In the 1990s equity returns were unsustainably high and in the oughts they were (hopefully) unsustainably low. Additionally, there are far too many variables to construct a plan that does not leave a healthy amount of wiggle room.
The first number debunked was planning to "spend 70% of your current income in retirement." People should be able to do a simple inventory of fixed expenses to figure out what expenses might reasonably go down after retirement and what expenses might reasonably go up after retirement to see what their own reality might be. Surely some people can get way below 70% if there is no longer any installment debt.
The article did not really get into any of the obstacles that I think exist here. There are often one-off expenses that come along like car repairs, vet bills, a serious repair to the house and anything else you can come up with. This, more than anything else, cries for wiggle room.
For example a retired couple needing $3000 per month from their portfolio where that $36,000 equals 5% of the portfolio, not the 4% that gets debunked later, who then needs $15,000 for something major on their house after last month shelling out $1200 for a crown at the dentist who next month was finally going to take a long planned trip to some interesting destination in a year that the stock market happens to go down 20% could have a serious problem.The next number debunked was the 4%. A big problem that far too many people have is simply spending way beyond 4%. I know people of do this, have seen the impact on people when this has gone wrong and many who are guilty of this know they are taking the risk but don't seem to care (or maybe I am misreading the lack of regard?).
The way I think of it is whatever you got, 4%. More specifically 1% per quarter. If you can get by on a lower number then all the better. This is where the consequence of not having saved enough should come home to roost. Assuming 4% a $600,000 portfolio generates $24,000 "safely." That is a very low number for someone living a $100,000 lifestyle. Someone in this boat could easily take out $50,000 a year early all the while telling themselves they will take out less when they're older. This is very common and very likely to result in something drastic and forced in a few years or so.
The next number was the age of 62 for collecting social security. Obviously the longer you wait, up to a point, the more you get. One of the big things that will have to change, I've been writing about this forever, is people will need to work longer to compensate for inadequate savings. As I have also said this does not have to mean making top dollar, relative to your earning power, in a job you hate. Be creative and figure out a way you can make some sort of income that is sufficient to relieve some of the burden from your portfolio or in the context of this post, sufficient enough to leave some wiggle room.
The final number debunked (although it probably was debunked long before this article) was $1 million in savings to fund a comfortable retirement. 4% is obviously $40,000. How much do you make now? How much do you want to live on for the rest of your life? And relative to those numbers what does $40,000 do for your plan? If that does a lot for you (it would for us) then you are all set if not then something else has to be done or something will have to give.
There is nothing that seemed factually incorrect in the article but I do believe a different focus is warranted. To paraphrase a Woody Allen quote I've used before; there is no retirement planning issue that was made worse by saving more money. Unexpected stuff comes up for everyone all the time. Take a look at your Quicken file, how many "unexpected" items are in there that were more than $500 (or any number significant to you)? These things are rarely accounted for in planning but will not stop when you retire.
The other thing is living below your means. The stock market is not really in our control but living below our means is. That might be difficult for some people to do right now but over time this can be brought under control. Things like driving a car for five years (or longer) past when the loan is paid, staying in $150 (or less) hotels on vacation instead of $300 hotels, buying some of your clothes as Costco (nothing wrong with their $14 jeans); the list is endless.
The above are obviously how I come at this. The bigger macro is that this is a problem to be solved and the hopefully innovative solution is unique to everyone's lifestyle and interests. This is why I so frequently mentioned my now-79 year old neighbor and his backhoe and occasionally write about some other very quirky ideas.
9 comments:
I'm watching a slow motion train wreck happen up close and personal. These people are paying a "financial advisor" 1% to give them the ok to spend 6%. Sigh, I am obligated to pick up the pieces down the road. What's worse, these folks are only in their late 60s. They have not made any provisions for long term care either.
In a way, they are a reflection of our spoiled politicians who can control spending either. It must be a generational thing.
I meant to say cannot control spending
WH, I don't understand, why are you obligated to pick up the pieces?
Parts of that article were a bit odd to me. You should counteract a 4% withdrawal rate by...investing in TIPS? What?
Other "magic numbers" they didn't mention that need to be rethought IMO are: social security benefits may not be around (at least at the current level), tax rates on investment income, the standard 3% inflation rate (if we get several years of double digit inflation you can throw every financial plan into the trash) & the asset mix of stocks and bonds only (any advisor not recommending at least 5% into precious metals is setting themselves up for a lawsuit).
My plan is to get a job in the government. Does not matter what I actually do, sit around most of the day anyway.
If I was still under 25 I would have joined the guard. Did not realized the huge benefit you get at taxpayer exense just by joining the national guard and playing rambo on weekends.
The secret to retirement is to steal taxpayer money, this means either to be in the goverment or in wall street.
the national guard comment is pretty asinine.
Anon 6:11, Roger was too charitable. You're not asinine, you're an insensitive idiot.
If you want to "play Rambo", you can take my son's place when he deploys again to Afghanistan on 9/27. He just got back from his first tour to Afghanistan this past April. Two years ago he was in Iraq.
The biggest demon is your health costs. A broken hip, cancer, dementia and any number of other things can completely wipe out your nest egg, much less kill you.
That is a nice picture of your dog. Can you tell me what camera you are using?
Dan
it is a friend's camera; Nikon D...not sure the number.
i may be wrong but i don't think a broken hip typically causes the type of financial wipeout that the other things do although it probably is a marker for other problems
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