If you are paying high taxes in retirement, I think the risk of depending on the government to take care of you is extremely low. Seems to me the “we have $4-5 million in savings but are worried it might not be enough” concept is another example of the disconnect of many on this site from reality.
^^^^ Amen.
If you’re really concerned about 4-5 million not carrying you through, I suggest you work on reducing your spending now (I mean REDUCE in the typical non-$4-5 million way) so you can avoid being in the “poor house” where a good % of the population is and will be if you’re talking Medicare or other government insurance subsidies.
So if 4M won’t go that far for you? What is? Our target is about that or 5M. But who knows if we can reach it. But this statement plus the previous one got me worried.
Wouldn’t that mean that most retirees are in the “poor house”, because they would be in financial difficulty without Medicare and Social Security?
Someone who does not feel that they can rely on Medicare may feel that they need to self-insure medical costs, in which $4 million that seems like a lot (and it is a lot at the 96th+ percentile) with Medicare may seem like just a few medical bills away from running out of money. But is that the scenario that people are thinking about?
I think the number to make someone feel “rich” can be completely different for different people. If you have high levels of debt, expensive spending habits, high medical costs and taxes, your number may be far higher than someone else’s.
We still have a long ways to go on our mortgage, seem to have high monthly expenses, feel like we’re taxed out of our minds, and though our net worth, income and pension should be fine, I don’t trust that it’s all not going to fall apart for some reason. Tax the rich! Medical costs skyrocket, pensions disappear, who knows? I think I’d say if we had our mortgage paid off and double our net worth, then maybe I’ll feel rich.
I think that if this country gets back on track, I can feel comfortable with our retirement assets/income.
As for right now however,
I’m not counting on continuing Medicare and Social Security.
I’m not counting on the stock market continuing to hold and go up.
I’m not counting on our corporate and state pensions to continue to exist. Bankruptcies. are always a possibility.
Real estate value is not a given either
I have lost faith in this country’s future and stability after the past 4 years. I am hopeful this will be turned around in 2021, but until that happens, I continue to be pessimistic.
Understand, but you have the ability to pick and choose what you sell first. You could start with a tIRA for example and leave the taxable equities for the heirs to obtain a stepped-up basis.
Stepped-up basis for taxable accounts is generally 100% for community property states, absent such things as prenups and wills that specify otherwise.
Corporations can file bankruptcy petitions. And if they do, pensions are typically impacted. PBGC steps in to help but there are limits in terms of payments to pension holders.
City/municipalities can file bankruptcy petitions too. And some have pension liabilities. Same issues in terms of pension holders.
But currently there is no provision for a state to file a bankruptcy petition. Would take an act of Congress to change that. Was talked about briefly in 2008/09 but nothing came of it. So right now, state pensions are not subject to reduction in a bankruptcy.
If you’re worried with a paid off house in the Bay Area, and a 5M$ retirement fund, then the sky is falling. God bless us all!
We’ve certainly demonstrated during Covid Crisis that our expenses are much lower if we never travel and rarely leave the house. Not much fun, but wow the Visa bill is a lot lower.
Living more simply in recent months has shown us a more realistic idea of what our monthly expenses would be in retirement. The Visa bill is reduced, but unexpected car repairs and medical copays were a large proportion of our expenses. The “$&*% happens” fund needs to be larger.
Then again, I look at DH’s paystub and realize many of the things we have deducted won’t happen in retirement, and that makes the replacement ratio of pension/SS/401k numbers (even if taxable) look more reasonable.
I don’t expect DH will retire before 70, so we have a bit of time to ride out short-term storms.
From that perspective, $100K in current income doesn’t “really” equal $100K either. So what’s your point? $100K in a retirement account taxable upon withdrawal is the same as a paycheck for $100K, except that the $100K in the retirement account continues to grow on a tax-deferred basis until you withdraw it. Not such a bad deal in my book.
Just for the heck of it, I plugged some numbers into Schwab’s RMD calculator. If I had $5 million in a retirement account, my annual required minimum distribution when I retire would be around $218K. By the time I’m 90, this would grow to $451K. I don’t expect to live that long, but my wife probably will. That’s a pretty handsome income, even after taxes…
In fact, our investments aren’t all in retirement accounts. Some is in tax-free municipal bonds, and some is in cash which isn’t taxable apart from a modest level of interest, but cash doesn’t grow at anything like the rate of a tax-deferred retirement account. The rest is in after-tax investments which will be taxed at the lower capital gains rate. Taxes are the least of my worries when I retire.
What we have isn’t all in retirement accounts either.
My only point is that our assumption that we would be in a lower tax bracket in retirement years may prove to have been incorrect. Or, at a minimum, that the rate won’t be as low as we thought it would be. I do understand your point about growth on a tax-deferred basis.
I’m not sure we can count on the tax structure, rates, brackets, etc being the same going forward.
It’s nice you are not worried about taxes, @bclintonk. I worry about everything. 
EDIT: I also just used $100k as a nice round number pulled out of the air.
I was thinking of being on Medicaid when I wrote dependent on the government for care.
I’ve stated before that I worry much more about Medicare than SS. We are not factoring SS payments into our planning at all. If we receive them, it’ll be gravy. But, I AM looking forward to getting that Medicare card! And, yes, I worry about that scenario - being a few medical bills away from running out of money. Because I worry that Medicare won’t be there either. See upthread - I worry about everything.
I just want to add that we are not big spenders. The only exception to this is travel, but only a few trips a year pre-COVID, and mostly for me not H.
I can’t even remember the last time that I bought new clothes. We own one car, a 6 year old Subaru. We give generously to charities and political campaigns. We also live in a relatively small house that is only expensive because it is in a nice neighborhood in San Francisco.
We have always saved a lot rather than spent a lot.
So enough of the “you are so arrogant BS”. We know we are fortunate, but NO, we are not feeling rich. We worry about where this country is heading.
True on picking and choosing what you sell.
There are only nine community property states.
Inflation would likely eat into that pretty heavily, of course.
Yes, 9 community property states, with AK having some special community-type rules.
Regardless, residents of the other 40/41 still receive stepped up basis on half of property held in joint accounts, including home ownership. If for example, one has $1m in unrealized cap gains in taxable accounts, $500k generally becomes tax free upon the death of first spouse. Surviving spouse could cash that in to live on, keeping the other (original cost basis) $500k for the kids/heirs and/or donations to favorite charities.
(Assumes no changes to tax law.)
Yes, this was what I said in post 17296 - 1/2 gets a step-up in basis. Which is certainly better than nothing for sure! But, as I indicated above, it’s your parenthetical that adds to my list of things to worry about tax-wise.