Do you really need 2.5 million to retire well?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
rocko
Posts: 76
Joined: Thu Mar 05, 2015 5:19 pm

Do you really need 2.5 million to retire well?

Postby rocko » Wed Mar 11, 2015 11:41 am

FYI:
http://www.nbcnews.com/business/consume ... ll-n321466

It seems like a large number for most people. If true, it sure seems like Bogleheads are best equipped to reach - and help others reach - that goal.

pacodelostigres
Posts: 113
Joined: Mon Jul 28, 2014 8:14 am

Re: Do you really need 2.5 million to retire well?

Postby pacodelostigres » Wed Mar 11, 2015 11:55 am

I've seen $75k / year discussed a lot as the point where more money doesn't equal more happiness or less stress.

Let's use that as a starting point. If you have 2 SS payments where both earners hit the 2nd inflection point, they can expect $24k each at full retirement age. That leaves a gap of $27k / year.

At a 3% SWR, you would need $900k to close the gap.

Alternatively, you could wait a few years to collect SS and bump those payments up to $30k each. The remaining gap would require a $500k nest egg.

You could also just get by with $48k - $60k of social security and an emergency fund. $2.5MM is overkill unless you want to live a certain lifestyle or retire early.

The Wizard
Posts: 9888
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Do you really need 2.5 million to retire well?

Postby The Wizard » Wed Mar 11, 2015 12:08 pm

$2.5M for a couple with SS but no pension seems good.
That should allow for travel and new vehicle purchases from time to time w/o going broke.
A single person could squeak by for less, of course...
Attempted new signature...

Gropes & Ray
Posts: 975
Joined: Wed Jul 16, 2014 7:28 am

Re: Do you really need 2.5 million to retire well?

Postby Gropes & Ray » Wed Mar 11, 2015 12:23 pm

Somewhere along the way, I came up with $2.5million as a good number for me. I no longer recall how I came up with that.

keithm
Posts: 6
Joined: Tue Mar 10, 2015 12:36 pm

Re: Do you really need 2.5 million to retire well?

Postby keithm » Wed Mar 11, 2015 12:32 pm

Gropes & Ray wrote:Somewhere along the way, I came up with $2.5million as a good number for me. I no longer recall how I came up with that.


I did similar with $1 million, some sort of dumb math where I rationalized a 5% return on that million being $50K, which was theoretically a decent starting point for retirement. If I HAD to work it would at least be part time (so I hope), and I'd never be stuck in a rotten job out of financial necessity. :mrgreen:

rocko
Posts: 76
Joined: Thu Mar 05, 2015 5:19 pm

Re: Do you really need 2.5 million to retire well?

Postby rocko » Wed Mar 11, 2015 12:38 pm

Does an overview amount like 2.5 for retirement typically include equity value of a home?

Also... how do you calculate the lump sum value of social security and a pension when adding up one's overall savings for retirement?

User avatar
DaftInvestor
Posts: 2082
Joined: Wed Feb 19, 2014 10:11 am

Re: Do you really need 2.5 million to retire well?

Postby DaftInvestor » Wed Mar 11, 2015 12:43 pm

rocko wrote:Does an overview amount like 2.5 for retirement typically include equity value of a home?

Also... how do you calculate the lump sum value of social security and a pension when adding up one's overall savings for retirement?


I exclude home in my calculations since I'm NOT planning on selling it to pay for retirement. I also believe if you are looking at SS and pension as "lump sums" you are calculating wrong. Look at how much you expect your expenses to be in retirement based upon your spending habits today (and modifications expected in retirement) - deduct your pension and social security from that number and what you have left is the additional income you need from savings. Then use the 3-4% withdraw rate guideline to calculate the lump sum you need to have saved up (e.g. if I have $3 Million saved up; rules-of-thumb show I can safely withdraw 4% of it per year - so if I need $120K per year AFTER SS and any pension - $3Million is the minimum number I need).

kDictavissent
Posts: 50
Joined: Sat May 31, 2014 12:20 pm

Re: Do you really need 2.5 million to retire well?

Postby kDictavissent » Wed Mar 11, 2015 12:43 pm

rocko wrote:FYI:
http://www.nbcnews.com/business/consume ... ll-n321466

It seems like a large number for most people. If true, it sure seems like Bogleheads are best equipped to reach - and help others reach - that goal.


If every American family were able to earn enough, to save enough, to reach this target -- I would posit that equity and bond returns would be at or below a zero rate of return.

Equity markets reflect only a portion of the universe of investable assets, yet as a highly liquid and accessible target, they draw a great deal of interest. What would happen to our markets if tens of trillions of new capital flowed in?

To me, this is a fairly interesting question with fairly horrifying implications, if true.

Gropes & Ray
Posts: 975
Joined: Wed Jul 16, 2014 7:28 am

Re: Do you really need 2.5 million to retire well?

Postby Gropes & Ray » Wed Mar 11, 2015 12:47 pm

My $2.5 million number was just retirement investments, not other assets like my home which I have no intention of liquidating for living expenses.

I think I used a retirement calculator on https://www.psecu.com/calculators/retirement/ which factored in social security for me. Still says I need $2.4 million, but firecalc makes that look like way too much (100% chance of success with millions left over).

User avatar
Leesbro63
Posts: 4687
Joined: Mon Nov 08, 2010 4:36 pm

Re: Do you really need 2.5 million to retire well?

Postby Leesbro63 » Wed Mar 11, 2015 12:48 pm

The fly in the ointment is healthcare costs and the fact that things change. Without getting into discussions of speculation not permitted here, it might be prudent to assume that retirement for younger babyboomers (and those even younger) than that might look different than how it looks for those retiring right now.
Last edited by Leesbro63 on Wed Mar 11, 2015 1:03 pm, edited 4 times in total.

rocko
Posts: 76
Joined: Thu Mar 05, 2015 5:19 pm

Re: Do you really need 2.5 million to retire well?

Postby rocko » Wed Mar 11, 2015 12:49 pm

^^
Such great information. I LOVE this site!!!

dguad4
Posts: 21
Joined: Fri Jan 06, 2012 9:03 am

Re: Do you really need 2.5 million to retire well?

Postby dguad4 » Wed Mar 11, 2015 12:57 pm

I'm 9 years into my working career and have barely eclipsed the 200k mark. I feel I am a longggg way from 2.5m ugh.

Gropes & Ray
Posts: 975
Joined: Wed Jul 16, 2014 7:28 am

Re: Do you really need 2.5 million to retire well?

Postby Gropes & Ray » Wed Mar 11, 2015 1:00 pm

rocko, if you haven't discovered http://www.firecalc.com/ yet, that link is sure to destroy a couple hours of your day.

livesoft
Posts: 53797
Joined: Thu Mar 01, 2007 8:00 pm

Re: Do you really need 2.5 million to retire well?

Postby livesoft » Wed Mar 11, 2015 1:03 pm

Apparently, around this forum one needs $3 million: http://www.bogleheads.org/forum/viewtop ... 2&t=150595
This signature message sponsored by sscritic: Learn to fish.

User avatar
HomerJ
Posts: 9789
Joined: Fri Jun 06, 2008 12:50 pm

Re: Do you really need 2.5 million to retire well?

Postby HomerJ » Wed Mar 11, 2015 1:05 pm

rocko wrote:FYI:
http://www.nbcnews.com/business/consume ... ll-n321466

It seems like a large number for most people. If true, it sure seems like Bogleheads are best equipped to reach - and help others reach - that goal.


"Most" people live on $50k a year now...

Social Security will replace $10k-$20k of that...

Therefore, someone without a pension needs to generate $30k-$40k from their savings... At 4% withdrawal rate, that's $750k - $1 million.

But that doesn't take into account that you won't have to pay payroll taxes in retirement, you won't have to save anymore, you won't have kids to feed, and if you're really smart, you'll have paid off a house by then.

A family making $60k may only need $30k in retirement (with a paid off house) to live the exact same lifestyle... SS may generate $20k of that, so they may only need to come up with $10k on their own ($250k)
Last edited by HomerJ on Wed Mar 11, 2015 1:12 pm, edited 1 time in total.

User avatar
HomerJ
Posts: 9789
Joined: Fri Jun 06, 2008 12:50 pm

Re: Do you really need 2.5 million to retire well?

Postby HomerJ » Wed Mar 11, 2015 1:12 pm

Even moderate to high earners don't need that much... Here's the example I often use...

$100k family
saves $10k a year
pays $24k a year on a mortgage
pays $6k in payroll taxes

really living on $60k a year...

In retirement, you won't need to save, pay a mortgage, or pay payroll taxes, so there's 40 THOUSAND DOLLARS a year you don't need to generate.

A $100k income family will probably get $30k a year in SS (assuming two spouses)...

So their investments need to generate the other $30k... So "only" $750k is needed. And that gives them the exact same lifestyle as they had while working making $100k a year (which is a pretty nice lifestyle in most of this country)

Now, most of us want a cushion... Health care costs are always a concern... So we shoot for more...

But I could easily retire on a million and a paid off house... I will admit I am shooting for 2 million and a paid-off house, so I have a great cushion, and the wife will be happier with a few more luxuries (mostly more trips for vacations or to visit children/grandchildren)

trueblueky
Posts: 1079
Joined: Tue May 27, 2014 3:50 pm

Re: Do you really need 2.5 million to retire well?

Postby trueblueky » Wed Mar 11, 2015 1:17 pm

pacodelostigres wrote:I've seen $75k / year discussed a lot as the point where more money doesn't equal more happiness or less stress.

Let's use that as a starting point. If you have 2 SS payments where both earners hit the 2nd inflection point, they can expect $24k each at full retirement age. That leaves a gap of $27k / year.

At a 3% SWR, you would need $900k to close the gap.

Alternatively, you could wait a few years to collect SS and bump those payments up to $30k each. The remaining gap would require a $500k nest egg.

You could also just get by with $48k - $60k of social security and an emergency fund. $2.5MM is overkill unless you want to live a certain lifestyle or retire early.

+1
With SS and its COLA, $2.5 million is far more than most people need to maintain their lifestyles. Pay off the mortgage before retiring, and live in a state that is tax-friendly to retirees. For most couples, those two factors would let them live on the $48-60k. Then maintain an ER for big emergencies, and they're set.

deikel
Posts: 370
Joined: Sat Jan 25, 2014 7:13 pm

Re: Do you really need 2.5 million to retire well?

Postby deikel » Wed Mar 11, 2015 1:34 pm

I would always start asking the question who is coming up with these numbers and who is benefiting from them being high (or low) ? And motivating you to work longer and save more money ?

If you answer that question, than you can immidiatly see the 'fear marketing' at work and you know that such numbers are fairy tales for the majority of people.

Your question of ocurse can not be answered since the definition of 'well' is wide open and very different for different people.

If you ask what do I need to roughly maintain my living style in retirment, than maybe 80% of pre retirment annual expense level seems plenty - assuming you have a house paid down and the medical insurance is secured by other means. 4% draw rate is also very conservative and probably makes your stash last forever (which is great for passing the money on to your kids, but keeps you in work longer than needed - you pick).
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immidiatly and destroy any copy or remembrance of it.

flyingbison
Posts: 1330
Joined: Wed Mar 12, 2014 8:52 am

Re: Do you really need 2.5 million to retire well?

Postby flyingbison » Wed Mar 11, 2015 1:40 pm

I will never have close to a million, let alone 2.5. In fact, I'll be lucky to hit the 500K mark by the time I retire.

alex_686
Posts: 1640
Joined: Mon Feb 09, 2015 2:39 pm

Re: Do you really need 2.5 million to retire well?

Postby alex_686 » Wed Mar 11, 2015 1:46 pm

That seems high. I am getting 1 million. Remember, the survey is asking what people think they need. Not what they actually need. Plus, these surveys tend to be of high net worth individuals why may have higher income expectations in retirement.

The calculate the required amount for retirement what you need to do is to discount all future payments.

If you want a guaranteed inflation adjusted future payments the discount rate to choose is the current coupon on TIPS bonds, which is about 1.6%.

Assume $50,000 yearly income over 25 years, 1.6% interest, and I get a $1,023,607

User avatar
rob
Posts: 2738
Joined: Mon Feb 19, 2007 6:49 pm
Location: Here

Re: Do you really need 2.5 million to retire well?

Postby rob » Wed Mar 11, 2015 1:49 pm

rocko wrote:Does an overview amount like 2.5 for retirement typically include equity value of a home?

Also... how do you calculate the lump sum value of social security and a pension when adding up one's overall savings for retirement?

Personally I agree with above that I do NOT include the home equity or SS... I figure (and others might disagree) that home equity is just building a housing bucket to use later... I assume our late stage hospice care or whatever can just deplete home equity. Maybe we will down-size at some point and free some of that. My intention is to plan without the house. I know it's mental accounting and makes no real sense... just convenient for my planning - in our case that equity is sizable so covers my wag estimates for that type of care.

SS I use as an income that reduces the need for dollars from the portfolio rather than as a lump sum of $$ within it.... So estimated expenses - SS estimate = income I have to cover.

I also break retirement into 3 parts... early (spend more, travel etc.), mid (far less travel but in own house/condo) and late (hospice or whatever) since early and late will probably need more $$ but mid will reduce needed $$. With 2 of us we might be in two stages at once.

There are a lot of ways to do this but this works for us.... and last resort we can always threaten the kids with extended visits if they don't send cash :D
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien

rocko
Posts: 76
Joined: Thu Mar 05, 2015 5:19 pm

Re: Do you really need 2.5 million to retire well?

Postby rocko » Wed Mar 11, 2015 1:55 pm

How do you factor in rental property into the magic retirement savings number?

I have partners so I'm not sure how long the property will be kept... but I do have a good idea of its value if sold.

Flashes1
Posts: 780
Joined: Wed May 07, 2008 7:43 am

Re: Do you really need 2.5 million to retire well?

Postby Flashes1 » Wed Mar 11, 2015 1:57 pm

Approx. 75% of our investable assets are in tax deferred accounts----the tax implications worry me. I'm 46 and I'm thinking we need $2.5MM saved and $1MM of house equity at the time of retirement (to pay for retirement house). Plus a $24k/year pension and both my wife & I with ~$17k/year SS.

That has to pay for country club dues ($9k), beach club dues ($6K), HOA's ($6k), and property taxes ($14k). Just these things alone will be $35k/year. And that's at a mid-tier golf club....with a $25k initiation fee. Retirement's expensive!
Last edited by Flashes1 on Wed Mar 11, 2015 3:01 pm, edited 3 times in total.

snowman
Posts: 542
Joined: Thu Jan 31, 2013 12:59 pm

Re: Do you really need 2.5 million to retire well?

Postby snowman » Wed Mar 11, 2015 1:59 pm

HomerJ wrote:Even moderate to high earners don't need that much... Here's the example I often use...

$100k family
saves $10k a year
pays $24k a year on a mortgage
pays $6k in payroll taxes

really living on $60k a year...

In retirement, you won't need to save, pay a mortgage, or pay payroll taxes, so there's 40 THOUSAND DOLLARS a year you don't need to generate.

A $100k income family will probably get $30k a year in SS (assuming two spouses)...

So their investments need to generate the other $30k... So "only" $750k is needed. And that gives them the exact same lifestyle as they had while working making $100k a year (which is a pretty nice lifestyle in most of this country)

Now, most of us want a cushion... Health care costs are always a concern... So we shoot for more...

But I could easily retire on a million and a paid off house... I will admit I am shooting for 2 million and a paid-off house, so I have a great cushion, and the wife will be happier with a few more luxuries (mostly more trips for vacations or to visit children/grandchildren)

Very true. And I would add that most of those $100K working families have kids that cost good chunk of that income until they leave the nest. So in reality, that couple probably only needs $40K-$50K of income to maintain the same lifestyle in retirement, and most of it will come from SS. I think that's the main reason why there are so many happy retirees living on much less than $1M or $2M in the bank. It is nice to have a cushion, that's why we save, but shooting for $2.5M is unrealistic and unnecessary for most people.

dbr
Posts: 21533
Joined: Sun Mar 04, 2007 9:50 am

Re: Do you really need 2.5 million to retire well?

Postby dbr » Wed Mar 11, 2015 2:02 pm

trueblueky wrote:+1
With SS and its COLA, $2.5 million is far more than most people need to maintain their lifestyles.


But that is not retiring "well." But seriously, the question is not answerable without a quantitative definition of "well." Previous posts have put some numbers to the problem. If the question is really about what level of consumption means one has retired "well," then it would have been better to say so.

Grt2bOutdoors
Posts: 15871
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Do you really need 2.5 million to retire well?

Postby Grt2bOutdoors » Wed Mar 11, 2015 2:23 pm

Maybe I missed it, but it seems that the survey was directed to folks who have a long way to go until they reach retirement? It's probable that those answering the survey were thinking that inflation will raise their cost of living and expenses to a $100K requirement. If you believe the Social Security Trustees report that future benefits will be about 75% of the estimated full amount, that would mean a couple earning $100K today would receive about $2,250 per month (assumes 25% benefit cut, spousal benefit of 50% of reduced amount of $1,500) leaving a shortfall of $73,000 after-tax. Further assume, couple have no pension other than 401k/IRA and taxes cost roughly 25% - that gets you to a $100K annual withdrawal from retirement plan - a 4% withdrawal rate and wa-la! $2.5 million is needed in the till. That's how they are getting to that surveyed number. Is it right? who knows, all I know is my next door neighbor retired on a defined benefit plan (public sector) paying $80K a year and is in early 50's, how much is that worth?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

User avatar
Peter Foley
Posts: 3807
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: Do you really need 2.5 million to retire well?

Postby Peter Foley » Wed Mar 11, 2015 2:53 pm

My estimate for my wife and me was $1.5 million. The premises were that I would have a small pension that would be somewhat indexed to inflation and my wife would not, and we would continue to live our fairly modest lifestyle. The $1.5M is assets in investment, not net worth.

Of course, another critical data element is age of retirement. I was aiming for age 60 while my wife would retire at age 55-56. Part of the plan was (is) to delay SS until full retirement age.

If one is retiring relatively young with no pension, delaying SS, and paying for a good health care plan for a number of years, I could see where $2.5M would not be extravagant. There could be a fairly rapid draw-down the first 10 years.

ShiftF5
Posts: 746
Joined: Wed Jan 11, 2012 8:59 pm

Re: Do you really need 2.5 million to retire well?

Postby ShiftF5 » Wed Mar 11, 2015 3:14 pm

HomerJ wrote:Even moderate to high earners don't need that much... Here's the example I often use...

$100k family
saves $10k a year
pays $24k a year on a mortgage
pays $6k in payroll taxes

really living on $60k a year...

In retirement, you won't need to save, pay a mortgage, or pay payroll taxes, so there's 40 THOUSAND DOLLARS a year you don't need to generate.

A $100k income family will probably get $30k a year in SS (assuming two spouses)...

So their investments need to generate the other $30k... So "only" $750k is needed. And that gives them the exact same lifestyle as they had while working making $100k a year (which is a pretty nice lifestyle in most of this country)

Now, most of us want a cushion... Health care costs are always a concern... So we shoot for more...

But I could easily retire on a million and a paid off house... I will admit I am shooting for 2 million and a paid-off house, so I have a great cushion, and the wife will be happier with a few more luxuries (mostly more trips for vacations or to visit children/grandchildren)


I think these numbers are much more like it.

With $2MM, $3MM, $5MM+ being discussed here -- let's remember most people (97%?) will never get anywhere close to those numbers.

Just sayin'.

Flashes1
Posts: 780
Joined: Wed May 07, 2008 7:43 am

Re: Do you really need 2.5 million to retire well?

Postby Flashes1 » Wed Mar 11, 2015 3:26 pm

ShiftF5 wrote:
HomerJ wrote:Even moderate to high earners don't need that much... Here's the example I often use...

$100k family
saves $10k a year
pays $24k a year on a mortgage
pays $6k in payroll taxes

really living on $60k a year...

In retirement, you won't need to save, pay a mortgage, or pay payroll taxes, so there's 40 THOUSAND DOLLARS a year you don't need to generate.

A $100k income family will probably get $30k a year in SS (assuming two spouses)...

So their investments need to generate the other $30k... So "only" $750k is needed. And that gives them the exact same lifestyle as they had while working making $100k a year (which is a pretty nice lifestyle in most of this country)

Now, most of us want a cushion... Health care costs are always a concern... So we shoot for more...

But I could easily retire on a million and a paid off house... I will admit I am shooting for 2 million and a paid-off house, so I have a great cushion, and the wife will be happier with a few more luxuries (mostly more trips for vacations or to visit children/grandchildren)


I think these numbers are much more like it.

With $2MM, $3MM, $5MM+ being discussed here -- let's remember most people (97%?) will never get anywhere close to those numbers.

Just sayin'.


But remember that people on this board are not represenative of the general population. Based on the "2014 Net Worth" thread, our NW puts us solidly amongst the elite of the USA.

MathWizard
Posts: 2456
Joined: Tue Jul 26, 2011 1:35 pm

Re: Do you really need 2.5 million to retire well?

Postby MathWizard » Wed Mar 11, 2015 3:29 pm

From the article:

Investors surveyed by the global investment management firm said they will require an average of $2.5 million in retirement to enjoy the quality of life they have today.
...
the 458 investors surveyed
...
Despite their above-average savings rate, these investors are worrywarts. On average, they told Legg Mason they spend an hour and 20 minutes worrying about money each day.


So among 458 investors: not a large pool; they are investors, not the general public; and they are worried (a lot)
$2.5 Million was chosen by them.

So paraphrasing:
This is just opinion among a small group of people who are "worrywarts".

There is also no mention of whether this is $2.5 Million real or nominal.
Over 30 years, real vs. nominal makes a huge difference.

I expect to be in the $1 to $1.5 MM at retirement (in today's dollars) , and expect to do just fine.

User avatar
HomerJ
Posts: 9789
Joined: Fri Jun 06, 2008 12:50 pm

Re: Do you really need 2.5 million to retire well?

Postby HomerJ » Wed Mar 11, 2015 3:33 pm

Peter Foley wrote:Of course, another critical data element is age of retirement.


This is a good point... My goal is $2 million (and a paid-off house) at 55...

Now, if I hit $2 million at 53-54... I may retire a year early (or more likely, look for part-time work)...

If I hit 55 and I'm still "only" at $1.8 million, I may retire anyway (or more likely, look for part-time work).

rocko
Posts: 76
Joined: Thu Mar 05, 2015 5:19 pm

Re: Do you really need 2.5 million to retire well?

Postby rocko » Wed Mar 11, 2015 3:40 pm

Not to be a downer but...
using history as a guide, what impact would a catastrophic event - stock market crash, world war, 9-point quake in major U.S. city, terrorist attack, etc - have on those in retirement?

FredL
Posts: 210
Joined: Fri Jan 23, 2015 8:48 pm

Re: Do you really need 2.5 million to retire well?

Postby FredL » Wed Mar 11, 2015 3:41 pm

The OP did not come up the 2.5 million from thin air. Here is the report from CNBC
http://www.cnbc.com/id/102489894

User avatar
Aptenodytes
Posts: 3734
Joined: Tue Feb 08, 2011 8:39 pm

Re: Do you really need 2.5 million to retire well?

Postby Aptenodytes » Wed Mar 11, 2015 3:41 pm

Surely all these survey results tell you is what level of savings the respondents are aiming for. So it is a measure of projected lifetime savings, that's all. You can't infer anything at all about what anybody needs.

A tiny number will have so much money they will admit to not needing it all. A tiny number (I'm sure Legg Mason isn't aiming for them) will be so poor that they will say they need more than they can realistically get. Everyone else will have brought their ambitions into alignment with their capabilities, and say they need a number that is pretty close to what they can plausibly achieve. To answer any other way would be pretty wacko.

User avatar
Will do good
Posts: 477
Joined: Fri Feb 24, 2012 8:23 pm

Re: Do you really need 2.5 million to retire well?

Postby Will do good » Wed Mar 11, 2015 4:20 pm

dguad4 wrote:I'm 9 years into my working career and have barely eclipsed the 200k mark. I feel I am a longggg way from 2.5m ugh.


You will be amaze how fast time flies. You'll get there sooner than you think. Save now and you'll be happy in the future.

My 30+ years in the working world went by in a blink.

:beer

surfstar
Posts: 1369
Joined: Fri Sep 13, 2013 12:17 pm
Location: Santa Barbara, CA

Re: Do you really need 2.5 million to retire well?

Postby surfstar » Wed Mar 11, 2015 4:41 pm

Flashes1 wrote:
ShiftF5 wrote:
HomerJ wrote:...

But I could easily retire on a million and a paid off house... I will admit I am shooting for 2 million and a paid-off house, so I have a great cushion, and the wife will be happier with a few more luxuries (mostly more trips for vacations or to visit children/grandchildren)


I think these numbers are much more like it.

With $2MM, $3MM, $5MM+ being discussed here -- let's remember most people (97%?) will never get anywhere close to those numbers.

Just sayin'.


But remember that people on this board are not represenative of the general population. Based on the "2014 Net Worth" thread, our NW puts us solidly amongst the elite of the USA.


Aww, crap. I think I have to leave now :(

Dandy
Posts: 4518
Joined: Sun Apr 25, 2010 7:42 pm

Re: Do you really need 2.5 million to retire well?

Postby Dandy » Wed Mar 11, 2015 5:46 pm

Of course a lot depends on if you live in a high cost area, have a pension and what age you retire. The historic low interest rates don't help retirees but low inflation does.

When I retired in a high cost area with a pension at age 60 and no debts I figured I would need about 2.2 million to have a safe retirement until age 90 - investing with a moderate allocation. That was probably a bit conservative but funding 30 years even with a pension is no walk in the park.

Many will retire with no pension and perhaps earlier than they want. The trend is to put burdens formerly held by companies or government on the individual. First defined pensions went away - some to cash balance plans, then some stopped matching 401ks and who knows what changes to SS and Medicare will be made for those currently working. The pace of change in business, global competition and an aging population are difficult issues to deal with. The net result will likely be more will fall on the individual - so save/invest like a champ.

GerryL
Posts: 1216
Joined: Fri Sep 20, 2013 11:40 pm

Re: Do you really need 2.5 million to retire well?

Postby GerryL » Wed Mar 11, 2015 6:04 pm

dguad4 wrote:I'm 9 years into my working career and have barely eclipsed the 200k mark. I feel I am a longggg way from 2.5m ugh.


To make yourself feel a little better, go find a compound interest calculator on the web and plug in a few numbers to see the effect of sticking with it -- even with modest monthly investments and, say, 6% interest rate.
(Here's one: http://www.investor.gov/tools/calculato ... calculator).

The early years are a slow slog. The growth can be hot and heavy in the later years. Don't despair.

User avatar
Sheepdog
Posts: 4600
Joined: Tue Feb 27, 2007 3:05 pm
Location: Indiana, retired 1998 at age 65

Re: Do you really need 2.5 million to retire well?

Postby Sheepdog » Wed Mar 11, 2015 6:15 pm

NOPE!
However good or bad a situation is, it will change

GoldenFinch
Posts: 1145
Joined: Mon Nov 10, 2014 11:34 pm

Re: Do you really need 2.5 million to retire well?

Postby GoldenFinch » Wed Mar 11, 2015 6:31 pm

rocko wrote:Not to be a downer but...
using history as a guide, what impact would a catastrophic event - stock market crash, world war, 9-point quake in major U.S. city, terrorist attack, etc - have on those in retirement?


I was just thinking about this as I was reading these posts. So what if you retire at 58 with 1.8 M and an economic disaster happens sort of like 2001-2009. Obviously you will not starve, but I think the stress would be really be awful.

rocko
Posts: 76
Joined: Thu Mar 05, 2015 5:19 pm

Re: Do you really need 2.5 million to retire well?

Postby rocko » Wed Mar 11, 2015 6:47 pm

^ "Yes" about the stress of anticipating a cataclysmic event. Yesterday, here in California they had several news reports about the near-term likelihood of an 8 point quake in Los Angeles.

These are so many bad things that could happen. But it does no good to dwell as there is not much we can do about it except to protect our loved ones and get our finances in as best shape as we can.

KlangFool
Posts: 5287
Joined: Sat Oct 11, 2008 12:35 pm

Re: Do you really need 2.5 million to retire well?

Postby KlangFool » Wed Mar 11, 2015 6:52 pm

Folks,

Sorry to say this. In order for a person to retire, a person will have to survive multiple rounds of recessions first. Through each recession, a person could be unemployed or under-employed for a long period of time. So, until 65/67, this is about 20 to 30 years.

Yes, we have many older folks at this forum that no longer need to worry about this. For younger folks, they need to survive first before even thinking about retirement.

People are too optimistic if they believe they only need to think about retirement.

KlangFool

JLJL
Posts: 361
Joined: Wed Jan 08, 2014 11:10 pm

Re: Do you really need 2.5 million to retire well?

Postby JLJL » Wed Mar 11, 2015 6:54 pm

snowman wrote:
HomerJ wrote:Even moderate to high earners don't need that much... Here's the example I often use...

$100k family
saves $10k a year
pays $24k a year on a mortgage
pays $6k in payroll taxes

really living on $60k a year...

In retirement, you won't need to save, pay a mortgage, or pay payroll taxes, so there's 40 THOUSAND DOLLARS a year you don't need to generate.

A $100k income family will probably get $30k a year in SS (assuming two spouses)...

So their investments need to generate the other $30k... So "only" $750k is needed. And that gives them the exact same lifestyle as they had while working making $100k a year (which is a pretty nice lifestyle in most of this country)

Now, most of us want a cushion... Health care costs are always a concern... So we shoot for more...

But I could easily retire on a million and a paid off house... I will admit I am shooting for 2 million and a paid-off house, so I have a great cushion, and the wife will be happier with a few more luxuries (mostly more trips for vacations or to visit children/grandchildren)

Very true. And I would add that most of those $100K working families have kids that cost good chunk of that income until they leave the nest. So in reality, that couple probably only needs $40K-$50K of income to maintain the same lifestyle in retirement, and most of it will come from SS. I think that's the main reason why there are so many happy retirees living on much less than $1M or $2M in the bank. It is nice to have a cushion, that's why we save, but shooting for $2.5M is unrealistic and unnecessary for most people.


I like Homer's posts on this one as well.

rocko
Posts: 76
Joined: Thu Mar 05, 2015 5:19 pm

Re: Do you really need 2.5 million to retire well?

Postby rocko » Wed Mar 11, 2015 7:23 pm

KlangFool wrote:
... For younger folks, they need to survive first before even thinking about retirement.

KlangFool


So true. This is why I introduced my children to Vanguard and its concepts and involved them in setting up an account with their tiny savings.

Professor Emeritus
Posts: 2628
Joined: Mon Aug 13, 2012 6:43 am

Re: Do you really need 2.5 million to retire well?

Postby Professor Emeritus » Wed Mar 11, 2015 9:32 pm

DaftInvestor wrote:
rocko wrote:Does an overview amount like 2.5 for retirement typically include equity value of a home?


I exclude home in my calculations since I'm NOT planning on selling it to pay for retirement. .


A more useful analysis is to look at your home as a source of both imputed rent and as your housing expense.

Assume you have 50K in retirement income and you have a house of $200,000 or $600,000
either has an net imputed rent of 6% per year. http://en.wikipedia.org/wiki/Imputed_rent

In the first case you are spending 12,000 of $62,000 in retirement income on housing, a very comfortable
19-20% in the second case you are spending $36,000 of your $86,000 income on housing which is over 41%.

Whatever you do, you should not fool yourself on your housing costs.
Last edited by Professor Emeritus on Thu Mar 12, 2015 4:37 am, edited 1 time in total.

User avatar
obgyn65
Posts: 770
Joined: Sun May 06, 2012 9:11 am

Re: Do you really need 2.5 million to retire well?

Postby obgyn65 » Thu Mar 12, 2015 4:32 am

Not sure what "retiring well" means. It may mean different things to different people. In my case, I think I can retire "well" on $50k net a year. As my NW is greater than 2.5m, I am retiring this summer, at age 50.
"The two most important days in someone's life are the day that they are born and the day they discover why." -John Maxwell

User avatar
DaftInvestor
Posts: 2082
Joined: Wed Feb 19, 2014 10:11 am

Re: Do you really need 2.5 million to retire well?

Postby DaftInvestor » Thu Mar 12, 2015 6:59 am

Professor Emeritus wrote:
DaftInvestor wrote:
rocko wrote:Does an overview amount like 2.5 for retirement typically include equity value of a home?


I exclude home in my calculations since I'm NOT planning on selling it to pay for retirement. .


A more useful analysis is to look at your home as a source of both imputed rent and as your housing expense.

Assume you have 50K in retirement income and you have a house of $200,000 or $600,000
either has an net imputed rent of 6% per year. http://en.wikipedia.org/wiki/Imputed_rent

In the first case you are spending 12,000 of $62,000 in retirement income on housing, a very comfortable
19-20% in the second case you are spending $36,000 of your $86,000 income on housing which is over 41%.

Whatever you do, you should not fool yourself on your housing costs.


My comment was in response to someone asking if they should include their home-equity into the "$2.5 Million" number so believe you are taking my comment a bit out of context assuming I am not including housing costs. I absolutely include housing costs as part expenses but will own my home during retirement ( so I include Property taxes, Home Owner Insurance, Maintenance as part of costs) - but do not include home equity as part of savings as I don't want to plan on tapping into it. I don't see the point in calculating imputed rent and then charging myself for it. I don't plan on renting out my house and why over-complicate the calculations. I also don't plan on taking out a reverse-mortgage or any type of equity-line on my house. This would be good as a last resort but my retirement plan doesn't count on this.

invst65
Posts: 252
Joined: Thu Nov 27, 2014 11:04 am

Re: Do you really need 2.5 million to retire well?

Postby invst65 » Thu Mar 12, 2015 7:07 am

According to CNN Money there are only 1.8 million Americans in the U.S. with a net worth over 2 million and the median family net worth of those age 65-74 is $206k.

So if it really takes 2.5 million to retire well I guess not very many will be doing it.

User avatar
1210sda
Posts: 1117
Joined: Wed Feb 28, 2007 8:31 am

Re: Do you really need 2.5 million to retire well?

Postby 1210sda » Thu Mar 12, 2015 7:49 am

I went to the Legg Mason website and found the following:

"The U.S. portion of the Legg Mason Global Investment Survey was conducted among 458 affluent investors with a minimum of $200,000 in investable assets not including their home."

"Average age: 58; Average Savings in Retirement Plan: $385,000 "

“Given their ambitious goals, investors hopefully have considerable savings elsewhere, such as significant equity in their home or other investment accounts, where their asset allocation is designed to help them achieve their long-term goals. Otherwise, reaching their $2.5 million goal could be extremely challenging.”

My Observations:

1. These were considered "affluent investors", but had only $385,000 in their retirement plan just 7 years away from the traditional retirement age of 65.

2. They felt they needed $2.5M. Using a 4% SWR, the $2.5M would generate $100,000. Add say $40,000 to that for social security and no pension, that's $140,000. That amount divided by 70% (the typical reduction at retirement) means they are currently getting around $200,000 in annual income. And still they only have $385,000.

3. For $385,000 to grow to $2.5M in 7 years necessitates an annual return of more than 30%.

4. IMO, this wasn't a survey on perceived retirement needs.....rather a survey on how clueless some folks are. :(

1210

EnjoyIt
Posts: 1147
Joined: Sun Dec 29, 2013 8:06 pm

Re: Do you really need 2.5 million to retire well?

Postby EnjoyIt » Thu Mar 12, 2015 8:06 am

It all depends on what your goals are in retirement.

With no debt in a normal COL area, someone can be relatively comfortable on $50K/yr. On a dual income family, social security should provide most if not all of that. But if you want little more such as fancy vacations, new cars, that number will rise. What about if you want to retire early? What about healthcare costs?

Although you can get government paid healthcare, my experience shows that depending on the facility, government paid healthcare is OK, but much to be desired. My point being that you may require increased funds to bridge the gap between medicaire and what a person may desire. In old age, you may need an extra $50K/yr to bridge that gap.


Return to “Personal Finance (Not Investing)”

Who is online

Users browsing this forum: Braje, Carl53, learnfinance, Yahoo [Bot] and 38 guests