Million dollar NW poverty in retirement ?

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skor99
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Million dollar NW poverty in retirement ?

Post by skor99 » Sat Dec 02, 2017 12:40 pm

https://www.cnbc.com/2017/11/30/even-a- ... ymore.html

Any truth to this or just scaremongering by vested interests ? Per the commonly available statistics, Most people do not have anything close to $1MM and no or very little pensions when they retire and yet they survive without starving on the streets. Granted the bulk of remaining private pensions are disappearing but are things going to change that drastically ?

Chip
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Re: Million dollar NW poverty in retirement ?

Post by Chip » Sat Dec 02, 2017 12:48 pm

They conveniently forgot to mention social security.

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Smorgasbord
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Re: Million dollar NW poverty in retirement ?

Post by Smorgasbord » Sat Dec 02, 2017 12:57 pm

Looks to be some creative use of inflation numbers to come up with a click-bait headline. While it's probably true that retiring in 2052 with just $1 million (in 2052 dollars, assuming 3% inflation) will a bit tight, it's not much different than retiring in 2017 with $340k in the bank (in 2017 dollars).

If they wanted to be even more sensational, they could have talked about how BILLIONAIRES are going to be retiring in poverty (in 2290).
Last edited by Smorgasbord on Sat Dec 02, 2017 1:04 pm, edited 1 time in total.

inbox788
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Re: Million dollar NW poverty in retirement ?

Post by inbox788 » Sat Dec 02, 2017 1:01 pm

"there are only two ways to overcome million-dollar poverty, Avallone said: Earn more or spend less."
What about moving from high cost of living area to lower one? (i.e. NYC -> FL)

It matters plenty if you own your home and whether it's a $200k or $600k neighborhood.

And isn't the rule of thumb here $2M for a comfortable retirement? Which if the 4% SWR holds, you should remain above the median household annual income.

So if all you have is $1M and no other income sources, it's quite possible you'll run out of funds in your later years. And sadly, a lot of folks will have less.

RadAudit
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Re: Million dollar NW poverty in retirement ?

Post by RadAudit » Sat Dec 02, 2017 1:09 pm

inbox788 wrote:
Sat Dec 02, 2017 1:01 pm
And isn't the rule of thumb here $2M for a comfortable retirement? Which if the 4% SWR holds, you should remain above the median household annual income.
About 10 years ago, if memory serves, it was $1 mil. What'll it be in 2052 is anyone's guess.
FI is the best revenge. LBYM. Invest the rest. Stay the course.

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JoMoney
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Re: Million dollar NW poverty in retirement ?

Post by JoMoney » Sat Dec 02, 2017 1:15 pm

skor99 wrote:
Sat Dec 02, 2017 12:40 pm
https://www.cnbc.com/2017/11/30/even-a- ... ymore.html

Any truth to this or just scaremongering by vested interests ? Per the commonly available statistics, Most people do not have anything close to $1MM and no or very little pensions when they retire and yet they survive without starving on the streets. Granted the bulk of remaining private pensions are disappearing but are things going to change that drastically ?
...a 67-year-old baby boomer retiring now with $1 million in the bank will generate $40,000 a year to live on adjusted for inflation and assuming a sustainable withdrawal rate of 4 percent, said Mark Avallone, president of Potomac Wealth Advisors
$1 million dollars / $40,000 a year = 25 years ... that's with zero growth other than keeping up with inflation. A TIPS ladder would guarantee to do better than just inflation. If after 15 years, at age 82 the person took their remaining $400,000 (again assuming zero real growth) used it to buy a SPIA at current rates it would generate over $50k a year guaranteed the rest of their life.
...It's worse for a 42-year-old Gen Xer, whose $1 million at retirement will only generate an inflation-adjusted $19,000 a year when all is said and done. And a 32-year-old millennial planning to retire at 67 with $1 million would live below the poverty line.
May be true, but the younger folks should probably be looking at a goal that includes a step up in inflation and not some fixed dollar amount in non-adjusted dollars. Most people talk in terms of 'x' income/expenses like "having 25x expenses" saved. For a 67 year old today, $1 Mil is 25x $40,000 a year ... for someone setting a future goal look at trying to reach the 25x expenses not the $1 Mil number.

Most people are willing to take a little bit of risk beyond TIPS, and I think can reasonably expect better than inflation returns.

Historically, if someone was 67 today, but started saving when they were 27 in Vanguard's 500 fund (VFINX) and put $75 a month away, increasing it with inflation along the way.. today they'd have over a $1 million saved.
Will returns be different in the future? Nobody knows.

Incidentally, saving $75 a month in 1977 dollars would be the equivalent of saving $355.08 a month in current inflation adjusted dollars.... which would be roughly equivalent of saving 10% for someone making $40,000 a year.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

inbox788
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Re: Million dollar NW poverty in retirement ?

Post by inbox788 » Sat Dec 02, 2017 1:55 pm

RadAudit wrote:
Sat Dec 02, 2017 1:09 pm
inbox788 wrote:
Sat Dec 02, 2017 1:01 pm
And isn't the rule of thumb here $2M for a comfortable retirement? Which if the 4% SWR holds, you should remain above the median household annual income.
About 10 years ago, if memory serves, it was $1 mil. What'll it be in 2052 is anyone's guess.
One million or 2 million is all dependent on you retirement living expenses, so there's no magic number, but for the average or median retiree, it's a good simple reference point. While I was searching BH threads on this matter, Google searchers were asking:
Searches related to how much to retire million site:bogleheads.org
is 3 million enough to retire at 55
is 2 million enough to retire at 55
is 2 million enough to retire at 50
FWIW, I've been using $2M at age 65.
And if you're a number cruncher, here are a bunch around $1.6M and variations (just noticed it's Australia, but numbers are numbers):
https://www.superguide.com.au/boost-you ... retirement

Also I came across this thread poll:
Retiring with $2 million? Poll question
viewtopic.php?t=103036
BH respondents are quite a fortunate group.

The old real estate adage, location, location, location may also apply here. And if you can't make it work in a low cost of living are with $1M, maybe you can "Live in Mexico for $5 a Day?"
http://www.banderasnews.com/0802/vl-liveinmexico.htm

delamer
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Re: Million dollar NW poverty in retirement ?

Post by delamer » Sat Dec 02, 2017 3:17 pm

inbox788 wrote:
Sat Dec 02, 2017 1:01 pm
"there are only two ways to overcome million-dollar poverty, Avallone said: Earn more or spend less."
What about moving from high cost of living area to lower one? (i.e. NYC -> FL)

It matters plenty if you own your home and whether it's a $200k or $600k neighborhood.

And isn't the rule of thumb here $2M for a comfortable retirement? Which if the 4% SWR holds, you should remain above the median household annual income.

So if all you have is $1M and no other income sources, it's quite possible you'll run out of funds in your later years. And sadly, a lot of folks will have less.
Not aware of any such rule of thumb. Talking about income and assets in a vacuum without comparing them to expenses is meaningless.

heyyou
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Re: Million dollar NW poverty in retirement ?

Post by heyyou » Sat Dec 02, 2017 3:49 pm

And savers who are already living below their means in order to save, are also practicing living on less income for their retirements. It is a convoluted message, since one way to save for retirement is by ignoring all of the advertising in that media channel.
Since Aesop's Fable about the ant and the grasshopper, is near two millennia old, perhaps the concept of current workers needing to save for retirement, is not a new idea.

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Veiled
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Re: Million dollar NW poverty in retirement ?

Post by Veiled » Sat Dec 02, 2017 3:58 pm

I think there are a few issues with this article.
1. A million dollars sounds like an impossible number to most Americans not familiar with quality personal finance, and the article preys on that. Were people more familiar with saving, investing, inflation, and withdrawal this article would not pack nearly so big a punch.
2. As others have said, the article totally ignores the effect that living expenses play in preparing for and living in retirement.

I don't think ignoring SS is as big a deal as some suggest.
Pardon me as I read these one hundred and fifty-seven SP vs LLC vs Scorp threads...

IMO
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Re: Million dollar NW poverty in retirement ?

Post by IMO » Sat Dec 02, 2017 4:06 pm

Chip wrote:
Sat Dec 02, 2017 12:48 pm
They conveniently forgot to mention social security.
The article fails to mention a number of viable other things.

Interesting reading this retired very early blogger's situation (not MMM), he seems to have no problem with raising a family of 4 on
less than $40K per year with a car/vacations. I think his house is paid for, but in the article's example, there should be $40K coming from the $1 million, and social security would provide enough to pay rent or mortgage in a LCOL area. This guy is gaming the system via a loophole that basically has him paying nothing for healthcare (even though he literally has non-real estate assets of $2 million).

So as it stands, even if it were $40K per year, that's probably essentially free of any significant income taxes and probably would qualify for significant ACA subsidies making health care no/low cost. So maybe not a life of luxury and not traveling to see the world, but I suspect this person won't be living in a cardboard box under a freeway underpass.

Definitions of poverty in the US seem so different that poverty in other parts of the world.

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LadyGeek
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Re: Million dollar NW poverty in retirement ?

Post by LadyGeek » Mon Dec 04, 2017 7:31 pm

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