Three Takes on Whether $1 Million Is Enough to Retire

[sarahsays]

Is $1 Million Enough to Retire On?

This article asks 3 "experts" whether $1 Million is enough to retire on. The third answer makes me very nervous.

"The financial services industry has made a good living for themselves scaring people," says Jonathan Pond, a financial planner and author of You Can Do It! The Boomer's Guide to a Great Retirement. "For many people, $100,000 to $200,000 is enough to retire on."Pond argues that you need only to replace 65 percent of your working income to have a comfortable retirement if your house is paid off. He adds that Social Security will replace 45 percent of income for middle-income Americans. So, he concludes that most employees need only save enough to generate 20 percent of what they made while working.

It seems like a terrible idea for those who don't know much about budgeting and investing to plan on saving only enough to generate 20% of what they made while working.

 

[Marquette]

Of course, the biggest assumption of that section of the article is someone will work until they can collect full SS. If someone were to work until they could collect delayed SS then they would need even less!

 

[laurence]

Saying, "I've only got a 200k portfolio" with a paid off half million dollar home is a little decieving. Considering I can pay the bills working at Home Depot if I had to mortgage this isn't news to me that someone can live on SS + $700/month portfolio income and no rent.

 

[LOL!]

My 77-year-old mom has a small home with a mortgage, collects SS and a little pension and has only $200K or so in savings. She has more than enough money to live her life, travel/cruise each year and visit all the grandchildren or have them come visit her. She never had close to a million and never will.

This million myth will always persist. Things will really depend on your personal situation.

 

[sarahsays]

I agree that no one necessarily needs $1 million and that is not a magical number.

I do think it's dangerous to suggest that people can retire and live on 65% of their working salary when most people already spend more than they make.

 

[Dawg52]

My 77-year-old mom has a small home with a mortgage, collects SS and a little pension and has only $200K or so in savings. She has more than enough money to live her life, travel/cruise each year and visit all the grandchildren or have them come visit her. She never had close to a million and never will.

This million myth will always persist. Things will really depend on your personal situation.

This pretty well sums up my feelings.

"The key is choosing a lifestyle that fits your budget. A million bucks will no longer finance a lavish retirement, but it could certainly provide a reasonably comfortable one."

 

[Marquette]

I need at least 1.5mm in present dollars based on a desired withdrawal rate of less than 4%, early retirement, a long retirement horizon and uncertainty of what SS will look like for a 40 yr old retiree.

Even then, I'll probably get nervous and work part time to supplement expenses. and that all assumes a lifestyle in line with right now. I may even delay until 45 or 50 depending on what the world looks like.

 

[dex]

The talk about total assets; $ spending targets; % spending targets; % of income; 4% withdrawal rate are OK when taking to the general public because they are easy to explain.

It is much more difficult to tell the mass public that they need to know their actual spending while working and then after they stop working to do the math to determine if they have enough money. That takes knowledge and work. So the public get a "rule of thumb".
Last year my WR was 2.5% of net worth - net of house -paid in full
Future years estimates 2008 forward - I'm 53 single - I calculated individual line item inflation rates. It isn't that I have a very large net worth - it is because the spending is lower than I originally estimated at the 4% rule.
(2.55%) (2.59%) (2.57%) (2.47%) (2.45%) (2.48%) (2.52%)
So all of you looking at those "rule of thumbs"; do your personal math - you might be pleasantly surprised.

 

[W2R]

One of the "experts" in the article assumed that a portfolio of "a million dollars in liquid reserves like stocks, bonds, and real estate you aren't living in" would generate enough to allow a withdrawal of $50K/year. That's 5%.

For ER's (or even not so early retirees to be like me) to count on a 5% SWR would be just silly, and in fact it is stated that nothing would be left after 30 years.

Then there is the "T" word - - taxes.

My opinion is that for many LBYM'ers who frequent this board, a million would be plenty. In fact, for some a half million or less would suffice (especially if pension and/or SS is expected).

On the other hand, for some of those who frequent this board and are accustomed to living "the high life", 5 million or more might be necessary. It all depends on what the retiree wants and expects.

 

[Notmuchlonger]

1 million is enough for me.. (If there is pension and ss to cover the rest of it)

 

[CuppaJoe]

My 77-year-old mom has a small home with a mortgage, collects SS and a little pension and has only $200K or so in savings. She has more than enough money to live her life, travel/cruise each year and visit all the grandchildren or have them come visit her. She never had close to a million and never will.

This million myth will always persist. Things will really depend on your personal situation.

It's no wonder savings of 200K are enough for your mom! When you figure the equity in her house and the value of her small pension and SS, she may still be no where near a million but doin' OK.

Many many are millionaires this way: add 4% of savings plus pension and SS and they could easily draw the $40,000 that someone with only one million dollars in savings could, withdrawing at 4%.

 

[dex]

My 77-year-old mom has a small home with a mortgage, collects SS and a little pension and has only $200K or so in savings. She has more than enough money to live her life, travel/cruise each year and visit all the grandchildren or have them come visit her. She never had close to a million and never will.

This million myth will always persist. Things will really depend on your personal situation.

Have you computed the investment amount needed to generate the income from her SS & pension?

Let's just say she get 15K in SS and 10K in pension per year = 25K
At a 5% return she would need an investment of $500K

So she has a net worth closer to a million than you may think.

 

[kombat]

Let's just say she get 15K in SS and 10K in pension per year = 25K
At a 5% return she would need an investment of $500K

So she has a net worth closer to a million than you may think.

Don't forget her home equity, and the $200k in savings she also has. I'd say she's pretty well-off!

 

[Texarkandy]

Am 48 & plan to semi-ER next year.

I plugged my federal FERS pension into a couple of annuity calculators (what would it cost to buy an annuity that = the cola'd pension w/survivor benefit) - came out to about 1.2 million. My future lifestyle plans dictate the pension is clearly not enough for us by itself.

Add my Thrift Savings Plan & the non-cola'd SRS I will get till SS eligible & I think it will be enough (I'll probably need to work here and there at least a little each year till SS age). We have a modified ER plan that includes being semi-ER for at least 10 more years.

Spouse re-entered the workforce last year also after being stay-at-home for many years - income we have not previously had. Am guessing she will work at least 5 more years, maybe longer.

Still owe 1/3 of my house value - need to do something about that - planning on downsizing for 1/3 less house - but with the current market will see how that works out.

So I don't think for many it's a matter of is a million enough - there are many other financial factors & life situation that come into play.

 

[megacorp-firee]

Interesting rule of thumbs... IMO the real answer starts with 'how much one needs/wants' to retire on, not what the nest egg size is. The answer to the question gives you the nest egg size answer.

So 1 million could be more than enough for some and not enough for others.

The article is just another one of the scare/feel good articles that is hitting the presses because of all of the baby boomer retirement and economic problems that have been surfacing lately.

 

[aaronc879]

The key to the article is it assumes you work until full retirement age. That makes a huge difference. The average person needs no where near a million $ if they work until full retirement age. Most people here plan to retire 10+ years before that so we need more in savings. I personaly don't know anyone who's worked past 62 and none of them have anywhere near a million. So it can be done. However those of us who are retiring in our 40's or 50's without a pension or much of SS income better have more saved.

 

[lazygood4nothinbum]

single, 51 years old, no parents, no kids, no dependents, already spent a lifetime dining at better restaurants, already played on big boats, have lived all my life in some of the most desirable locations. ready to downsize, prefer eating at home, maybe live on a small sailboat in the future or if that's too much work maybe just roam the planet, maybe live in developing worlds or in poverty stricken areas and join those communities, maybe join the peace corp for a few years, i've already experienced what i have; maybe now i can experience what i have not. this world has not spoiled me. one million is more than enough to secure a new life for the rest of mine.

 

[rs0460a]

$1M for me; $1M for my DW.

That's about right....

- Ron

 

[Gone4Good]

Two public pensions (including health care) + social security = $0 savings needed for retirement. Start removing variables from that equation, and the savings requirement goes up.

My equation looks like $0 + $0 + ($0) + $0 = $$$$$$$$$$

 

[AdventuresAddict]

$200K enough? Well, if these conditions are met, maybe:

1) Your Long-term care insurance had been paid up or can be financed by a separate source of income (eg rental income from your property which had been paid up);

2) You have a separate fund or source of income (eg above-mentioned) that can pay for the premium of your medical insurance, or you live in a country where the medical services are provided free.

3) You live in a country which has surpluses instead of deficits and, hence, can maintain a stronger currency that is expected to be able to counter inflation better than other currencies, and hold yours assets in its currency.

I think the most naive assumption is that a person can be as healthy when he's 60-90 as when he was 20-30. When we do retirement planning, we always take into consideration the higher costs associated with LTC and hospitalization. Additionally, for US people, another concern should be the huge US deficits which will definitely lead to devaluation of US$. China, where US imports a lot from, which enjoys healthy surpluses, may strengthen its renminbi over time under the pressure of its trade partners, and this, alone, will lead to inflation in US.

In Singapore, certain LTC insurance and Critical Illnesses insurance schemes can be fully paid up by, say, a person reaches age 65. Premiums need not be paid after 65, though coverage continues for life. I am not aware of any pre-paid hospitalization insurance schemes, though. So, one way on ensuring that the higher hospitalization insurance premium won't eat into one's retirement income is to prepare a separate source of income or fund to pay for this premium. Alternatively, if one could relocate and become the citizen of a country which provides almost-free medical services for its citizens, then this problem could be taken care of. I am not sure, though, whether in the US you have such pre-paide CI and LTC insurance schemes. If you have, you may want to get them so that when you retire you don't have to worry about the premiums for these 2 important areas of financial risks.

 

[windsurf]

Ron said: $1M for me; $1M for my DW.

That's about right....

In my case, about 200 k plus SS would cover me forever; for my wife, the million. "Why I oughta . . ."

 

[Meadbh]

One of the "experts" in the article assumed that a portfolio of "a million dollars in liquid reserves like stocks, bonds, and real estate you aren't living in" would generate enough to allow a withdrawal of $50K/year. That's 5%.

Last week I saw an article by a FP in a medical newspaper which (among other things) advised MDs that an SWR was 5%. I was going to write a letter of protest, but changed my mind. Why bother? Most of my colleagues won't retire till they have one foot in the grave.

 

[REWahoo]

Last week I saw an article by a FP in a medical newspaper which (among other things) advised MDs that an SWR was 5%. I was going to write a letter of protest, but changed my mind. Why bother? Most of my colleagues won't retire till they have one foot in the grave.

Really? That's rich...

 

[UncleHoney]

I agree that no one necessarily needs $1 million and that is not a magical number.

I do think it's dangerous to suggest that people can retire and live on 65% of their working salary when most people already spend more than they make.

Not really dangerous, it all depends on your spending habits. Right now we are living just fine on 55% of my working salary and we could make do on less. Since I retired last September I can easily add up over $9000 in discretionary expenses that we could have done without, like things for the house and hobby spending. All this on my pension and DW's SS.

If we want to kick the spending into high gear I still have my SS and the 4% withdrawal that would put us over 110% of my working salary. But for now I'll just let it grow.

You are right though, for some people that can't control spending even 100% wouldn't be enough. DW knows a retired couple that recently filed for bankruptcy. Both in their early 60's and still haven't learned to control the purse strings.

 

[freebeer]

The real key to the article's assumption of working until retirement age isn't full SS benefits it's decreased life expectancy. 5% is a safe withdrawal rate when you can expect to live only 18 years longer, as is true for a 65 year old man today.

And even if you are withdrawing at a rate that's more than "safe" as long as your risk of being dead is many times more than your risk of being alive & broke you may decide that's OK. Studies show that spending decreases with age anyway, even considering LTC and other medical costs. The one true limiting factor in life is time, not money.

I don't buy into the thesis that Americans are saving too much - way too many folks are in debt - but it seems perfectly reasonable that much less than $1M might be enough for many folks. Although I'm aiming for $5M by 50 myself...