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What a $1M Retirement Looks Like in America
- nly 4y agoEven worse... the 4% rule is only tested over 30 years. If you're retiring at 55 you should probably be looking at a withdrawal rate of 2.5 - 3%, so 35-40 times your desired retirement income
- reducesuffering 4y agoYes https://youtu.be/1FwgCRIS0Wg https://youtu.be/1FwgCRIS0Wg
- berkle4455 4y agoFirst bear market in over a decade and suddenly the entire FIRE community capitulates to a decision that keeps them working for another decade. What a joke.
- nly 4y agoI don't think that's the case. It must means you need to lower your retirement expectations.
- benjaminwootton 4y agoThe FIRE community were definitely extrapolating from a 15 year bull run and assuming they had the foresight to find the next FAANG for the next 40 years. I like a lot of the FIRE stuff but I didn’t the numbers held up over a long retirement when you factored in inflation.
- berkle4455 4y agoI was mostly frustrated with the "100% VTSAX" mantra, especially across 2020-2021, as every possible valuation measurement was screaming how overvalued things were. And any attempt at pointing these things out received a harsh reply of "4% rule!" and "Stick to your allocations!" and pictures of 10-yr charts.
- nightski 4y ago100% VTSAX has actually performed pretty well relatively. International & Bond markets are not doing great either.
- neogodless 4y agoIf I retire at 55, I'm more likely to be dead at 85 than broke. That should cheer you up! https://engaging-data.com/will-money-last-retire-early/ https://engaging-data.com/will-money-last-retire-early/
- zeroonetwothree 4y agoSpends tends to go down with age though. If you live to 90 you aren’t going to be jetsetting around, you’ll just be resting at home all day.
- hindsightbias 4y agoIn an elder care facility that costs?
- loandbehold 4y agoThat's only if you plan to leave your stock portfolio to your children when you die. You can take out more than 4% if your plan is to use up your savings while you are alive.
- nly 4y agoSadly this isn't the case. Volatility in the stock market will see your withdrawals deplete your equity at a faster rate during downturns and put you at risk of going broke early. A $1M stock portfolio may not service $50K/yr for 20 years, let alone the rest of your life. A 40% downturn in the early years will see you go kaput. If you want to leave nothing you probably need to provision for 40 years and build a bond ladder yourself (rather than buy in to bond funds). The problem with that though is you're exposed heavily to inflation, which equity will give you some protection from over the long term
- prepend 4y ago4% of 1M is $40k, not 50. The idea is you withdraw $40k/year and invest in low risk income funds that yield 2-3%/year. So withdrawing $40k gives you about 40-50 years and that’s safe for most 65 year olds.
- nly 4y agoA 3% nominal yield doesn't even cover inflation, so you're not getting more than 25 years out of that $1M if you draw it down at an adjusted $40K/yr
- readthenotes1 4y agoUse cfiresim or any other retirement calculator and you can choose your length and mix. We don't have to rely on the calculations of someone from 1993...
- nly 4y agocfiresim basically confirms the 4% rule over 30 years. That said, if you mix in state benefits things are a lot more favorable for higher withdrawal rates.
- readthenotes1 4y agoYou can set your withdrawal rate in the mix of your assets. It does much more than confirm or not the 4% rule. There's also firecalc which is similar but has a weird user interface.
- LinuxBender 4y agoNon-JS readable version [1] [1] - https://archive.ph/RERIk https://archive.ph/RERIk
- deleted 4y ago[deleted]
- thatguy0900 4y agoWonder how much expats in retirement will increase when people realize they have no chance at living with their savings here.
- voisin 4y agoCosts a lot to expatriate though. Deemed disposition on exit = capital gains.
- toomuchtodo 4y agoIt’s already happening with retirees moving to Mexico, Portugal, and Southeast Asia. Agree you’ll see it pickup as more folks retire and can’t make ends meet in the US. Half of retirees over 55 have no retirement savings whatsoever, and will rely solely on Social Security income. https://www.cnbc.com/2022/11/02/retire-abroad-in-these-10-cities-for-less-than-2000-dollars-per-month.html https://www.cnbc.com/2022/11/02/retire-abroad-in-these-10-ci... https://www.aarp.org/retirement/retirement-savings/info-2019/no-retirement-money-saved.html https://www.aarp.org/retirement/retirement-savings/info-2019...
- throwaway1777 4y agoDon’t you lose social security if you move outside the us?
- toomuchtodo 4y agoYou’re entitled to your Social Security benefits regardless of where you reside globally. You don’t have Medicare coverage outside of the US though. Typically, your Social Security is your passive/pension/monthly income that qualifies you for a long term retirement visa. A hack you can do if you can work remotely is collect Social Security out of the country while working remote; this increases your income and if your annual income replaces previous lower income years on your Social Security wage record, your monthly benefit will go up over time as the SSA re-evaluates your benefit annually (not to mention cost of living adjustments).
- zeroonetwothree 4y ago
- landemva 4y ago> $1 million nest egg can replace about 85% of a $70,000 median household income. While property taxes depend on zip code, if the mortgage is paid, why does a couple need this much income?
- xupybd 4y agoMedical costs keep growing as you get older.
- scifibestfi 4y agoDoesn't Medicare cover most of that?
- adgjlsfhk1 4y agono.
- gshubert17 4y agoMedicare covers a lot, but excludes a lot (glasses, hearing aids, long-term care, for example). Add in Medicare premiums, supplemental premiums, and co-pays, and it's not inexpensive.
- smileysteve 4y agoThankfully, glasses and hearing aids have been disrupted recently. And the most costly supplements have now been disrupted by Mark Cuban (along with Medicare able to negotiate).
- runamok 4y agoMost but depending on how healthy you are it can be very expensive. You will pay $170 a month for Medicare Part B premium and then IIRC my mom pays around $400 a month for Medicare supplement because Medicare often pays like 80% of the bill until you hit deductable. https://www.medicare.gov/basics/get-started-with-medicare/medicare-basics/what-does-medicare-cost https://www.medicare.gov/basics/get-started-with-medicare/me...
- LastNevadan 4y agoWait until they find out that the United States has way more debt that it can service over the coming decades, and that the way out is persistent inflation combined with gaming the inflation metric used for Social Security cost-of-living increases.
- PaulDavisThe1st 4y agoThe US can service essentially any level of debt, and has far lower levels of debt than, most notably, Japan, which continues to function entirely normally.
- LastNevadan 4y agoCertainly, there are countries in a worse place than the United States. Japan or Italy are the first to be likely to blow up in a big way. Greece is a good candidate for blowing up first, but it is small enough to be backstopped by the ECB. Italy is too big to be backstopped. The USA may fall, but it probably won't be the first major economy to do so. Historically, governments have been prone to currency crises when their debt-to-GDP ratio exceeds 100%. The USA is just slightly above that now, and interest rates have remained low here (and in other countries) because central banks are monetizing the debt. But that can't be sustained forever.
- zeroonetwothree 4y agoMany countries have been above 100% for a while now without any apparent issues
- UncleOxidant 4y ago"In 2017, the couple sold their vacation home and built a $1.4 million house in Newport with views of the water. Mr. McKinney tiled the kitchen and bathrooms himself." It sounds like they could have much less house and have had closer to $2M in retirement savings.
- zeroonetwothree 4y agoThey tiled the kitchens themselves though so really it was quite frugal
- impish9208 4y agoDon't forget the bathrooms too
- UncleOxidant 4y agoProbably saved a couple thousand dollars.
- dgfitz 4y agoTo be fair, laying tile sucks.
- hindsightbias 4y agoNot in Newport with a view.
- missedthecue 4y agoDoesn't seem so bad. 4% rule + social security. And you'll pay very low tax rates. Really depends on your standard of living and expectations. (The first guy in the article built a $1.4 million house...) If you've managed to pay down your mortgage by the time you've retired, I see no problem to stress on a $1m nest egg. The most important part of senior planning in my opinion is buying a LTC insurance plan ahead of time. I've seen people run down huge retirement accounts paying $6000 a month for those places.
- AdamTReineke 4y agoDid you have trouble finding an LTC plan that was reasonably priced to provide enough coverage? As expensive as care is and premiums are, I didn't see pricing that made sense vs. saving for it myself. (I do have a tiny life insurance plan with a LTC rider so I could get exempted from the payroll tax in WA state.)
- elil17 4y agoFYI 4% rule is probably too aggressive because it’s based on historical U.S. stock market data for a 30 year retirement. People are living longer and it’s a better assumption to use global stock market returns (because there’s no reason to think U.S. stocks will continue to outperform the global average - they very well may revert to the mean). 3% is a better bet for people retiring today. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4227132 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4227132
- smileysteve 4y agoSome people are living longer. But the average is decreasing in the US.
- actionablefiber 4y agoThe average just got whalloped by a deadly pandemic, so the average today is probably not representative of how long a person should expect to live in the future.
- downrightmike 4y ago"When she was in her mid 50s, Connie Gores got a wake-up call from a financial adviser. At the time, Ms. Gores had saved about $250,000. The adviser told her that unless she started saving more, she would likely have to live on Social Security alone when she retired. The conversation shook her into action. By the time she did retire as a university president, she was socking away about 26% of her roughly $250,000 salary." She had 15 years of saving 26% of $250k to only have $250k??? Yikes. Should have been able to save more, that is insane, because the numbers don't match up.
- Jtsummers 4y agoNo, she had $250k and was told it wouldn't be enough. So she then started saving more (up to 26% of her annual pay by the time she did retire).
- fbdab103 4y agoI agree with the parent's GP's interpretation. Woman was making $250k annual. Up to that point had only had a retirement account of $250k. Which strikes me as sheer bananas.
- neogodless 4y ago> She had 15 years of saving 26% of $250k to only have $250k??? But that part is just... wrong. We don't know what the savings rate was before her "mid 50s" - clearly it was LESS than 26% of $250k, and yes, that is bananas. But GGP's text does not match what the article says. In reality, she started with $250k around 55, and then saved (up to) 26% of $250k for 10 years, retiring at 65 with about $1 million saved.
- fbdab103 4y agoI think we were focusing on different parts. Yes, she was originally saving << 26% of her salary. My interest was strictly on her high salary and seemingly non-existent retirement strategy.
- jebarker 4y ago"With interest rates rising, Mr. McKinney believes bonds are a bad bet and has all of the couple’s portfolio—now worth $700,000, due to withdrawals—in stocks. He favors stocks with high dividends and trades ETFs that rise when the market falls." Seems bold.
- voisin 4y agoProbably took losses on the bond portfolio when he saw rates rising. Should’ve just held steady.
- endisneigh 4y agopersonally my retirement strategy is a triplex (multi-family home with 3 units). for better or for worse multi-family owner occupied housing in the united states is too lucrative. especially if you bought before covid. the problem with equities or bonds alone is that even with a good allocation it's hard to protect yourself completely from retiring into a recession. if the usa allowed multi families by right this would be something that could help lower housing costs and help retirees. regarding the article, it's crazy how people making 6 figures don't properly save for retirement. Americans truly have a spending problem. based on the professions of some of the people in the article, I would expect them to have more money but it's hard to say without knowing when and how much they made.
- voisin 4y agoThe beauty of real estate is that you can live off the income rather than having to draw down the principal like in a traditional stock/bond portfolio which doesn’t have a very strong current yield. But, as you age you need a manager and that takes a bite out of it.
- 88913527 4y agoThe problem with real estate is your retirement plan for a triplex may not materialize if you own in Detroit, and it's the 1970s and car manufacturing won't ever decline. It's putting a lot of eggs in one basket. You have no way of knowing if the location will fall out of favor. At least with the stock market, there are many other actors who have a shared interest in its success.
- endisneigh 4y agoThough you're not wrong, most places did not see such a collapse such as Detroit. In the end though, you're hedging greatly with the fact that it's a multi-family. So even if it did fall out of favor, you're paying a fraction of what you would otherwise due to the rental income gained from the other units. Most importantly, you were going to spend money to live somewhere anyway.
- stevesimmons 4y ago
- bm3719 4y agoDespite being well off income-wise, my expenses are under $20k/yr on average. This is with owning a home, buying a car every 5 yrs, and basically buying anything else I might want. I could go as low as $5k/yr in fixed expenses if I had to. I could spend more, but can't think of any additional products I'd want to clutter up my house with. Not doing anything too special/weird here (I grow some of my own food and try to repair things myself, but that's about it), so seems strange you'd need so much in retirement.
- nly 4y agoYou don't really need $70K, the idea is to keep up with inflation (by investing) and overprovision enough to protect yourself from market volatility (big cash buffer, bond ladders, etc) Most people right now will probably be considering annuities to offload some of the risk
- ProjectArcturis 4y agoMedical insurance alone would be $20k per year for most people in the US.
- prepend 4y agoThat’s pretty fancy insurance. Check out healthcare.gov and you’ll find many plans where the premium plus deductible are much lower than $20k.
- trashface 4y ago$20K/yr is ridiculously low spend. Do you opt out of health insurance or something? I don't know how you could do that unless you are in extreme VLCOL area. For comparison I'm in MCOL US and my spend this year will probably be about $28K. Taxes, healthcare, groceries, eat up a huge chunk of that. And I buy nothing but essentials (no TV, no streaming, no vacations, drive an old car, no restaurants, starvation level food consumption).
- bm3719 4y agoI have health insurance provided by my employer, but when not employed, I skip it and just pay for anything out of pocket. Hasn't been a problem so far, but I can see how people more attached to health care services might find that hard to make work. Their numbers (and perhaps mine later in life) will be different, of course. I live in WV. Per capita income in my county is $14k, so most here are living on much less. My only fixed costs are power, property tax (which is pretty low here), internet service, some firewood to supplement what I cut myself, some food to round out the garden diet, and a twice a year run to the dump. But, that's only about $5k/yr. The rest are non-essentials, like buying a new car instead of used, trips, hobby supplies, and the occasional video game.
- throw0101c 4y agoNeeding $1M has not been needed to retire comfortably for a great many people. While Canadian-focused, book The Sleep-Easy Retirement Guide has good numerical examples: * https://findependencehub.com/qa-with-author-david-aston-about-his-new-book-the-sleepeasy-guide-to-retirement/ https://findependencehub.com/qa-with-author-david-aston-abou... In Table 5-1, he lists some real-life example of couples spending, with the average basics (shelter, groceries, vehicles, etc) totalling CA$ 42K and with average extras (entertainment, travel, etc) going to CA$ 72K. A "modest" couple spends CA$ 56K per year, and an "affluent" example couple spends $112K. In Table 5-2 he does the same thing for single retirees: the average single retiree spends $27K on basics and with extras $42K total; an "affluent" single retiree spends $90K. Then in Table 12-1 he lists what nest egg is needed for each of those: a couple with a modest income needs of $42K needs to have $420K saved to retire at age 60 and $150K to retire at age 67. A deluxe lifestyle couple ($100K) needs $2M saved to retire at 60, and $1.3M to retire at 67. For singles, an average lifestyle ($43K) needs $810K to retire at 60 and $510K to retire at 67; a deluxe single ($80K) needs $1.8M to retire at 60 and $1.4M to retire at 67. The book gives the arithmetic supporting these conclusions. But for a quick example, for the 'basic' lifestyle ($42K) couple: the author assumes each person gets $18K/year in CPP (Social Security) and OAS, which totals $36K just from government benefits. This is a pretty reasonable assumption, as the average OAS is $600/mo and the average CPP is $700/mo, for $1300/mo ($15,600/year): * https://www.qtrade.ca/en/investor/education/investing-articles/financial-literacy/how-much-will-your-oas-benefit-be.html https://www.qtrade.ca/en/investor/education/investing-articl... * https://www.wealthsimple.com/en-ca/learn/how-much-cpp-retirement https://www.wealthsimple.com/en-ca/learn/how-much-cpp-retire... Getting to $18K is not a stretch, if (a) you get a little above average, and (b) get more by delay taking the benefit to >65. For a couple, that is $36K per year, so getting to the desired $42K is "just" another $6K per year. With the common "safe withdrawal rate" of 4% we get $6K÷4% = $150K retirement nest egg. A summary by the author is in: * https://pmac.org/wp-content/uploads/2014/05/07-02-series-aritcle-1-Aston-David-What-s-Your-Magic-Number.pdf https://pmac.org/wp-content/uploads/2014/05/07-02-series-ari... * https://www.macleans.ca/economy/money-economy/heres-the-real-cost-of-retirement-happiness/ https://www.macleans.ca/economy/money-economy/heres-the-real... Fred Vettese, a now-retired actuary, also has two good books with similar conclusions: * https://lifeworks.com/en/resource/essential-retirement-guide-contrarians-perspective https://lifeworks.com/en/resource/essential-retirement-guide... * https://lifeworks.com/en/resource/retirement-income-life https://lifeworks.com/en/resource/retirement-income-life * https://rationalreminder.ca/podcast/104 https://rationalreminder.ca/podcast/104 * https://en.wikipedia.org/wiki/Frederick_Vettese https://en.wikipedia.org/wiki/Frederick_Vettese A lot of folks also use the (supposed) rule of needing 70% of your pre-retirement income: in fact as little as 40% may be needed, per Vettesse: * https://www.theglobeandmail.com/globe-investor/retirement/retire-planning/book-excerpt-retirement-income-for-life-getting-more-without-savingmore/article37971172/ https://www.theglobeandmail.com/globe-investor/retirement/re... * https://archive.ph/tQp2L https://archive.ph/tQp2L
- TheRealPomax 4y agoHN still needs a [paywall] for posts that are "on the internet, but not really".