Here’s What a $2 Million Retirement Looks Like in America - WSJ

[livingalmostlarge]

Pension that is $83k is not only worth $1.3M. It's worth well over $2M to generate that 4% WR. Just saying it's substantially more. Pensions are worth a lot. The guarantee they have for life. My mom has that sort of pension and retired at 55 with $200k saved and now it's a $1m saved. Mostly it's because the pension covers all her bills. She has free medical for life for her and my dad. After 65 it became supplemental to medicare and they pay the premium for medicare no matter IRMAA or whatever.

 

[marko]

No no no. The 1.3M reflects the cash value of the annual 83K pension.

Serious question, how does one calculate that? Same would apply I assume with SS.

 

[Letj]

Serious question, how does one calculate that? Same would apply I assume with SS.

Since 4% is the recommended withdrawal rate the math would be 83K/4% (0.04) = $2,075,000. And yes, same applies with SS to the extent you believe you can rely on it. For both pensions and security, it really depends on how secure they are (for the record, I believe social security will exist in some form or another).

 

[COcheesehead]

Serious question, how does one calculate that? Same would apply I assume with SS.

It’s a present value calculation. Google it there are online calculators. The formula stated above isn’t correct.

 

[Dtail]

Since 4% is the recommended withdrawal rate the math would be 83K/4% (0.04) = $2,075,000. And yes, same applies with SS to the extent you believe you can rely on it. For both pensions and security, it really depends on how secure they are (for the record, I believe social security will exist in some form or another).

This would be correct in order to equivocate a pension to investment assets, but not from a present value cash concept.

 

[harllee]

My numbers are similar to the people in the WSJ article but how I got there is different. My net worth is about the same, I own 2 small homes (no mortgages), I spend less (probably because no mortgages). I was self employed so I have no big pension but I delayed SS until age 70 and between DH and I we get about $6000 per month in SS. DH and I retired early at age 52. For years we traveled the world but we did it on the cheap--camping, using frequent flyer miles, finding travel deals, etc. I am glad we traveled so much early since now DH is having some health problems and our travel is mainly to our second home. One thing I did not see discussed much is charitable giving--we make fairly large charitable gifts each year (now doing it from our IRAs using QCDs). My investments are fairly conservative but it has worked well for me. My recent losses are not nearly as large as those discussed in the article. I hold a significant amount of cash equivalents, having learned my lesson being cash poor in 2008.

 

[Huston55]

Article states the following for this individual:

Deferred Compensation: Was $1.7M, now down to $1.3M
Pension: $6,900/mo (article states "he also has" - meaning *in addition to* the deferred compensation
Cash and Savings: $350k
Wife's retirement savings: $400k
Wife's income (number not stated)

Huston55 had it right

I was curious if I'd interpreted the article correctly so, I went to the Maryland govt employee retirement website. It's pretty clear that "Deferred Comp" (which they call the "DROP" program) is in addition to the pension payments. Sweet deal if you can get it. So, the retired policeman has a combined "equivalent" NW of >$4M. He and his wife shouldn't sweat too much with a $144k annual spend.

 

[marko]

. Sweet deal if you can get it. So, the retired policeman has a combined "equivalent" NW of >$4M.

Friend of mine is a retired fire lieutenant. Not every town is the same but here is his deal (a small city) $85k, 25% discount on his property taxes, and.... because he "developed" tinnitus within six years after retirement, the city picks up his federal income tax.

Now I wouldn't want to do that job, but it sure sounds lucrative at pension time. And what a coincidence! ....he was promoted to Captain just in time to get the higher pay to qualify for a higher pension. We seem to go through a lot of Captains as they retire as soon as they reach the required number of months.

 

[daylatedollarshort]

I was curious if I'd interpreted the article correctly so, I went to the Maryland govt employee retirement website. It's pretty clear that "Deferred Comp" (which they call the "DROP" program) is in addition to the pension payments. Sweet deal if you can get it. So, the retired policeman has a combined "equivalent" NW of >$4M. He and his wife shouldn't sweat too much with a $144k annual spend.

I wonder if he will get Social Security as well? I wouldn't worry about bagged salads in that case!

 

[Letj]

This would be correct in order to equivocate a pension to investment assets, but not from a present value cash concept.

You are correct! I misunderstood the question.

 

[Lewis Clark]

Serious question, how does one calculate that? Same would apply I assume with SS.

Take a look at this blog post on how to estimate the present value of a pension. Written by an actuary.

https://actuaryonfire.com/valuing-a-pension-actuary-style/

 

[zekeboz]

The first one caught my attention, because of the sentence "Mr. Fitzgerald also considers himself fortunate as he also has a roughly $6,900 pension after taxes and insurance (italics mine). That's an additional $84K/year, worth, which is an additional $2million over his life expectancy. That is an astounding pension. That is my annual spend goal without adding our catching up on deferred home maintenance and other lumpy expenditures, which bring our annual spend to about $100K. And he's worried about a $600/month food bill. They stopped buying bagged salads. Gee whiz. I doubt I've bought more than 20 bagged salads in my life.

This article lost me because of the high annual spends, ignoring pensions, spouse's retirement savings, part-time consulting work and working spouses. These details show that this was a sloppy fluff piece, not something I would expect from the WSJ.

Agree. Reminded me of something that my local paper would write vs. WSJ.

 

[Chuckanut]

Take a look at this blog post on how to estimate the present value of a pension. Written by an actuary.



https://actuaryonfire.com/valuing-a-pension-actuary-style/

Thanks. I’ve been looking for a “Dummies” explanation of how PV is done.

 

[Huston55]

I wonder if he will get Social Security as well? I wouldn't worry about bagged salads in that case!

Me too. I couldn’t find a definitive answer. Maryland has an IRS Section 218 agreement, which includes some (most?) of its government workers in SS. But, police, fire fighters & teachers often have special arrangements, and I couldn’t confirm if the retiree gets SS. But, his wife certainly will, and she will get his survivor’s pension, plus they both get retiree healthcare.

 

[Huston55]

I’d like to redirect the thread a bit back to my OP comment about one theme for all these retirees being “stay busy doing something meaningful/enjoyable.” I’ve certainly found that to be true for me. My schedule includes: a little consulting the first few years, volunteering, traveling as much as possible, hobbies (especially those that take me outside, and one significant new one) and lots of “self care” (workouts, stretching, meditation & diet). Of all these, the level of self care is surprising to me. I’m not complaining, I enjoy it. But, I’d underestimated how much “Maintenence” the old bod needs just to not lose mobility, retain muscle & avoid injuries. What’s been your experience?

 

[COcheesehead]

I am a big cyclist and hiker and I have found that as I age, I can still do the hard efforts, just less frequently. Recovery time is now more important than when I was younger.

Yes, we stay busy. We both have side gigs that we enjoy. My wife in photography and I work a few days a month at a winery. Add in training for events, life chores and other activities we enjoy and life is pretty meaningful

 

[Letj]

I agree self-care in retirement is important and yes does take up a lot of time. I can’t even do all the stuff I’d like to do. I find that by the time I do a couple exercise classes a week, some yoga, pickleball and the occasional hiking, I hardly have time for other hobbies or cardio at the gym. It definitely requires a lot of effort and there’s a fine balance as we age because muscles get achy easily and parts start hurting if you do too much so time for relaxation is crucial. I love to travel but that throws me off my routine, especially in foreign countries where I can’t find my usual food or activities and when I return I realize how much I miss my routine.

 

[Crewer]

The people in the article may well reflect WSJ paid subscribers living NY, Chi, MD and with multiple homes. Made me think of the article I read in the NYT in the 70s about the poor out-of-work stockbroker who sold home-made chocolate mousse out of his car to former colleagues to help make up for his lost income. I was a poor grad student who probably had never had chocolate mousse and certainly could not relate to anything else in the article.

As to the mortgage - we kept a mortgage to help with cash flow since we took soc sec at 70 and then there were RMD constraints since we have almost no after-tax accounts. We could pay it down pretty far this year, but I am so loath to pay off a mortgage with a rate of <2.4%. I recently had some old documents shredded including one about our 14% mortgage. We did everything we could to pay that one off ASAP, even though DH's employer paid part with a mortgage differential when he got transferred. Those were the days.

 

[daylatedollarshort]

I’d like to redirect the thread a bit back to my OP comment about one theme for all these retirees being “stay busy doing something meaningful/enjoyable.” I’ve certainly found that to be true for me. My schedule includes: a little consulting the first few years, volunteering, traveling as much as possible, hobbies (especially those that take me outside, and one significant new one) and lots of “self care” (workouts, stretching, meditation & diet). Of all these, the level of self care is surprising to me. I’m not complaining, I enjoy it. But, I’d underestimated how much “Maintenence” the old bod needs just to not lose mobility, retain muscle & avoid injuries. What’s been your experience?

I'm spending a lot of time and money on the latest microbiome and metabolomic tests for us and any family members interested. It has taken time to figure out which tests to do, which consultants to hire to help with the results, researching the results, how best to change our diets, etc. but the results so far have been pretty amazing. My gut and allergy type issues are better than when I was 20. My muscles and flexibility still need a lot of work, though they are much better than a year or two ago. I also spend time, similar to you, on yoga, diet, acupressure, etc.

Even without that I've always had a lot of hobbies work got in the way of so I've never had to search for meaningful things to do in retirement. Besides taking care of aging bodies and an aging house, we like to go hiking, visit museums, attend concerts, see live theater, belong to social clubs, visit with our adult kids, etc. so that all keeps us pretty busy.

 

[Chuckanut]

I’d like to redirect the thread a bit back to my OP comment about one theme for all these retirees being “stay busy doing something meaningful/enjoyable.” I’ve certainly found that to be true for me. My schedule includes: a little consulting the first few years, volunteering, traveling as much as possible, hobbies (especially those that take me outside, and one significant new one) and lots of “self care” (workouts, stretching, meditation & diet). Of all these, the level of self care is surprising to me. I’m not complaining, I enjoy it. But, I’d underestimated how much “Maintenence” the old bod needs just to not lose mobility, retain muscle & avoid injuries. What’s been your experience?

+1

“I’m not as good as I once was, but I’m as good once as I ever was.”

I’m no gym rat, but the androgens have fallen. It takes a more conscious effort to keep my boyish physique. [emoji39]

 

[SecondCor521]

Of all these, the level of self care is surprising to me. I’m not complaining, I enjoy it. But, I’d underestimated how much “Maintenence” the old bod needs just to not lose mobility, retain muscle & avoid injuries. What’s been your experience?

I started emphasizing my health when the curves at the "Rich/Broke/Dead" site (https://engaging-data.com/will-money-last-retire-early/) with my data showed I had essentially zero chance of running out of money but a 20% chance of being dead by 70. Technically it's a FIRE success if you die young, but not as much fun.

My body does still adapt and respond to exercise, but it seems to take longer and I have to be careful of injuries related to lifting too hard or just not having good form. The fat takes longer to get rid of, and the muscles don't pop out like they did when I was a teenager or in college.

It takes time, but I personally find it satisfying to be at the gym for two or three hours and get a good solid workout in. It's still one shower when done regardless, so I'd rather get my sweat's worth.

Diet is also a big thing. What I eat and how much I eat has been something I've noticed having a big effect on how well I feel. I've reduced or completely stopped intake of alcohol, caffeine, sugar, and gluten.

I have found that the past several years of focusing on proactively trying to improve my health has appeared to pay off. I generally feel well and am rarely sick. I can function better on the day-to-day stuff - mowing the lawn or moving heavy stuff is not a big deal.

Overall I just find that paying attention and being mindful of what I'm doing to/with my body and how it responds and reacts has led me to a place where I can know that X input will have Y result. It's nice to understand my body and how it works.

My health stats - BP, weight, blood sugar, lipids, pulse, etc. - are all trending in the right direction and/or are within normal / good limits. No prescriptions and no health issues other than being somewhat overweight and ridiculously near-sighted.

Of course I could get hit by a bus or a dread disease, but I also am pretty optimistic that the stuff I'm doing on average will result in a longer health span.

 

[Nords]

I probably wasn't clear. Whether or not to keep a mortgage is very fact specific. We recently had a member who had started a thread on the issue - but - he had negotiated a nice golden parachute, paid off his debt, charted his expenses (repeatedly), had a COLA'd military pension, and a dirt cheap mortgage.

“Recently”…?

https://www.early-retirement.org/fo...thout-losing-your-ass-ets-15237.html#msg20740

 

[NW-Bound]

I’d like to redirect the thread a bit back to my OP comment about one theme for all these retirees being “stay busy doing something meaningful/enjoyable.” I’ve certainly found that to be true for me. My schedule includes: a little consulting the first few years, volunteering, traveling as much as possible, hobbies (especially those that take me outside, and one significant new one) and lots of “self care” (workouts, stretching, meditation & diet). Of all these, the level of self care is surprising to me. I’m not complaining, I enjoy it. But, I’d underestimated how much “Maintenence” the old bod needs just to not lose mobility, retain muscle & avoid injuries. What’s been your experience?

I don't like to do volunteer work. Ever since I started to track expenses with Quicken, I have spent more money on gift/charity than on my own travel. I would rather give money than my time. If I were to give more, I guess I could continue to do consulting work to generate more money for charity donation.

It is true that a retiree should not just sit on an easy chair watching TV all day. I have never been an athletic person, but I keep moving about and try to find things to do around the house. So far so good. No weight gain, no rise in blood pressure, blood glucose, etc...

 

[jazz4cash]

I'm pretty sure most of us with under 2 - 3% fixed rate mortgages are happy we kept them right now, especially those with the equivalent in TIPS or I-bonds making 8 - 11%. Even 1 year Treasuries are at 3.49%. That is like free money on the difference.

A 6% mortgage / investment differential on $300K mortgage is an extra $18K per year, which can then be invested for even more income.

AMEN
“Don’t go into retirement with a mortgage,” says the guy facing increasing rates on his variable mortgage having missed the greatest opportunity of a lifetime to lock in a long cheap mortgage.

Paying off the last 3 yrs is inconsequential. I might do that too!

 

[ShokWaveRider]

I think for some of us not having a mortgage is in our blood and often based on our upbringing. In the UK as a lad, my parents' main goal was to pay of their mortgage ASAP and did. MY sisters took the same approach when they emigrated to Canada.

What I noticed when I came to the states is that mortgages were encouraged and paying them off was not as important to some folks as others. It was not uncommon for folks to go into retirement with the mortgage burden still hanging over them.

I retained my parents' philosophy that all debt is bad debt. We paid off our SoCAL home in 9 years after moving there, I put all my bonus' directly into it. While my work collogues were using theirs for lavish holidays or other extravagances. Our regular salary was enough to cover all our extravagances, I am a sports car guy and never cut corners on them when I was younger, but never used my bonus' for them.

We have not had a mortgage since we were 40 and 35 respectively, in the over inflated California home market, I consider that an achievement. We do not regret it. We have been debt free ever since. Our only exception was our daily driver which makes more sense to lease for our requirements, we still lease our daily driver to this day, it has not hurt us. We are DINKS so it was not hard as we both had professional (Me) and semi-professional (DW jobs.

So, debt IMHO is a frame of mind. When I was young it was only as a temporary means to an end. My parents taught me that. Here in the States, debt appears to be the norm for most. We have been better off without it. Life is what one makes it.