Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
FYI: If you read any financial advertising, you know that your savings are inadequate, and you're likely to freeze to death in the dark a few weeks after retirement. For this reason, most Americans' retirement planning involves keeling over at their desks, or, failing that, starting a bomb-disposal unit as a retirement business.
I never can understand these type of articles. I am single, debt/mortgage free and with Social Security. I pretty much do as I please when it comes to spending money. But no way do I need to withdraw $50,000. Some are in better shape than me in that they also receive a nice pension. Am I being naive here? Does an investor with $1,000,000+, especially those that are debt free and getting a pension and SS need to withdraw $50,000 or anywhere close? Or is this just east and west coast investors where apparently the cost of living is sky high? Or maybe having a spouse changes the equation?
Of course this will all change when I turn 70 and 1/2 and will be *forced* to withdraw more than $50,000.
There are places on the coast where $50k is not much. It all depends on your lifestyle. Seattle and San Fran are expensive.
Maybe when you are forced to take more, consider traveling @Junkster. Enjoy your harvest. You've earned it.
JC, I agree $50,000 may not be much in some places, but if they are debt free and getting a pension (many on this board seem to be getting pensions) and Social Security do they still need $50,000?
About enjoying your harvest. Great point and the subject of a new thread I've been pondering about one's longevity vs. the longevity of one's nest egg and why even bother with the risk of equities and losing any of that nest egg. As for traveling, on my way tomorrow for a week hiking in NC. But yes, I need to get out west more, especially where I use to live in the Sierras.
Of course this will all change when I turn 70 and 1/2 and will be *forced* to withdraw more than $50,000.
I've stopped weeping enough here to offer a thought. You are not really forced to "withdraw" that money from your investable assets. What you are forced to do is remove it out from under the highly favorable tax-sheltered umbrella Uncle Sam and some state governments provide. Nothing I know of would stop you or someone else from turning right around and reinvesting the sum in some other non-sheltered assets - very likely the same ones you originally owned. With "zero" returns on cash currently, those non-sheltered accounts might be a nice place for that 65 % you're apparently sitting on. (A 25% federal tax on 0 equals 0.)
I dunno how much is enough. Health plays a huge part in that assessment. Part of the equation pertains to "needs" vs "wants." We don't need to attend Broadway productions. That's a want but not a need. A decent hotel room close to the NY theater district will run you $400-$500 or more a night in the summer time - and that's before adding in the city's 15% tax. A seat at a top-run performance halfway back and near center will go for $200-$300 and up.
Money is often described using negative cliches - such as being "the root of all evil." But in reality, it's hard to have too much and there are many deserving causes/organizations that will willingly relieve you of that which you don't utilize, as Buffett, Gates and others will testify.
Well, if you pay 18k a year in property taxes (not uncommon on the coasts, not talking mansions either), if you want to do any traveling, if you pay for longterm-care insurance, and/or a host of other ifs, it's easy to need more than 50k. Naive or not, that's the math. Charity, grandchildren, etc. --- other plus variables.
As for 12k a year with 2 kids in Berkeley, you should write a book and also get a TV show, and also a food show.
Finally, how does the math work that one's RMD would be >50k? What am I missing.
Well, if you pay 18k a year in property taxes (not uncommon on the coasts, not talking mansions either), if you want to do any traveling, if you pay for longterm-care insurance, and/or a host of other ifs, it's easy to need more than 50k. Naive or not, that's the math. Charity, grandchildren, etc. --- other plus variables.
As for 12k a year with 2 kids in Berkeley, you should write a book and also get a TV show, and also a food show.
Finally, how does the math work that one's RMD would be >50k? What am I missing.
Well, unless I am missing something again it says at 70 and 1/2 I have to withdraw 3.79% which is > than 50K. 18K a year in property taxes? Think I will stick to small town living in the south and the confederacy.
The math I have performed indicates that the first year of RMD from IRA holdings is about 3.8% of the total value; and the percentage increases in small amounts after the first year.
A $50,000 RMD indicates IRA(s) value of about $1,300,000.
"Finally, how does the math work that one's RMD would be >50k?"
Well, I can tell you this much: in round numbers, my wife's IRA and my IRA combined is roughly 700k. This year's RMD was 22k, PLUS 7k in withheld income tax, for a total of about 29k. Not too far from there to 50k!
Edit/Add: Note that these numbers are in agreement with Catch 22's comments.
I would never have had or kept so much in a traditional IRA, so I missed that; sorry.
Naturally if you have >$1.3M in such an IRA, you're probably going to do all right regardless, even on the coasts, esp if you're frugal.
Having grown up in a nonlarge town not far from the Confederacy, I would pay 18k, in addition to property taxes, not to repeat. And of course there are states where property tax is about all they have (NH), this seen as a huge plus, so not hard to hit high numbers even with modest house and lot.
The premise of the article, though, seems a bit shaky. It's a bit unlikely that someone would have $1m in an IRA and no other source of income, such as SS. But as has been pointed out on MFO, endlessly: most of the financial stuff out there is logical garbage, typically written (or spoken) to emphasize some particular viewpoint, and removed from a reasonable overall context.
Don't forget, some 401k, 403b, 457 accounts may become very large over the years and then rolled into IRA accounts. One may end with a farily large dollar value.
In Seattle, I live on exclusively on SS. And I get a big fat $22 increase next year! Yeah!
This is an interesting thread. Not to pry, but I assume since you are on this forum you also have an investing or trading account? And are you one of the many here whose middle name is "frugal"?
Oh, sure, sorry to have sounded ignorant; I just meant that I myself would have gone (and did go) to great lengths to convert into a Roth, if at all possible, even late. I worked my whole life until a couple years ago, so I know how if you save, it can build up, yes.
I agree with Junkster's original post about these articles being silly. Obviously the vast majority of Americans are able to retire with less than $1m. The labor force participation rate for those 65-74 is only 27% right now, so clearly many are able to retire and live with SS and whatever investable assets they have, which I'm sure average far less than $1m for a married couple.
It is not difficult to live cheaply in Seattle - rent instead of owning, 22 year old car, eat at home. My big account is 5 figures, all in Vanguard Wellington, VWELX. Yes, I am cheap and happy. Just dreaming about a hot mutual fund tip ...
1. I agree that many financial "articles", including this one, are silly. 2. This article is really about asset allocation in retirement; the rest is cheap window dressing to frame the article. ($50K/$1M were simply neat round numbers for illustrative purposes.) 3. Waggoner errs in adding extra for income taxes - he's trying to match household income, and like IRAs, that's pretax also. (That is, income taxes come out of the $50K household earnings.)
Regarding people's comments here:
- IMHO health is one of the two big variables in retirement planning. The other is longevity. These are both areas where insurance can be invaluable - Medicare/Medigap or Medicare Advantage (Part C) for the former, and longevity insurance (deferred income annuity) for the latter. But they're not without cost.
- NYC - the median household income in Brooklyn is $45K; even in Manhattan is it "just" $67K. (Slate: Brooklyn's Median Household Income is Less Than $45,000 - Jan 9, 2014). One can get by, even in NYC on less than $50K, but the key phrase is "get by".
- Berkeley - I'm with davidrmoran on this one. $12K/year is foodstamp level income for one person, let alone three. Anywhere in the country. And unlike NYC, the Bay Area tends to be more homogeneous in housing/living costs (harder to find affordable pockets). From the Berkeley Pier to Walnut Creek (where there is no longer a T. Rowe Price office), from Baghdad by the Bay to Silicon Valley, the cost gradient is miniscule.
A one million dollar nest-egg is an unrealized dream for most retirees.
The median retiree nest-egg is shockingly small when contrasted against that illustration number. Different estimates locate a retiree's pot of gold at 20% to 35% of that target.
The median nest-egg depends on home ownership, on being single or married, and upon sex. Home value represents about one-half of the nest-egg sum. Married folks enjoy a retirement pot that is roughly double that of a single person. Single men save slightly more than women.
Also, a one million dollar nest-egg might be (a) totally inadequate for one who earned $300,000 annually, (b) comfortable for an individual who earned $100,000 annually, and (c) nirvana for a sole who struggled with a $40,000 annual income. It all depends.
Nest-egg survival is a challenge for most retirees. I trust most MFO members have escaped or will escape this dilemma.
You noted: "Home value represents about one-half of the nest-egg sum."
Although having free and clear real estate that may be sold to raise funds as wanted or needed, is a potentially valuable money resource; I believe the article relates to monies actually saved for retirement; and does reflect upon other sources of retirement income.
Perhaps I did not understand the "drift" of the article.
I recognized that house assets were not included in the article scenarios.
The fact that the numbers I quoted did so just exasperated the gap between what was referenced in the piece and the realities of the median US retiree nest-egg. Subtracting the house and lot component means that the median retiree has maybe 15% of the articles baseline one million dollars. Only about 45% of US households own mutual funds.
That gap is one of the primary thrusts of my post. Most retirees would kill for a one million dollar portfolio. The referenced article is not representive of the retirement situation that confronts most retirees.
The thing about these silly articles as others have stated is that the author can cherry pick time frames. He picked 2004 as the beginning year. What if it was 1999? Totally different circumstances.
With that said, perhaps the bucket or sleeve concept that others have discussed has more merit than the example in the article. Different sleeves for different periods during retirement.
Again, very enlightening thread. I am not wealthy nor am I even rich. I'm just fortunate to be debt/mortgage free and live in one of the lowest cost of living areas in the entire U.S. I am sure there are some here whose investable assets, aka nest egg, dwarfs mine. However, there is a *huge* discrepancy between my lifespan expectancy of around 18 more years and my nest egg expectancy and in favor of my nest egg. Even if I live to 100 (33 more years) there is still a huge discrepancy and that is assuming I simply live off principal only and never invest/trade again. The bottom line I guess is I need to step up my spending big time. Like maybe purchase that vacation home outside of Asheville in Black Mountain. Easier said than done though if you lived a lifetime mastering the art of frugality and always fearful you are going to revert back to your days of living in abject poverty. Maybe I need to see a financial shrink!!!! No, that costs money. Anyway, I am off for week hiking in NC. So best of luck next week growing those nest eggs.
Junk, given possibly adequate resources it often does come down to a mental health / anxiety issue, and there are many articles that address exactly this. If you're such a hiker, though, I would bet your soul is in reasonable shape.
You can step up spending prudently, of course, including starting to donate to your favored charities or relatives if any.
But giving yourself (you come first) meaningful, significant treats, and addressing that poverty PTSD, are projects for sure. G/l, dude.
Let's first start with what retirement means. When Social Security began, it meant that a person would not be a pauper but food, clothing and shelter. Now, it means food, clothing, shelter, travel costs, cable TV, dining out, internet, Obamacare etc. Yes, you can retire on $1M based upon the old definition. Under the new definition it is very difficult to do in expensive areas - east/west coasts and other high price areas - ESPECIALLY when you take into account housing costs - rental or purchase. Look at the cost or renting in NYC or San Francisco.
As to Social Security helping - look at how much you lose if you take it at 62 vs 65. AND, what a person gets if they do not make a lot of $ when working.
Then there is inflation - although the official CPI is low the retirement CPI is higher - food, energy and health care.
So, if you want to retire on $1M and maybe SS at 62 you will need to move to a low cost area.
However, generally speaking, it is very difficult to accumulate $1M - depending upon when you were born and if your spouce worked or not. My guess is that there are 'OLDER' posters here born earlier then apx 1960 or '64 who have large assets who will disagree with me on the difficulty of accumulating $1M. They really need to look at the employment/economic/wage/benefit/defined benefit/health ins/401k changes over time.
Comments
Of course this will all change when I turn 70 and 1/2 and will be *forced* to withdraw more than $50,000.
Maybe when you are forced to take more, consider traveling @Junkster. Enjoy your harvest. You've earned it.
About enjoying your harvest. Great point and the subject of a new thread I've been pondering about one's longevity vs. the longevity of one's nest egg and why even bother with the risk of equities and losing any of that nest egg. As for traveling, on my way tomorrow for a week hiking in NC. But yes, I need to get out west more, especially where I use to live in the Sierras.
p.s. I lived in the Bay Area (Berkeley to be precise) on a $1000/month, with 2 kids, no problem. Guess it all depends.
I dunno how much is enough. Health plays a huge part in that assessment. Part of the equation pertains to "needs" vs "wants." We don't need to attend Broadway productions. That's a want but not a need. A decent hotel room close to the NY theater district will run you $400-$500 or more a night in the summer time - and that's before adding in the city's 15% tax. A seat at a top-run performance halfway back and near center will go for $200-$300 and up.
Money is often described using negative cliches - such as being "the root of all evil." But in reality, it's hard to have too much and there are many deserving causes/organizations that will willingly relieve you of that which you don't utilize, as Buffett, Gates and others will testify.
As for 12k a year with 2 kids in Berkeley, you should write a book and also get a TV show, and also a food show.
Finally, how does the math work that one's RMD would be >50k? What am I missing.
which is > than 50K. 18K a year in property taxes? Think I will stick to small town living in the south and the confederacy.
The math I have performed indicates that the first year of RMD from IRA holdings is about 3.8% of the total value; and the percentage increases in small amounts after the first year.
A $50,000 RMD indicates IRA(s) value of about $1,300,000.
Take care,
Catch
Well, I can tell you this much: in round numbers, my wife's IRA and my IRA combined is roughly 700k. This year's RMD was 22k, PLUS 7k in withheld income tax, for a total of about 29k. Not too far from there to 50k!
Edit/Add: Note that these numbers are in agreement with Catch 22's comments.
Naturally if you have >$1.3M in such an IRA, you're probably going to do all right regardless, even on the coasts, esp if you're frugal.
Having grown up in a nonlarge town not far from the Confederacy, I would pay 18k, in addition to property taxes, not to repeat. And of course there are states where property tax is about all they have (NH), this seen as a huge plus, so not hard to hit high numbers even with modest house and lot.
Don't forget, some 401k, 403b, 457 accounts may become very large over the years and then rolled into IRA accounts. One may end with a farily large dollar value.
2. This article is really about asset allocation in retirement; the rest is cheap window dressing to frame the article. ($50K/$1M were simply neat round numbers for illustrative purposes.)
3. Waggoner errs in adding extra for income taxes - he's trying to match household income, and like IRAs, that's pretax also. (That is, income taxes come out of the $50K household earnings.)
Regarding people's comments here:
- IMHO health is one of the two big variables in retirement planning. The other is longevity. These are both areas where insurance can be invaluable - Medicare/Medigap or Medicare Advantage (Part C) for the former, and longevity insurance (deferred income annuity) for the latter. But they're not without cost.
- NYC - the median household income in Brooklyn is $45K; even in Manhattan is it "just" $67K. (Slate: Brooklyn's Median Household Income is Less Than $45,000 - Jan 9, 2014). One can get by, even in NYC on less than $50K, but the key phrase is "get by".
- Berkeley - I'm with davidrmoran on this one. $12K/year is foodstamp level income for one person, let alone three. Anywhere in the country. And unlike NYC, the Bay Area tends to be more homogeneous in housing/living costs (harder to find affordable pockets). From the Berkeley Pier to Walnut Creek (where there is no longer a T. Rowe Price office), from Baghdad by the Bay to Silicon Valley, the cost gradient is miniscule.
A one million dollar nest-egg is an unrealized dream for most retirees.
The median retiree nest-egg is shockingly small when contrasted against that illustration number. Different estimates locate a retiree's pot of gold at 20% to 35% of that target.
The median nest-egg depends on home ownership, on being single or married, and upon sex. Home value represents about one-half of the nest-egg sum. Married folks enjoy a retirement pot that is roughly double that of a single person. Single men save slightly more than women.
Also, a one million dollar nest-egg might be (a) totally inadequate for one who earned $300,000 annually, (b) comfortable for an individual who earned $100,000 annually, and (c) nirvana for a sole who struggled with a $40,000 annual income. It all depends.
Nest-egg survival is a challenge for most retirees. I trust most MFO members have escaped or will escape this dilemma.
Best Regards.
You noted: "Home value represents about one-half of the nest-egg sum."
Although having free and clear real estate that may be sold to raise funds as wanted or needed, is a potentially valuable money resource; I believe the article relates to monies actually saved for retirement; and does reflect upon other sources of retirement income.
Perhaps I did not understand the "drift" of the article.
No, he was not including the house and lot.
I recognized that house assets were not included in the article scenarios.
The fact that the numbers I quoted did so just exasperated the gap between what was referenced in the piece and the realities of the median US retiree nest-egg. Subtracting the house and lot component means that the median retiree has maybe 15% of the articles baseline one million dollars. Only about 45% of US households own mutual funds.
That gap is one of the primary thrusts of my post. Most retirees would kill for a one million dollar portfolio. The referenced article is not representive of the retirement situation that confronts most retirees.
Best Wishes.
With that said, perhaps the bucket or sleeve concept that others have discussed has more merit than the example in the article. Different sleeves for different periods during retirement.
You can step up spending prudently, of course, including starting to donate to your favored charities or relatives if any.
But giving yourself (you come first) meaningful, significant treats, and addressing that poverty PTSD, are projects for sure. G/l, dude.
Yes, you can retire on $1M based upon the old definition. Under the new definition it is very difficult to do in expensive areas - east/west coasts and other high price areas - ESPECIALLY when you take into account housing costs - rental or purchase. Look at the cost or renting in NYC or San Francisco.
As to Social Security helping - look at how much you lose if you take it at 62 vs 65. AND, what a person gets if they do not make a lot of $ when working.
Then there is inflation - although the official CPI is low the retirement CPI is higher - food, energy and health care.
So, if you want to retire on $1M and maybe SS at 62 you will need to move to a low cost area.
However, generally speaking, it is very difficult to accumulate $1M - depending upon when you were born and if your spouce worked or not.
My guess is that there are 'OLDER' posters here born earlier then apx 1960 or '64 who have large assets who will disagree with me on the difficulty of accumulating $1M. They really need to look at the employment/economic/wage/benefit/defined benefit/health ins/401k changes over time.