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Old 02-22-2013, 03:08 PM
 
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to argue that a millionaire today means two leased accords, zero savings and a 35k pension is crazy talk. As I stated, well less than 10% of US households have a net worth of one million or more. It is not as commonplace as some like to believe.
Exactly. Zero savings and a $35k pension means that if you need something for a single year that costs more than $35k, then you have to go into debt to get it. A million in the bank and living on $35k in interest (3.5% return) means that if you need something for a single year that costs more than $35k, you can buy it without going into debt.

You can also up your returns by taking on slightly more risk.

You can turn your $1m $35k interest return into a $50k income by selling some relatively safe assets (CDs/bonds) and buying other relatively safe assets (riskier bonds).

You would have to lever up your $35k yearly pension to an extra $15k with day trading extremely risky penny stocks or via lotto tickets.

Oh yeah: you could also take $35k per year from your $1m in funds for more than 28 years before you were penniless, assuming no return whatsoever.

Last edited by TheOverdog; 02-22-2013 at 03:21 PM..
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Old 02-22-2013, 03:17 PM
 
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it is a benefit having the money some times instead of the pension but you also run the risk that your own returns will fall short of allowing you to draw that 35k inflation adusted like the pension. . you also run the risk that you or your spouse will break methuslas record.

bad markets , higher inflation or rates can see that million expire well before you do . the pension is cola adjusted and goes on as long as you do and possibly as long as your spouse does.

there are advantages to the cash and advantages to the pension.

by the way you can not figure 28 years on 3.5% withdrawls inflation adjusted without equities as a given ,not that 28 years is enough to plan anyway.

not only do you need at least 30 but you may need way more then that ,plus you need money for emergencies and unexpected expenses.

when you have equities the sequencing is very very key and thats why a simple how long will my money last calculator is so wrong.

as bill bernstein points out ,imagine a hypothetical retirement where the sequencing is the first 15 years your up 30% a year and the next 15 years your are down 10% every year.

you would have been able to draw 24.6% a year over 30 years and not run out of money. in fact you would have quite a bit left.

thats an 8.17% average annual return.

now put 15 years of -10% first followed by 15 years of up 30%

same exact 8.17% average return in both cases but if you drew more than 1.86% you would have gone broke within 30 years.

thats an amazing range.

sequencing risk even exists with money in the bank not just equities. that is why throwing some numbers into a simple reverse amortization calculator using an average return is way off base.

Last edited by mathjak107; 02-22-2013 at 04:27 PM..
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Old 02-22-2013, 05:05 PM
 
Location: Santaluz - San Diego, CA
4,484 posts, read 7,875,677 times
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Originally Posted by stoutboy View Post
. It is not as commonplace as some like to believe.
I don't think anyone here is saying it's "commonplace". All we are saying is that being a "millionaire" is not much to write home about compared to decades ago and decades from now it will mean even less.

Saying there aren't many millionaires doesn't imply that it makes that amount all the more special compared to the past. In fact, more people could probably be on the path to become millionaires if they were better with their finances and spending habits just like the book mentions.

But that won't change the fact that being a "millionaire" today isn't as special as it once was and it will keep getting worse. I'm not sure how anyone can argue with that point.
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Old 02-22-2013, 05:08 PM
 
64,653 posts, read 66,158,228 times
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you really do not realize how little 1 million gets you over a life time until you plan your retirement , especially if you want to retire befor 65 and have to pay for medical. once you reach retirement it is no longer about the pile of money. it becomes only about the income stream it generates and the success rate that you can generate it with.

im retiring at 62 and right off the bat our medical is 15k plus. had we retired earlier that really would have had us burning through quite a bit of cash.

that medical is 1//2 the income from 1 million bucks right there.
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Old 02-22-2013, 05:46 PM
 
1,862 posts, read 2,876,947 times
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Originally Posted by earlyretirement View Post
I don't think anyone here is saying it's "commonplace". All we are saying is that being a "millionaire" is not much to write home about compared to decades ago and decades from now it will mean even less.
There is a risk we are talking past each other, but the fact remains that someone who achieves a financial goal that well over 90% of Americans will never accomplish has attained a significant achievement. It is certainly worth the cost of a stamp for that letter home. Yeah, I get that inflation erodes purchasing power. See my previous posts. But go ahead and naysay that paltry million if it motivates you to achieve even more. I certainly hope to myself, but if/when I reach that mark I will definitely breathe a lot easier.
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Old 02-22-2013, 05:52 PM
 
1,862 posts, read 2,876,947 times
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Quote:
Originally Posted by mathjak107 View Post
you really do not realize how little 1 million gets you over a life time until you plan your retirement , especially if you want to retire befor 65 and have to pay for medical. once you reach retirement it is no longer about the pile of money. it becomes only about the income stream it generates and the success rate that you can generate it with.

im retiring at 62 and right off the bat our medical is 15k plus. had we retired earlier that really would have had us burning through quite a bit of cash.

that medical is 1//2 the income from 1 million bucks right there.
Medical is the big unknown, absolutely, particularly in the US. But it can be managed in several ways. As for myself, I will retire as a fed employee, so I won't be paying anything close to 15k per year for health care. And if I were in that situation I would retire overseas. (I still may do that). Excellent medical care is readily and reasonably available in many countries that also offer a great quality of life in other ways.
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Old 02-22-2013, 08:11 PM
 
Location: Santaluz - San Diego, CA
4,484 posts, read 7,875,677 times
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Quote:
Originally Posted by mathjak107 View Post
you really do not realize how little 1 million gets you over a life time until you plan your retirement , especially if you want to retire befor 65 and have to pay for medical. once you reach retirement it is no longer about the pile of money. it becomes only about the income stream it generates and the success rate that you can generate it with.

im retiring at 62 and right off the bat our medical is 15k plus. had we retired earlier that really would have had us burning through quite a bit of cash.

that medical is 1//2 the income from 1 million bucks right there.
BINGO!! I pay almost $1,600 a MONTH now for my own insurance for my family. I know many of you that retired early don't have kids or if you do they are out if the house. But for some if us that retired earlier in life and self insured its a nightmare to deal with healthcare costs. And it just keeps going up.

Mathjak nailed it as usual. Once you really take a look at the numbers planning your retirement it's nothing to write home about. And the sad thing is in a few decades retiring as a multi-millionaire might not be anything special either if you are retiring early in life.

I always get a kick out of reading some Money Magazine personal profiles of people that think they are doing great and retiring with $1.5 million or more only to be told by a professional that they won't have enough and need to work beyond 65. It shocks them.

Yeah a million bucks SoUNDS like a lot for retirement but really it's not. That's the sad reality. People are living longer and longer.

Quote:
Originally Posted by stoutboy View Post
Medical is the big unknown, absolutely, particularly in the US. But it can be managed in several ways. As for myself, I will retire as a fed employee, so I won't be paying anything close to 15k per year for health care. And if I were in that situation I would retire overseas. (I still may do that). Excellent medical care is readily and reasonably available in many countries that also offer a great quality of life in other ways.

MOST people don't retire with the federal government with a generous pension. Pensions are like dinosaurs these days. And don't think that overseas healthcare is always great. I've lived overseas many years. Yes there are excellent options but typically the best healthcare providers are as expensive as the USA.

Yes some counties have socialized medicine and "free" healthcare but you will find out the medical care sucks and the hospitals are disgusting in many of these places.

Sure if I had a pension I'd be singing a different tune on retiring as a millionaire meaning something significant. I would LOVE a pension but like I said.... That is rare these days. Especially for those of us retiring earlier in life.

Last edited by earlyretirement; 02-22-2013 at 08:43 PM..
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Old 02-22-2013, 08:39 PM
 
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Federal pensions aren't that great for most. It averages between 25-30k. By far the biggest benefit imo is that we get to keep our health insurance. And the TSP 401k is another. Life is all about the choices we make. Back when the economy was booming my friends in the private sector thought I was a chump for making the career choice I did. Now they sing a different tune.

I know exactly how health care is overseas, because I have spent many years abroad. From the perspective that matters most to anyone who isn't very well off, it is better in virtually every other industrialized country. The only area where the US has the edge is in specialized care. I don't know where you lived, but the best providers overseas are generally nowhere near as expensive as here. Most of Western Europe and even southeast Asia (Thailand, Philippines, Malaysia, etc) provide much better value. I went to one of the best hospitals in Bangkok for an annual physical, did a huge array of blood work, lab tests, scans for a third of what I would've paid here in the US.


Quote:
Originally Posted by earlyretirement View Post
BINGO!! I pay almost $1,600 a MONTH now for my own insurance for my family. I know many of you that retired early don't have kids or if you do they are out if the house. But for some if us that retired earlier in life and self insured its a nightmare to deal with healthcare costs. And it just keeps going up.

Mathjak nailed it as usual. Once you really take a look at the numbers planning your retirement it's nothing to write home about. And the sad thing is in a few decades retiring as a multi-millionaire might not be anything special either.

I always get a kick out of reading some Money Magazine personal profiles of people that think they are doing great and retiring with $1.5 million or more only to be told by a professional that they won't have enough and need to work beyond 65. It shocks them.

Yeah a million bucks SoUNDS like a lot for retirement but really it's not. That's the sad reality. People are living longer and longer.




MOST people don't retire with the federal government with a generous pension. Pensions are like dinosaurs these days. And don't think that overseas healthcare is always great. I've lived overseas many years. Yes there are excellent options but typically the best healthcare providers are as expensive as the USA.
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Old 02-22-2013, 08:49 PM
 
Location: Santaluz - San Diego, CA
4,484 posts, read 7,875,677 times
Reputation: 1960
Quote:
Originally Posted by stoutboy View Post
Federal pensions aren't that great for most. It averages between 25-30k. By far the biggest benefit imo is that we get to keep our health insurance. And the TSP 401k is another. Life is all about the choices we make. Back when the economy was booming my friends in the private sector thought I was a chump for making the career choice I did. Now they sing a different tune.

I know exactly how health care is overseas, because I have spent many years abroad. From the perspective that matters most to anyone who isn't very well off, it is better in virtually every other industrialized country. The only area where the US has the edge is in specialized care. I don't know where you lived, but the best providers overseas are generally nowhere near as expensive as here. Most of Western Europe and even southeast Asia (Thailand, Philippines, Malaysia, etc) provide much better value. I went to one of the best hospitals in Bangkok for an annual physical, did a huge array of blood work, lab tests, scans for a third of what I would've paid here in the US.

Oh you were VERY wise to have chosen the path that you did. Worth so much more than most private sector jobs for the most part. $30,000 guaranteed each year PLUS the health insurance is potentially worth millions over a lifetime. Not only that but some states don't tax you anything at all on pensions so it is potentially tax free income.

Close your eyes and imagine that your pension and healthcare benefits are gone. Could you honestly tell me without those things you would think $1 million was anything special? I seriously doubt it.

Congrats. You made a wise decision! Sometimes I shake my head in disbelief. I just read about a Navy Seal that was about 3 or 4 years from a guaranteed pension and he quit. Sheer stupidity.

Yes I agree that most places actual medical procedures are MUCH cheaper because they don't have the liability issues which lowers healthcare costs. However it's one thing to pay for simple test, bloodwork, or physicals vs. having some major health issues or cancer. Many times you still need excellent private insurance. And if you don't it can be the difference between life and death.

If you are very healthy it can be affordable. But if you aren't and develop a serious illness it can mean bankruptcy or worse death.

I have plenty of clients in Canada or Europe or other places with socialized medicine that pay for private and expensive coverage. And I'm speaking as a former healthcare executive.

Last edited by earlyretirement; 02-22-2013 at 09:07 PM..
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Old 02-22-2013, 09:06 PM
 
1,862 posts, read 2,876,947 times
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I read about that guy too, supposedly the SEAL who got bin Laden. I'm not sure what was up with that. The reporter didn't seem to have a clue how the military operates, or how its retirement works, because he portrayed that guy's situation in the worst possible light, and the Navy takes it on the chin. I have no idea why he didn't re-up and finish out his 20. I think there is likely more to the story. The SEAL did seem incredibly clueless about money matters, though, and I remember a lot of enlisted guys just like that back when I was in the service. Sad.

Well, don't get me wrong, I'm certainly glad to have the pension and most of all the health insurance. But who knows how long I'll live after I retire? That's why I'd prefer the million in hand, and hopefully I'll have a good deal more. It's not me making all that money by the way. DW works too.

Quote:
Originally Posted by earlyretirement View Post
Oh you were VERY wise to have chosen the path that you did. Worth so much more than most private sector jobs for the most part. $30,000 guaranteed each year PLUS the health insurance is potentially worth millions over a lifetime. Not only that but some states don't tax you anything at all on pensions so it is potentially tax free income.

Close your eyes and imagine that your pension and healthcare benefits are gone. Could you honestly tell me without those things you would think $1 million was anything special? I seriously doubt it.

Congrats. You made a wise decision! Sometimes I shake my head in disbelief. I just read about a Navy Seal that was about 3 or 4 years from a guaranteed pension and he quit. Sheer stupidity.
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