I’ll play the, “How much is a ‘lot’ of money?” game. I had this discussion with three girlfriends several years ago. My answer then (and still now) is $20 million. One friend said, “Oh, that’s not nearly enough.” Lol. Not sure what that meant.
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No question one size does not fit all and retirement planning doesn’t come down to a single number. There are many nuances that - if you want to really not run out of $ later in life - you need nailed down before you stop working. Schwab and Fidelity both have checklists that I found helpful.
My mom spend about 10 years in an assisted living facility. No, it wasn’t cheap but, she didn’t have a car, wasn’t traveling so her annual expenses were about the same as when she lived alone in her house for a few years after my dad passed.
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That 4% rule implies perpetuity (living on interest and leaving principal in tact). That’s fine for some but many will be perfectly happy spending down principal as well, provided they don’t outlive their money. You may only earn 3%-4% but want to withdraw 5%-6%. It won’t last forever but it will get you 30 yrs down the road. The challenge is always withdrawing in bad market yrs as once those shares are sold, they’re sold and it takes more of them to form the cash needed. Important to know which funds to access and when.
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Don’t forget that some social security is also taxable. I think some people think it’s free money. Also there’s no guarantee it will be there forever so people who live solely on that really need to consider that as well. The biggest issue however is if people are living “check to check” and not actually still saving or have money for a major event they can really set themselves up for trouble. I don’t mean your parents, I mean anyone. Many people want to live in retirement the same way they lived before.
@deb922 Don’t worry about not feeling savvy. Many people think they are when they’re not and then run into trouble. Many people also think it’s easy or a guarantee they can earn 4% on their investments when that’s not always the case. That 4% rule assumes you will never tough the 100k principal. If in a taxable investment one also had to pay taxes on that 40k. It is possible they may owe none if in the zero bracket but unlikely because it is unearned income as opposed to earned which can hurt if you live in a state that has income taxes especially.
As we’ve been saying it’s all relative. But it’s always best to save for a rainy day. I know many people who have lost their houses because of an unexpected event and when you have to choose one thing over another it’s difficult. Look what covid has done for some people. Depending on the industry people are in some have taken a beating. Not able to pay mortgages or banks calling in loans. Hospitality especially getting blown out. This should be a lesson for all that nothing is guaranteed.
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not quite. The 4% is based on the first year only, and assumes a 60/40 portfolio. The successive years include inflation AND acknowledge that one will have to dip into principal when the assets are having a down year. Yes, the concept is that you should not run out of money by year 30. So if you live 35+ years, or retire early, you could be SOL. Also note, teh study was based on historical bond yields from 20+ years ago, and bonds are much lower now.
Well, $20m is a lot to some, but depending on her age, her lifestyle, her needs and travel expectations, maybe it isn’t! Lol
Wow, congrats on beating cancer. 10 years out is no small feat! My mom definitely has brain fog from chemo, but also some of it is normal age related. We kind of laugh when my father repeats stuff and then complains that my mom is constantly repeating stuff. Parents, lol. I’m lucky I have two siblings and while one lives out of state, we are in this together. My husband is an only child and his mother is in her 90’s and is very hostile. I’ve read that this a common characteristic of dementia. I don’t know if I would say she has dementia but she definitely has some memory issues. She is verbally abusive to him and while he loved being an only child for years, he is not loving it right now and sadly based on her behavior has some pent up resentment toward her. Some of it goes back to his childhood that has never been addressed, but can’t really do anything about it now.
After my divorce I was able to go on cobra which while expensive was a phenomenal plan my ex husband had because he works for the State. Our kids thus also have unbelievable insurance. They’re covered until 26 and not sure they’ll ever realize how lucky they were. I took advantage of staying on the cobra for the full 3 years I was allowed. Since then I have been on so many different plans. Single plans, then plans with my now husband, then plans with me as the member, ACA etc. Bottom line is always making sure we have good coverage and keeping our doctors even if it may cost us more. Fortunately, we have been able to but it can be a financial drain absolutely.
Your folks were lucky to have your brother nearby. I think that is so key. I also think that makes a huge difference in some of the expense as well in just not having some of the waste that comes along with assisted care, etc. My MIL lives in independent living for now but needs some more care. Not assisted, but definitely needs some type of caregiver whether it be part-time for a few hours a week even. But what her needs are and what she thinks she needs are part of the issue.
My parents are lucky they can stay in their house, however, I would love for them to move to a smaller house where there is less likelihood of a fall occurring, maintenance, etc, but no go on that one. I’m the only girl so it will fall upon me to deal with it all and I will do it with a smile :). For my kids, I have told them that there are many things I will never do to them. I don’t want them to ever feel like their life is on hold because of me, (that’s not happening in my case, just a comment), I will make sure they know my plans, I will never put them in the position of having to decide where they think I want to go, etc.
I hope I don’t need to make plans any time soon for our care, as we have so much living we still want to do, but hopefully we too can make it with a caregiver or however we want it on out terms. 
You are talking aspirations. I am talking reality. That is some of the privilege disconnect that comes through often on this board.
I think there are a lot of people who depend on social security for all/substantially all of their retirement income who understand its not guaranteed to be around forever. But its not like the vast majority of those people were living high off the hog in their younger years and just weren’t disciplined enough to save more for retirement. And they understand that you can’t always get what you want.
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Not basing this on a study of historical yield and performance, just simple math. Let’s make even more simple. If you had $1M and received 0% interest (net of fees blah blah blah), your 5% withdrawal would last 20 yrs. Longer at 1% ROR, longer at 2%, etc, etc. 3% gets you 29.x yrs. 3.5% gets you 32.x yrs. Of course if you were fearful of running out you take a little less.
I’m not suggesting this as THE strategy, just as an example of how not to be fixated on perpetuity. In the real world, my clients will tell you the least of their concerns is making sure their kids get 100% of their liquid net worth pre distribution. In fact, if they get anything, that’s a plus. Most have already taken care of that with paid up life policies so the kids will get the death benefit and M&D can enjoy ALL of their money.
There are NO exacts in retirement income planning as no one knows how long they will live. On the other hand, I think it’s ridiculous to assume everyone will live to 95+ and set up a distribution strategy accordingly. Overwhelming odds of leaving much enjoyment on the table.
Regardless of assets, most of my clients start that first conversation from a position of fear. “We won’t have enough”. They’re 60ish at the time. When they see that their 1M or 2M or whatever will last a minimum of 20 yrs guaranteed (cash) with a 5% withdrawal rate they can breathe. Then add 3.5% rate of return and that gets them into their 90s. Take a little less and it goes further. It’s not static. The point is, most folks have plenty of resources to continue their lifestyle, they’re just not organized properly and/or for longevity.
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If someone lives on $40k per year, but has an income significantly higher than that, that person is likely to be a “prodigious accumulator of wealth” (as Stanley and Danko would say) or someone doing the FIRE lifestyle.
$40k per year is 46th percentile individual income and 29th percentile household income in the US, so plenty of individuals and households are living on that much or less, so it can be done. But most people making significantly higher incomes increase spending to consume all available money, preventing them from saving much for retirement or other long term goals (like kids’ college).
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Found out recently that one of our friends, the husband has been diagnosed with Alzheimer’s. At 68.
Their dog had passed away a couple of years ago. They decided not to get another, he had just retired after a successful military career and a second career. At 62. They were going to travel and enjoy life for a while.
I met their new dog today.
Even though we are are planning for 90, remember that we need to remember that life is short sometimes also.
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Right so what I was trying to ask/say is if someone is living on 40k, that’s fine if they’re able to, as clearly plenty are, but how easy is it for them to get to the $1m in savings in order for them to have the 40k to live off of? If their income all along was 40k, then their social security is certainly not going to be 40k/year. So that’s really the question. Plenty of people can live on 40k, but where will they get the 1m in “principal” for which to get the 40k. Let’s even assume there are no taxes or anything like that just for ease of purposes.
That is just awful. My brother has a friend who was diagnosed in early 50’s with Alzheimers. I cannot imagine. That’s just rough.
Obviously, if someone’s income is $40k (after income and payroll taxes) and they spend $40k, they are not likely to be saving anything.
But if someone’s income is $60k (after income and payroll taxes) and they spend $40k, then they have $20k to save and invest each year. If the investments make 6% per year, then 30 years of saving and investing will end up with over $1.5 million.
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Possibly, but I don’t see too many people making 60k/year actually saving 20k of it. And if they’re sending anyone to college and start to accumulate wealth like that then they won’t be getting as much aid as they’d like so that plays a role there too.
Often those with more money spend more money. Someone making 60k isn’t going to just live on 40k and save 20k. A single person maybe. But still not easy. I remember when my first husband and I had no kids and our combined income was in the 50’s when he was a resident. He was not paying any loans at that time. We lived in a cheap town/state. Our expenses were nominal. Health insurance was free - for everything, including prescriptions. We could live like kings, yet we still couldn’t live on only 40k and we saved a lot, never went out, there was just nothing to do there and he worked all the time. Our housing was also not expensive.
It really all comes down to choices. People can choose to save for retirement and end up with sums that make it possible, even comfortable. People can choose to live below their means. People can choose to live in locations that allow them to live cheaper or earn more money. We all make choices in life. I could easily live in areas of this country on 40k a year. I purchased my first house 25 years ago on a salary of 40k a year. I have not always earned a lot of money but I have always saved money. I will be able to retire with a substantial amount of retirement income because of saving and not spending every dime I’ve made. I have also lived life. Maybe because I grew up with less money I was more motivated to save and plan for later in life. So, it can be done. And even though I once saved while making just 40k a year I will have substantially more income in retirement because I have consistently saved. People make life choices.
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Just because you can live off $40k per year in retirement doesn’t mean you earned only $40k or even $60k while working.
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Absolutely, retirement income income could be substantially less than your salary because you could have much lower bills. You might not need as big a house, a new vehicle, “work” clothing, gas money, lunch money, etc. I could easily cut my income in half and live comfortably in retirement and still travel, etc.
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Millions of people live on $40k. Though if you are paying $20k/year in real estate taxes, you are not likely to know many. And in retirement they will live on less than $40k/year. They will spend less. Its not some type of hypothetical to figure out of its possible. Its literally being done by millions of people very day. Ones I know seem happy. But maybe they aren’t really and should feel bad about their lives?
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