about both the hysterical financial media and now about generous public pensions. But to get back to the OP's question:

No, the professionals aren't wrong. One will very likely need at least $1M - OR OTHER ASSETS OF EQUAL VALUE - to retire early with a median income level in much of the US. The key point is that pensions should be considered part of one's net worth and can be valued just like any other asset by calculating the cost to purchase an annuity with the same payout.

As an example, an immediate annuity paying out $54K/yr starting at age 55 has a value of $1M - and this is without any cost of living adjustments. As most public sector pensions include some form of COLA their value can be significantly higher. Thus if the OP's friends who've retired in their mid-50s have pension payouts greater than $54K/yr I would argue that they already are millionaires and their comfort in retirement affirms rather than refutes the financial professionals' point that the OP questions.

That $1M (or $2-3M or more for many folks here) is a pretty loose requirement as people's lifestyles and expenses in retirement vary enormously, but as a rule of thumb (or at least a warning shot across the bow to get people to start saving) I do think it remains valid.

 

[imoldernu]

The "where" is important. Family income in Arkansas less than $51K, in Maryland more than $87K.
Putting a number on "enough" is related to the personal viewpoint.

 

[Mulligan]

I dispute this statement even as a generality. There are places in the US that pay public school teachers outrageous amounts of money for a relatively easy to get degree. Other places in the US pay teachers poorly. This goes through different job functions and different locations. Places that pay poorly usually also have poorer pensions. Pay and pensions for government workers are usually more closely tied to the relationships between the public employee unions and the local politicians.

In a career dark spot, I worked at NASA as a contractor. Contractors are paid well below the civil servants that they work with. Some of the CSs I worked with had technical degrees and were top level scientists. I would consider them underpaid but they wanted to be in the space program. Some of the others had non-technical degrees and very high GS levels. Some of these wouldn't have lasted a week in my organization.

Coming from the government side myself, I tend to agree with you and Ha that generally that probably is not accurate anymore. But it can vary. In your reference of school pay, it can vary tremendously in districts. Two school districts near where I live butt up against each other. One salary tops out around $80k, while the other under $50k. So one will get a 60k pension and the other about 35k for doing the same thing only a few miles apart.


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[photoguy]

Two school districts near where I live butt up against each other. One salary tops out around $80k, while the other under $50k. So one will get a 60k pension and the other about 35k for doing the same thing only a few miles apart.

How does the 50k district find any teachers? I would think that that would a huge problem for hiring. Or does the 80k district get the cream of the crop? or perhaps there's so many people that want to be teachers that it doesn't matter?

 

[Mulligan]

How does the 50k district find any teachers? I would think that that would a huge problem for hiring. Or does the 80k district get the cream of the crop?

They get the cream, but they like most around here like to hire the new ones and mold them and they then usually don't leave. But some working in the lower paying schools are just very content too. Smaller class sizes, more rural, more relaxed, sometimes its just a less important second family income, or simply just getting tenure and being happy where you are at and not wanting change.
But a lot of the newbees hired at lower paying schools will try to bolt for better paying jobs.


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[Mulligan]

How does the 50k district find any teachers? I would think that that would a huge problem for hiring. Or does the 80k district get the cream of the crop? or perhaps there's so many people that want to be teachers that it doesn't matter?

I didnt answer question fully.... Most school districts base first year salary are in the mid 30's so starting out you see little difference so it doesn't affect them then. Its the salary schedule compression on the back end that hurts. But many poorer paying schools are content to have them a few years before they move on. But many don't care about the money. I have a good friend who has won a state championship as a coach and could easily make double what he earns. But he loves it where he is at and "is the King" of the town despite making less than $40k a year. A high school of 100, he has had some PE classes that would only have 3 kids in it! Student discipline is out of control there. Ha!


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[photoguy]

Thanks for the explanation.

 

[Cobra9777]

No longer true, except at higher levels of employment. Compare a city bus driver in Seattle with a guy who drives the Connector for Microsoft.

Government workers make more each day, and get way more over a longer retirement.

I dispute this statement even as a generality. There are places in the US that pay public school teachers outrageous amounts of money for a relatively easy to get degree. Other places in the US pay teachers poorly. This goes through different job functions and different locations. Places that pay poorly usually also have poorer pensions. Pay and pensions for government workers are usually more closely tied to the relationships between the public employee unions and the local politicians.

In a career dark spot, I worked at NASA as a contractor. Contractors are paid well below the civil servants that they work with. Some of the CSs I worked with had technical degrees and were top level scientists. I would consider them underpaid but they wanted to be in the space program. Some of the others had non-technical degrees and very high GS levels. Some of these wouldn't have lasted a week in my organization.

Well, perhaps my statement is indeed out of date nationally for bus drivers, certain teachers, and NASA contractors. I can tell you that here in Texas, I have a civil engineer, speech pathologist, and accountant in the family. All 3 have had jobs with public and private employers. In every case, the public employer salary was significantly below the same job in the private sector. Only one of the three (DW, the civil engineer) stayed in the public sector because the pension and post-retirement HI was quite good and made up for the salary differential. The other two (nephew and daughter-in-law) are significantly younger and left for higher salaries in the private sector, despite generous DB pensions in their public-sector jobs. I concede that my 3 cases don't support a strong generalization, but it sure feels real and personal, especially in DW's case. Although, now that we're at the pension stage, it feels a lot better.

 

[pb4uski]

If someone is getting a $40K pension, that is about the same as $1MM saved (4% X 1MM). .....

No!!! That would only be true if the $40k pension is COLAed.... if the $40k is non-COLAed, then the value is substantially less than $1M.

 

[Big_Hitter]

I don't even know if a colad 40K pension is worth a million - depends on the discount rate and cola assumptions as well as the age of the annuitant(s) and form of payment

 

[spectrallight]

spectral light

I have not held either job, Ha. But, I would imagine that driving a Microsoft Connector bus involves picking up well-behaved professionals in nice Seattle neighborhoods and delivering them to the Redmond campus.

A King County Metro bus driver has it much, much tougher. Assaults and verbal abuse directed at you, could be almost expected. Folks dependent on public transportation tend to be lower socioeconomic, with more frail elderly; teenagers; and physically or mentally disabled.

I have observed our bus drivers in action. Sometimes they need to be social workers, while keeping tight schedules and flawless safety records! In Seattle traffic, no less!

The two jobs are not comparable, in my opinion. True of many jobs which, on the surface, look like they would demand the same knowledge, skills, and abilities.

 

[Car-Guy]

I don't even know if a colad 40K pension is worth a million - depends on the discount rate and cola assumptions as well as the age of the annuitant(s) and form of payment

For a 40k annual pension to be worth a million, it doesn't matter how old the annuitant(s)are, what matters is how long they collect it.

 

[Big_Hitter]

For a 40k annual pension to be worth a million, it doesn't matter how old the annuitant(s)are, what matters is how long they collect it.

of course it does

say you're 98 years old and I give you a choice between $40K (no cola) pension a year and a million bucks - what would you take?

say you're 50 years old and I give you a choice between a $40K (5% automatic cola) pension a year and a million bucks - what would you take?

 

[Walt34]

But some working in the lower paying schools are just very content too. Smaller class sizes, more rural, more relaxed, sometimes its just a less important second family income, or simply just getting tenure and being happy where you are at and not wanting change.

We see that a lot in at least this part of WV, about 1.5 hours from Washington, D.C. and it was the reason we moved from that area. My dentist mentioned that he's here because he loves the area and had had his fill of big cities. He has about a 10 minute commute and life is laid back and relaxed. Could he make lots more money elsewhere? Sure. But quality of daily life matters too.

Similar stories abound.

 

[marko]

I don't even know if a colad 40K pension is worth a million - depends on the discount rate and cola assumptions as well as the age of the annuitant(s) and form of payment

I'd think that a COLA'd pension would be the same as having $1MM in a well balanced portfolio. Most calculators would agree that a ~4% withdrawal --including increases for inflation-- would last a lifetime.

 

[Car-Guy]

say you're 98 years old and I give you a choice between $40K (no cola) pension a year and a million bucks - what would you take?

say you're 50 years old and I give you a choice between a $40K (5% automatic cola) pension a year and a million bucks - what would you take?

depends..... there are a great many life scenarios why someone might not choose what you think is so obvious.

 

[LitGal]

Hi bclover, and welcome.



What has worked for me in the past, has been to ignore all the doom and gloom articles and the professionals, and instead to just look at my own financial situation, to figure out exactly what I would need in retirement, and then to plan how to get it.

My brother once told me, "Nobody cares about your money and your future any more than you do." After hearing that I decided that while I am not a financial guru, I could work really hard to learn and understand more about my situation than anybody, and go from there. I have only been retired 5 years, but so far so good....

Try using out free retirement calculator, FIRECalc (link at the bottom of each page). No calculator is the "be all and end all", but it's a starting point if you want one.

+1, though I've only been retired 2.5 years. A happy retirement costs less than the financial service industry ads would have you think. (Though, I must confess to having 2 pensions and S. Security......due to the hard work of DH. I only earned one of the pensions.)

 

[photoguy]

My dentist mentioned that he's here because he loves the area and had had his fill of big cities. He has about a 10 minute commute and life is laid back and relaxed. Could he make lots more money elsewhere? Sure. But quality of daily life matters too.

I lived and worked in toronto, L.A. and san jose. Three cities that are routinely on the top 10 worst traffic lists and driving really sucked at times. The nice thing though (as someone who is hunting for a more permanent FIRE location) is that traffic everywhere else seems like a breeze.

My mother-in-law hates going shopping at certain times in small town iowa (because it's too crowded) but even at busy times much of the state feels like a ghost town to me.

 

[Mulligan]

I lived and worked in toronto, L.A. and san jose. Three cities that are routinely on the top 10 worst traffic lists and driving really sucked at times. The nice thing though (as someone who is hunting for a more permanent FIRE location) is that traffic everywhere else seems like a breeze.

My mother-in-law hates going shopping at certain times in small town iowa (because it's too crowded) but even at busy times much of the state feels like a ghost town to me.

Ha! Its all relative isn't it? I can have to wait for three cars to pass by before I can pull out onto a street and feel like I am in a traffic jam.


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[Rick_Head]

Generally, government workers make less than equivalent workers in private industry. Pensions compensate for that. So, there's a built-in, mandatory LBYM arrangement,................

Not here in the frozen north. Canadian 'civil servants' do very well, First they are paid close to private sector wages and then they get very generous DB pensions.