Retirement - 1 million dollars ain't enough

[bbbamI]

I know all sorts of people with paid off houses or trailers that live off of social security. Often family helps with things like cars.

My parents do...with a little help from me. They certainly don't live a lavish lifestyle, but they are very content.

 

[youbet]

Two areas were critical in regards to retirement for us (52 & 55). The first being mortgage/debt free and having affordable health insurance. Fortunately we are debt free and have Megacorp health benefits. We also have a non cola pension that for now pays 25% of our expenses.

When our calculations proved we only had to take 3% from our portfolio (I only figured half of ss amt) to live a comfortable lifestyle, we knew we were good to go. One million+ will have to be enough as we have no plans on going back to work.

And it sounds like a winning plan......

But I think the confusion is coming from the definition of "one million."

Is that for a single or a couple? Or, if a couple, is that one million each?

Are there pensions or SS available?

If you're not 65, do you have a source of inexpensive health insurance coverage?

Do you live in an area with high real estate taxes?

And on and on and on......

For us, if the question is could we live on one million with no other income and with no bennies like Corp or gov't provided health insurance, I'd have to say yes, but it would be painfully tight. $35k/yr pre-tax is a mighty tight budget in the Chicago suburbs. Reaching medicare age would help.

Bottom line is that understainding what it would mean to live on one million is meaningless without defining other available resources, cost of living, etc.

Kind of a silly article, really.

 

[bbbamI]

Bottom line is that understainding what it would mean to live on one million is meaningless without defining other available resources, cost of living, etc.

Amen.

I just hope the folks that read this article don't take it at face value. Hopefully they'll dig a little deeper and find out how much will be right for them.

Shoot....that's what I did. I'm a rebel, don't ya know!

 

[youbet]

I know all sorts of people with paid off houses or trailers that live off of social security. Often family helps with things like cars.

My MIL (85 yo) lives on $13k SS + small withdrawals from her reverse mortgage on the condo. Still driving, still seems sharp mentally. DW and her 3 sibs buy her some things sporatically and I take care of the car.

It's actually hard to give her money so you have to grasp your opportunities and make it seem like you're not giving her anything. One of the things she misses being on such a tight budget is gifting. So I take her Xmas shopping for my grandkids (her great grandkids) every year and manage to find a number of items for them. Then I say something like, gee, I don't want to spoil the kids by giving them all this stuff myself. Would you do me a favor and let me put your name on this and this and this? Works every year.

 

[scrabbler1]

If you have no debts and no kids (like me), you surely don't need $1M to generate enough income to cover your expenses. There was a recent thread in which many of us posted our annual expenses and several of us including me had annual expenses well under $30k (mine are about $21.5k for 2010). And that includes an individual HI policy which now costs me slightly more per month than my co-op maintenance charges.

I have about $650k, most of it in a taxable bond fund, generating about $32.5k in dividends, more than enough to cover my expenses. I also have another $300k growing nicely in an IRA (about 55%/45% stock/bond), waiting for me to tap into it by the time I turn age 59.5 in about 12 years. If SS is still around, I have that to help me out. And I have a frozen annual pension of about $12k from my old job.

I actually was able to "practice" living on a reduced income when I switched from F/T to P/T work back in 2001, reducing my after-tax salary by about 42%. All that did was prevent me from investing as much of my take-home pay as before, when one bi-weekly paycheck more than covered all my expenses. Then, in 2007, I further reduced my P/T hours by 40% of my previous P/T hours. My wage income in 2008 is now about the same as my dividend income today.

I do have plan my retirement budget more carefully because my HI payment is made quarterly, not monthly, so I have to carry forward surpluses in the "off months" into the HI Premium month. But I still run a surplus of about $400 a month, excluding some automatically reinvested dividends.

 

[Delawaredave5]

You could barely do it, but as mentioned, it would require about 25-35 full years of savings, would require good investing skills, and the fortitude to save about 50% of your take-home income.

I did a quick spreadsheet, assuming 3% salary growth, 30 years, 8% investment return, and saving 20% of one's salary. (can debate these numbers and I'm not sure my tax and inflation treatment are consistent - investment return is probably too high....)

However, given above, after 30 years a person would have in the bank about 13x their then current salary. Given a 4% SWR (25x), this portfolio would fund a retirement income stream of 50% of then current salary.

So even by saving immediately when starting working, saving very aggressively, and achieving a very optimistic returns, one is still left trying to live on 50% pre retirement salary.

In the "pension days", corporate pensions would kick in 35% or so of one's salary and SS would add another 10% - so the person comfortably is within 80% of pre-retirement income.

Take away pensions and push out SS, and a person is left with one helluva "squeeze play" trying to get enough saved for a retirement in their 50's

 

[ERD50]

Take away pensions and push out SS, and a person is left with one helluva "squeeze play" trying to get enough saved for a retirement in their 50's

OTOH, if this person knows that they won't get pension and/or SS in 30 years, then they also (should) know that they have to plan accordingly. Compare that to someone who planned on a promised SS/pension, and maybe gets one or both cut (or taxed at higher than expected rates, same effect). That's not a happy place either.

Also, companies aren't just cutting pensions because they feel like it. Due to global competition, they are cutting total compensation. So the harsh truth is, if they didn't cut these pensions, they would be cutting salaries (edit: or cutting them by more than they are) - that might leave nothing to invest, nothing to grow - which is another set of problems.

I hope these starting workers are getting the message - the company, their parents, mentors, someone, should be telling them - you need to take care of your future, and you need to start as soon as is possible (I do believe in building up an emergency fund first). It is what I'm telling my kids, and anyone in that age group if the situation comes up.


-ERD50

 

[rescueme]

Take away pensions and push out SS, and a person is left with one helluva "squeeze play" trying to get enough saved for a retirement in their 50's

Not to argue, but I/DW's pensions were eliminated while we were in our mid-30's (early 80's).

We knew that we would have to save/invest on our own, and were at $0 to start with.

Our plan was to work till our full retirement age of 65 (then upped to 66).

How did it work out? We discovered we could retire at age 59, at 100% of pre-retirement net income.

I did, DW did not (not yet "emotionally ready" to retire, even though she's 62).

It can be done. Is it easy? No, nothing of importance is. However just to give an example of one who's "been there - done that" ...

 

[ziggy29]

This thread title reminds me of a quote attributed to Yogi Berra: "A nickel ain't worth a dime anymore."

 

[Alan]

This thread title reminds me of a quote attributed to Yogi Berra: "A nickel ain't worth a dime anymore."

 

[LARS]

Interesting. Can you provide a reference for this? I honestly do not know if it is true or not, or if it can even be measured since standards of living change over the years.

-ERD50

Another example of the squeeze on the middle class...

"Members of the middle class are losing their health insurance faster than any other income group, according to a new report from the Robert Wood Johnson Foundation.

The number of middle-income earners covered by employer health insurance fell by three million from 2000 to 2008, and government programs and the individual market aren't picking up the slack. The total number of uninsured middle-income earners rose from 10.5 million to 12.9 million, representing 16.2 percent of the income bracket -- a bigger increase than for any other income group.

People who earn less money were more likely to lose employer coverage, but also more likely to be covered by a government program like Medicaid. According to the report, only about half of the decline in employer-sponsored coverage for middle-income earners was offset by government insurance programs."

Link to article:

Middle Class Losing Health Insurance Faster Than The Rich Or Poor

 

[fritz]

If a million now isn't enough to retire, and this article estimates that you'll need $2-$3M if you're in your twenties - how do you rationalize:

Less than 10% of US households have a net worth over a million.
Baby boomers have on average less than $100k saved for retirement
For those in their twenties - participation in 401K programs is +/- 50%
It requires saving $1700/mos. @ 7% for 35 years for +$3M
Average household income in the US is just over $46k

Reality dwells at a different end of the earth

Would add that average job tenure is +/- 5 years. A great majority of private companies with 401k programs only provide their stock for matching usually (3%) maximum of your salary contribution portion. To get 100% of that amount you have to stay with them around 5 years to be vested. Won't make it to retirement comfortably on their plan. If you did, you ran the risk of getting left behind in personal job growth/experience and potential earning power.

Let's go back to the premise that you need more than a million now, and those in their twenties will need around $3M. Let's suppose US Households with a net worth of at least $1M was 90% instead of well under 10% as it is now. Would everyone then enjoy a comfortable retirement? What would the potential increase in the wealth curve of those in their 20's do to those going into retirement?

 

[clifp]

The more I think about this "survey" the more I conclude that it tells us a lot more about financial advisers and other folks involved in money management than it tells us about retirement needs.

The median household income in this country is 44,389. The survey is suppose to be about the average family's need, so for simplicity sake lets say average=median.

The average retired couple receives $1,735/month from Social Security or just over $20K if we assume that for 62+ year old that $1,000,000 has a SWR of 4% that means that a couple with $1 Mil +SS = $60K/income. 60K/income is more than 63% of households in the country make. From a disposal income perspective 60K in retirement is worth a least 5-6K more than 60K in wages due to not paying FICA/Medicare and the more favorable tax treatment of Dividends and SS income.

Another way to look at the problem is how much money to do I need to supplement social security to have an average household income. Today that number is 44K-20K= 24K/year in pension benefits or $600K in assets. So how much inflation do we need end up with 600K? for someone 10 years from retirement it needs to be 5.2% or less for someone 20 years away 2.6%. So for people in their 40s and 50s $1 million is fine, especially if you have a paid off house and/or pension.

What about young folks. If we assume an inflation rate of 3% for the next 40 years, some one in their mid twenties would need to save just under $2 million to have the equivalent of 600K in today's dollars.

Now obviously if you want to live an above average lifestyle than you need to save more. The real problem is that a "average" financial adviser having two,three, or four or more times more than the median income, living on 44K a year is incomprehensible.

The danger of these type of survey is that a $1 million seems an impossible goal to the vast majority of Americans. Telling them that it isn't enough even when it is just discourages people to save anything at all, and puts additional pressure on the fragile safety net.

What about for

 

[LARS]

The more I think about this "survey" the more I conclude that it tells us a lot more about financial advisers and other folks involved in money management than it tells us about retirement needs.

The median household income in this country is 44,389. The survey is suppose to be about the average family's need, so for simplicity sake lets say average=median.

I thought you were going somewhere else with this observation. To wit, it is very unlikely that if the median family income is $44,000 that the same family will have any chance of saving sufficiently to put away $1,000,000. Thus, putting into question the "survey".

 

[fritz]

The more I think about this "survey" the more I conclude that it tells us a lot more about financial advisers and other folks involved in money management than it tells us about retirement needs.

The median household income in this country is 44,389. The survey is suppose to be about the average family's need, so for simplicity sake lets say average=median.

The average retired couple receives $1,735/month from Social Security or just over $20K if we assume that for 62+ year old that $1,000,000 has a SWR of 4% that means that a couple with $1 Mil +SS = $60K/income. 60K/income is more than 63% of households in the country make. From a disposal income perspective 60K in retirement is worth a least 5-6K more than 60K in wages due to not paying FICA/Medicare and the more favorable tax treatment of Dividends and SS income.

Another way to look at the problem is how much money to do I need to supplement social security to have an average household income. Today that number is 44K-20K= 24K/year in pension benefits or $600K in assets. So how much inflation do we need end up with 600K? for someone 10 years from retirement it needs to be 5.2% or less for someone 20 years away 2.6%. So for people in their 40s and 50s $1 million is fine, especially if you have a paid off house and/or pension.

What about young folks. If we assume an inflation rate of 3% for the next 40 years, some one in their mid twenties would need to save just under $2 million to have the equivalent of 600K in today's dollars.

Now obviously if you want to live an above average lifestyle than you need to save more. The real problem is that a "average" financial adviser having two,three, or four or more times more than the median income, living on 44K a year is incomprehensible.

The danger of these type of survey is that a $1 million seems an impossible goal to the vast majority of Americans. Telling them that it isn't enough even when it is just discourages people to save anything at all, and puts additional pressure on the fragile safety net.

What about for

The information I interjected into this thread was an effort to introduce a little reality into the absurdity of telling soon-to-be retirees they have to have more than $1M to retire.

The facts are - less than 10% of households in the US have it (and could afford to retire according to their financial advice).

Most soon-to-be retirees have less than $100k and are out of time when it comes to saving that +$1M.

Only half of our young people currently even attempt to save for retirement, and how many of those saving could afford to put away $1700/mos @7% for 35 yrs to reach that article's predicted $3M goal for their retirement.

Articles like this are like watching television - real life is nothing like it....

 

[clifp]

I thought you were going somewhere else with this observation. To wit, it is very unlikely that if the median family income is $44,000 that the same family will have any chance of saving sufficiently to put away $1,000,000. Thus, putting into question the "survey".

It is difficult but far from unlikely to hit $1, million. If you can save 10% of your income and get a 5% employeer match or $6,600 starting at 22 a year for 43 years with 5% real historical stock rate you'll end up with just under million. This sum along with Social Security will exceed working income.. I suspect that 1/2 that amount $500K will equal the after tax income for a median family.

Honestly, just starting out with saving 6% getting a 3% employer match and than saving say 1/3 of your raises gets most people to what they need in 40 years.

 

[Darryl]

Professor Warren attempts to use data to show the erosion of the middle class.

YouTube - The Coming Collapse of the Middle Class

Alan, been a few decades since I've attended a college lecture. Thanks I enjoyed the presentation disconcerting as the theme was. Couple of surprises for me on where the money was going. I think the issue identified is a huge problem, didn't hear the proposed solution. Maybe the Nancy Reagan Just say no? To huge mortgage pmts, car pmts, childcare pmts? healthcare you gotta pay.

 

[MasterBlaster]

Alan, been a few decades since I've attended a college lecture. Thanks I enjoyed the presentation disconcerting as the theme was. Couple of surprises for me on where the money was going. I think the issue identified is a huge problem, didn't hear the proposed solution. Maybe the Nancy Reagan Just say no? To huge mortgage pmts, car pmts, childcare pmts? healthcare you gotta pay.

It shouldn't be a surprise to anyone that has been paying attention that the middle class is under assault. I have seen her presentation before that health care, housing, and increased taxation are squeezing the middle class into near poverty and upping the risks of economic disaster. She compares the family finances from the period around 2003-2007 with the early 70's. caveat: It should have been noted that the early 70's (of which she baselines against) in many ways was the zenith of American prosperity.

She had some vague solutions of which to fix schools as the ticket to a middle class lifestyle. However she conveniently ignored the severe upcoming fiscal challenges of medicare and Social Security which will compete for resources.

So I concur, She laid out (part of) the problem. The solution to that problem is much more elusive.

 

[nun]

Alan, been a few decades since I've attended a college lecture. Thanks I enjoyed the presentation disconcerting as the theme was. Couple of surprises for me on where the money was going. I think the issue identified is a huge problem, didn't hear the proposed solution. Maybe the Nancy Reagan Just say no? To huge mortgage pmts, car pmts, childcare pmts? healthcare you gotta pay.

Prof Warren has talks more sense than just about anyone about this topic.

 

[Bimmerbill]

I think you can still live pretty cheaply in some places. The Northeast isn't one of them (well, if you go into the back woods of ME or VT maybe).

May have to go down south and buy a "manufactured home" or something.

I think I'll have enought assets to retire early, but may have to move to a lower COL area to pull it off.

Then again, who knows?!?

 

[MasterBlaster]

Stop wurkin' and Start Livin'

Why Work for the man, When you can retire right now !

You can live really cheaply here ! A sack of beans and you are all set.

 

[Gumby]

Prof Warren has talks more sense than just about anyone about this topic.

I have read some of Prof. Warren's stuff before, but this is the first lecture I've seen. She is a good speaker.

The lesson I take from her is that if you want to be on the high end of the new dumbbell shaped curve, you need to:

1. Get married and stay married; and
2. Both work, but make sure that you can live on the salary of the lower paid spouse, which will be far more likely if you;
3. Don't have any children, and
4. Do everything you can to live a healthy lifestyle.

 

[nun]

I think you can still live pretty cheaply in some places. The Northeast isn't one of them (well, if you go into the back woods of ME or VT maybe).

May have to go down south and buy a "manufactured home" or something.

I think I'll have enought assets to retire early, but may have to move to a lower COL area to pull it off.

Then again, who knows?!?

Housing and healthcare are the biggest costs in MA, but once my mortgage is paid off I can live off $30k a year easily, and that's budgeting $500/month for health insurance which the state mandates. At least there are no issues with being dropped from a plan for a pre-existing condition and pending legislation hopes to control costs. In fact if I keep my income low enough I can get insurance at a reduce rate as I'll be below 3xpoverty level.

 

[Bimmerbill]

Western MA is pretty cheap/rural I think. I was always curious about the MA insurance mandate. I figured that could be my back up plan. Move to MA, and go on the public dole.

 

[Koolau]

I found Prof. Warren's lecture very interesting. It occurred to me that she has very precisely identified the "symptoms" of the problem but hasn't really identified the problem. (Others suggested she didn't present any solutions.) Unfortunately, the typical approach to any problem, at least at first, is treat the symptoms. You may not know what the problem is.

It seems to me that underlying shifts in economic power world wide are at the root of the symptoms. The US is no longer the only economic super power (as it was after WWII). I think the degradation of the after-inflation family income (even with 2 workers instead of 1) stems from the fact that the US has tremendous downward pressure on wage rates as the rest of the world catches up educationally and economically.

I certainly can't back this up with hard data, but we all know examples of outsourcing of jobs due to labor costs. Technology is no longer just centered in the US. On it goes. I'd be interested in other's take on the "root" cause(s). I don't think we solve the problem until we can truly identify it. It's not as simple as "mommy went to work". That is certain.

I wasn't actually surprised at Prof. Warren's opening discussion of what costs have gone down and what costs have risen. I wouldn't have been able to quantify them as she did, but I think I could have identified most by the appropriate direction of change. I'm not patting myself on the back by saying that, I'm just saying I've lived as an adult during exactly the time she was describing. I saw everything she described as it happened. Maybe I didn't sit down and think about the magnitude of each change, but I saw everyone she mentioned - especially housing and medical care.

Much as it would be nice to roll back some years of age (or at least some miles) I certainly would not want to be a 23 year old kid right now. While "things will change" is still true, I think the outlook for younger folks is more bleak than when I was that age 40 years ago. JMHO of course. YMMV and all that rot.