Am I going to end up in the poor house in retirement?

[GWN7]

Originally Posted by jyl

I made a simple spreadsheet, as follows:

Beginning balance at age 65 = $1,000,000
Income earned on beg bal = 4%
Inflation = 2%
Regular annual withdraw = $60,000/yr at age 65, then for all future years increases at inflation rate
Special withdrawals = $0 for all years
Social Security benefit = $24,000/yr at age 65, then for all future years increases at indexing rate
Social Security benefit indexing rate = 0%
IRS tax brackets as of 2015 (need to add state/local taxes, if any)

Each year, take beginning balance, add income on beginning balance, add soc sec benefit, subtract tax on income and benefit, subtract regular withdrawal, subtract any special withdrawal, result is ending balance for that year which carries to beginning balance for the next year.

Under assumptions above, the balance goes to zero at age 92.

You can play with the assumptions. PM your email, I'll send you the spreadsheet. Please let me know if you find any errors. And I'd be interested in everyone's comments about how reasonable any of these assumptions are. You can go to a Social Security website and check on your projected benefit at an assumed age of retirement. Note: I'm not your or anyone's financial adviser, this is not investment advice, and the spreadsheet could be riddled with errors.

A lot depends on your planned retirement lifestyle. If you have a paid off house, moderate upkeep and property taxes, reasonable habits, and no big medical bills, does the assumed budget of $84K/yr in total spending ($7K/mo) make sense? One of my close friends is retired, living like that, and is very content. But she isn't trying to impress anyone with her lifestyle either.

Also, a lot depends on your health. Plug in an uninsured $250K medical bill at age 70 in the Special Withdraw column, and see what happens . . .

And, just to keep pointing out risks, if you retired with $1MM in 2005 but left it in stocks and lost 40% then panicked and sold at the bottom in 2009 . . .

According to that chart your withdrawing $100K a year when your 91. How much hooker and blow do you need when your 91?

[aigel]

Originally Posted by GWN7

According to that chart your withdrawing $100K a year when your 91. How much hooker and blow do you need when your 91?

It definitely will help with visitors. If gramps has a few bucks to hand out when the kids come by, they will be more willing to check on him, that's for sure.

I know a lot of old people that are extremely tight and die with a fortune in the bank account. I hope not to be that guy.

G

[motion]

Its different for everyone.

I've had money socked away in 401ks years ago, only to lose 90% of it in market crashes. A long time ago, I realized that I'm not the kind of person to horde money, as I prefer to call my dough "fun tickets". To that end, I spend my $$$ on stuff that makes me happy. Lots of it will not give me any ROI, but I also do spend $50K or more a year on collectable motorbikes. These bikes are worth approx 30% a year in appreciation, plus I get to enjoy them. I also have tons of other liquid assets, and rental homes. They'll be paid off when I'm in my early 60s, so that's a good income stream.

I have a great monthly income, which is around 7X my bills, so I can always ferret away money if I need to.

But, at age 52, my wife and I are focused on spending money, and getting the max out of life while we are young and able.

This strategy won't work for everyone, but I feel pretty good about it.

I feel that its much, much more important to have a reliable monthly income stream that won't dry up, then to have a million or two in the bank.

Worst case scenario? The wife and I can rent an apartment in an affordable paradise like Thailand, Belize, etc, and live on a couple thousand a month. Its not hard to do.

[sc_rufctr]

I'm 50 and the only thing I think about is my retirement.
Toys and luxuries are a thing of the past unless I find a lady with $$$.
My "Superannuation" (like your 401k) is doing well but by the time I get it at 65 anything could happen.

Real Estate is the thing but even that could be problematic.

Maybe I should spend my retirement making art in a remote (cheap) location.
.... Pots and stuff out of clay? Just need a wheel and a furnace.

[LeeH]

We have numerous friends who are early to mid-50s who say they've just accepted the fact that they'll NEVER have enough to retire and that they'll have to work until they die.

These are smart people who just haven't been able to save for one reason or another. I've seen a few articles recently that suggest this is definitely a trend. My question... what does this mean for the social security system? Seems like there are going to be a lot of elderly workers who, since they have to keep working, will be paying in to the social security system, even while they're drawing benefits. Will this help keep social security solvent beyond what's predicted today?

[Crowbob]

It depends on which part of SS you're talking about. SS Disability becomes insolvent next year, SS Retirement becomes insolvent in 2026 (the insolvency date is continuously being adjusted closer and closer). SSI is already insolvent as is Medicaid and Medicare, all three of which are funded through the general fund which is currently $16T-NOT including SSI and Medicare which adds another $15T or so.

The long-term strategery has been to ignore the problem until the situation becomes so dire that the feds will be justified in taking extreme measures such as seizing all or parts of 401k's and changing the rules for Roths and other currently tax-exempt instruments. Less extreme measures involve raising taxes, reducing benefits, tightening eligiblity rules and going to socialized medicine. In 2017 the true consequences of Obamacare become evident and are going to be a very serious shock to most people.

Bottom line is that there IS NO MORE MONEY. The stock market gains are a direct result of QE. Considering that currently half the population pays no federal income taxes, the income gap is widening, government dependency is skyrocketing, the manufacturing base is evaporating, the labor participation rate is at an all-time low, and the borders have effectively been erased what do you think will happen?

[Jim Richards]

I thought I was reading another tabs post.

[jcommin]

I'm 64 and don't have a million. I have been a saver all of my lifre but life events have a habit of getting in the way. Over the last 10 years, a divorce, tax problems (from the divorce), housing crash of 2007, youngest son in drug rehab/therapeutic private school and credit card debt (from my son's issues) took a beating on my saving and retirement accounts.

Happy to say I'm debt free. What I have done is plan what retirement will look like. No matter what I have, I will adjust my lifestyle. I can't afford to stay in Chicago, I will draw ss at 66 and hopefully work to 70.

What can change all this is another life changing event - I don't worry about that anymore.

I will tell all of you save, save, save - and control what you can control. Remember it is just money, not your life!

[sc_rufctr]

Originally Posted by jcommin

I'm 64 and don't have a million. :::

I will tell all of you save, save, save - and control what you can control. Remember it is just money, not your life!

This x1,000,000.

No one knows how long they have.

[Porsche-O-Phile]

That's a good way of looking at it. There are some sobering realities here though - statistically most people will encounter one or more major medical events in their so-called "golden years", which can be devastating and throw a major monkey wrench into retirement plans. As an anecdote, a family friend recently had a heart attack which necessitated a trip to the ER, tests, three stints put in via minimally-invasive techniques (catheter through the armpit) and five days in the hospital for observation. Not too uncommon these days and really not that big a deal. The bill just showed up - $120k. By the time my generation retires do you really think those sorts of bills are going to cost less or more?

Sure, insurance will help with some of that probably but a realistic attitude towards insurance coverage is this: don't count on it. Insurance companies have lots of highly-paid individuals on their staffs whose job it is to deny claims and stonewall them for as long as possible. Even if you can get them to pay on a claim, it's best to assume it will be after a lengthy series of battles, a long period of time, at a reduced amount, perhaps spread over a long period of time so you're out of pocket for the money (or waiting for it) for as long of a period as possible. In other words, just because you have insurance don't assume you're safe. They can and will try to screw you over. Assume you're going to be on the hook for 100% of any medical expenses, keep your expectations low and you'll be pleasantly surprised if they ever pay you Dollar #1. That said, the reality of retirement becomes rather sobering given how expensive healthcare has become.

My approach is to enjoy life as much as I can, protect assets as much as possible (irrevocable trust), save what I can without making life miserable or throwing away my ability to enjoy life while I'm young enough to still do so, etc. I hope to retire with enough in the bank to live reasonably well until I encounter that first major medical problem. Not that I'm wishing it, but it's realistic to assume that by the time I get to age 75 or so, I'm probably going to have some kind of major issue that will wipe out most if not all cash holdings and from there on out it's going to be hoping the Medicaid system hasn't collapsed entirely so I'll have some ability to be looked after until I croak. Or I'll just throw myself in front of a train and make it look like an accident so my beneficiaries don't get screwed over.

The reality is retirement won't be bad - until the healthcare problems start. At that point it becomes a battle between you / your interests and the greedy bastages in the health care / big pharma industry, and the government. Both want to bleed you dry until there's nothing left, then leave you to die. Your goal (and mine) should be to do everything possible to avoid that from happening NOW while we're young and able-bodied / able-minded enough to set things up to protect ourselves.

[Nickshu]

I turn 40 this year. My financial planner has my "retirement requirement" number set at $7 million. I am putting money away as much as I can, but that number seems daunting to me.

[fintstone]

I think most people find it easier to make excuses to spend rather than to save. I know that I sure like to spend money. Getting there is easier than you think, you just have to start. I started my 401K in late 2003 and have maxed it out every year, regardless of my financial situation . After only about 12 years, I have around $535K in today...even after losing about half of it in 2009 when the market fell. The fact that it comes out pretax is helpful since it reduces your taxes during peak earning years. If you have a spouse and both do the same, that is $1M.+ easy/peasy.

I twisted my daughter and her husband's arms to start putting a significant amount into their 401k when they got married and were starting new jobs. After only 3 years, they have close to $100K together...and don't even miss the money since they never got used to spending it in the first place.

I would much rather have the problem of too much money in retirement than too little...as I would never be able to relax and enjoy myself if there was a likelihood that our money would run out when I am too old to work...and my wife would suffer.

[recycled sixtie]

Originally Posted by Nickshu

I turn 40 this year. My financial planner has my "retirement requirement" number set at $7 million. I am putting money away as much as I can, but that number seems daunting to me.

As a member above says the fin. planner gets to benefit from your investments especially if he recommends you invest in mutual funds with high fees through him.

I am starting to think that etf's are an alternative bought say on a monthly basis. Right now your stock market is high. Will it last? Who knows. Etf's don't have management fees. Just a commission to get in and out.

An income stream is important and you can't get that with saving certificates as the interest is too low. Diversification is key. Some real estate, some etf's(bond and stock), some stock.

I think $7 million is daunting as you say. I think a person can get by on less when retired. Kids are gone(hopefully). No mortgage. You can always sell your house if needing money and rent.

In terms of health? Stay or get healthy. Prevention is cheaper than cure. Exercise, stay trim etc.

Guy

[fintstone]

Originally Posted by Nickshu

I turn 40 this year. My financial planner has my "retirement requirement" number set at $7 million. I am putting money away as much as I can, but that number seems daunting to me.

That does sound awfully high, but he is likely talking net worth and is including inflation. Assets like a home (or a pristine 911) should keep increasing in value as should your income increase with inflation...so your asset portion of net worth will continue to increase. On the other hand, if you max out a 401k from now until 65...in a relatively safe, stock market index fund at current return rates...you would have almost 2 million. If you do the same for your wife, almost $4 million. If you are not just starting saving and already have some put away, it is doable if you can invest around $30K per year ($15K each). Even if the rate of return drops and you only have half that much...you are still doing quite well. Combine that with paying off your home and other investments and you should be in great shape.

[masraum]

Originally Posted by GWN7

According to that chart your withdrawing $100K a year when your 91. How much hooker and blow do you need when your 91?

So you're going to be one of those guys that says, "What?! $25 for a pair of shoes? I shouldn't have to pay more than $5 for a perfectly good pair of shoes!!"

At 90, it's possible that there will be medical bills, regular medication, etc....

Inflation means things get more expensive as time goes on. 100k when he's 90 may only be like $50k today.

[fintstone]

I have to agree with Masraum. You can always make do with less...but mo is better. My mother spends a fortune paying other people to do things for her. Things you take for granted and would normally do yourself. Once you are past a certain age, you are risking your life to just stand on a small ladder to replace a light bulb or a battery in your smoke detector. Much less mowing grass, shoveling snow, cleaning, etc.. She also likes delivery food (because she is dangerous driving at night she can't get her own) and pre prepared food because cooking is difficult (standing at the stove makes her back hurt). The heat and A/C are cranked up because she is intolerant of temperature and she is a sucker for every relative or charity. Her doctor has her on every medicine known to man and she spends 10s of thousands on medical expenses alone. It was even worse before her husband died as he could not do anything for himself. By the time he passed, she was having to pay someone to come to her home and help get him out of bed each day, bathe him, etc. as she could not lift him into his wheelchair. He was like this almost 3 years. She also pays to get her taxes done, computer fixed, TVs hooked up, minor internet and cable issues straightened out, etc. as she enjoys them but finds them too complicated at her age (although quite savvy when younger). I would say her living costs more than doubled after 75 (living alone in the country in a single family home does not help).

[mreid]

Don't worry, dying penniless is the result of a perfect budget.

The ACA in some form is here to stay and if you select carefully from the available plans (the options are getting better and better) you can mitigate most of these costs or at least cap your costs. For those of you under 40, compounding is your friend and tax deferred investments the secret sauce. For the rest of us, prudent saving and investment strategies are critical. I don't accept the argument that "the market crash took all of my money" given that unless you are retired on fixed income, it's all come back. You ride it out. Good financial planners have you diversified and plan for consumption and inflation. Personally, I don't see how $1M will be enough in 20 years.

[Nickshu]

Originally Posted by fintstone

That does sound awfully high, but he is likely talking net worth and is including inflation. Assets like a home (or a pristine 911) should keep increasing in value as should your income increase with inflation...so your asset portion of net worth will continue to increase. On the other hand, if you max out a 401k from now until 65...in a relatively safe, stock market index fund at current return rates...you would have almost 2 million. If you do the same for your wife, almost $4 million. If you are not just starting saving and already have some put away, it is doable if you can invest around $30K per year ($15K each). Even if the rate of return drops and you only have half that much...you are still doing quite well. Combine that with paying off your home and other investments and you should be in great shape.

Yes I do max out my 401K for both my wife and I. I also have investment life insurance too, although I am still uneasy about it. I started my retirement savings about 3 years ago, at age 37. I wish I had started earlier. Yes this is a net worth goal including home value and other assets. At that point I will have sold off my business which should liquefy a 7 figure amount, but I'll get hammered on taxes on that one I'm sure. He is calculating a 6% return in this number, which I think is conservative. While $7M seems daunting, $4-5M seems achievable. Reach for the stars I guess!!

[fintstone]

Originally Posted by Nickshu

Yes I do max out my 401K for both my wife and I. I also have investment life insurance too, although I am still uneasy about it. I started my retirement savings about 3 years ago, at age 37. I wish I had started earlier. Yes this is a net worth goal including home value and other assets. At that point I will have sold off my business which should liquefy a 7 figure amount, but I'll get hammered on taxes on that one I'm sure. He is calculating a 6% return in this number, which I think is conservative. While $7M seems daunting, $4-5M seems achievable. Reach for the stars I guess!!

If you can stand the pain (of renters), a little real estate supplements the 401k pretty well. A rental home purchased at 40 with a 20 year loan would pay off by 60. You could likely find one that would "break even" as far as current expense/income...and then use it as income in retirement (or sell for capital gain). I have several and they are starting to get paid off as I near retirement.

My wife recently retired and it was not nearly as painful as I expected because we had so much coming out of her check for investment/retirement and taxes that she was actually taking home less than half as much as she made. Since we were not used to spending that part, we don't miss it.

[foxpaws]

Originally Posted by mreid

Don't worry, dying penniless is the result of a perfect budget.

I always hope my folks would leave us $500 and no more - for a great dinner to celebrate their life!!! They earned it, they should enjoy it.

Nickshu - get a second opinion.... annuities aren't great investments - yet, 7m invested in a rather 'stock' annuity today gives you 31,000+ a month for joint life retiring at 65 - and that is like scrapping the bottom of the barrel of investment options, with some decent investments - you could easily get a lot more than that.

Something you also need to remember - once you retire, you aren't saving anymore for retirement, as fint said - so, if you are saving 25% of your income for retirement - you can wipe that off the table instantly, you already are living off 75% of your money right now, and easily can do so in retirement.